Bankruptcy and Pending Lawsuits or Existing Judgments
Dothan Attorneys putting a stop to lawsuits and erasing judgments in Ozark, Enterprise, Cottonwood, Rehobeth, and all of Southeast Alabama
A common collection method that creditors use to recover the balance of unpaid debts is suing the debtor in court. The threat of such lawsuits is often the subject of the endless barrage of collection letters and phone calls debtors face when they fall behind on their payments. Once a debtor files for bankruptcy, the automatic stay kicks in as an injunction against any lawsuit to collect a debt. This protection encompasses both potential lawsuits that a creditor could have filed before the bankruptcy, as well as pending lawsuits that are already in existence when the debtor files the bankruptcy petition.
When such a collection action is pending before a court, a bankruptcy filing basically puts that case on hold until the bankruptcy is resolved. Notice of the bankruptcy petition will be sent to all creditors of the debtor, as well any courts in which current suits against the debtor are pending. When courts receive this notice, they usually continue the case until after the bankruptcy is finished. More often than not, the suit will ultimately be dismissed, because an essential element of any collection action is proving the existence of a debt that is actually owed. After a debt is discharged in bankruptcy, it legally ceases to exist; thus, a creditor cannot recover the debt in court. Indeed, it is a violation of federal law to pursue debts that have been discharged in bankruptcy. However, in the event that the debt is deemed non-dischargeable, then the creditor may resume efforts to pursue the claim after the bankruptcy.
Bankruptcy can also discharge judgment debts. For example, suppose a debtor is sued in a slip-and-fall case, loses the case, and is ordered to pay damages. However, the debtor is insolvent, meaning the debtor owes more than he or she has. If the judgment would financially wipe out the debtor, then the debtor may file for bankruptcy and discharge the judgment debt. A successful Chapter 7 discharge can also prevent judgment creditors from garnishing the debtor’s wages or levying against the debtor’s assets that survive the bankruptcy.
If creditors are threatening to take you to court over an unpaid debt, or have already instituted claims against you in debtor’s court, it is critical that you contact an experienced debt relief attorney right away to discuss your options. Call the expert Dothan bankruptcy lawyers at Parkman White, LLP today at 334-792-1900, or email us for a consultation. Let us put our experience to work for you.