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I’ve Been Sued!

Nothing makes one’s stomach tie up in knots faster than being served with a creditor lawsuit. It’s hardly ever a good thing when the sheriff or constable is looking for you to serve you with legal documents. So, you’ve been sued. Now what? There are basically three options you can choose:

  1. Respond to the lawsuit and defend yourself against it.
  2. Do nothing and wait and see what happens.
  3. File bankruptcy to stop the legal proceedings in their tracks.

Lawsuit Defense:

There are defenses to a creditor lawsuit. They include denying the debt is yours (maybe fraud or identity theft); the debt is too old to be collected under state law (statute of limitations defense); or that the suit is brought by a party that doesn’t have a right to collect on the debt (standing defense). While all of these may be worthwhile defenses and may help you out of that particular lawsuit, is there another one right behind it? You will need an attorney to help you with these strategies and that can be costly if you sit back and handle one case at time. Why handle one creditor at a time and pay attorney’s fees each time? This “pay-as-go” approach can be costly and nerve racking as you wait and see who is next to come looking for you in court!

Doing Nothing Approach:

If you choose to do nothing, then that lawsuit is likely to turn into a default judgment. That default judgment may then be collected a number of ways to include a garnishment on your non-exempt property that may include your cash accounts. It is also likely to be recorded in the county where you have property so that it can follow you around for 10 years, only to be renewed when that 10 year period is up. The default judgment will also show up on your credit report. A default judgment is a “head-in-sand” approach that doesn’t work very well and doesn’t provide any final resolution.

Filing Bankruptcy:

Two of the sweetest words in bankruptcy are “automatic stay.” This means just as soon as you can notify the court where the lawsuit is pending, the lawsuit proceeding stops in its tracks. The underlying debt is likely dischargeable in the bankruptcy and so the lawsuit is essentially resolved with the bankruptcy filing. Have more debt to file bankruptcy for? This is a “two (or more) birds, one stone” approach that could make more economical sense if you are looking to spend your legal dollars wisely. If you hire an attorney to handle that one lawsuit but you know you have so many other creditors out there looking for you, why not resolve all of it at once with a bankruptcy filing for the cost of what defending that one lawsuit would set you back?

Call us now at Bailey & Galyen for your free bankruptcy consultation to see if we can help you today. We have over 40 years combined legal experience. Remember, your choice in attorney matters. Please call our office TODAY at 800-234-9524 or use the online contact form to schedule a free consultation.

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Is My Credit Ruined FOREVER?

Unless you are being romantic, the word “forever” is so…final. So one of the most asked questions about filing bankruptcy is “Will my credit be ruined forever?” and the answer is “No.” Yes, a bankruptcy case stay on your credit report for up to ten years. But once you file bankruptcy and receive your discharge, your debt-to-income ratio is greatly reduced. This means that your total outstanding debt as compared to your income decreases.

As a result of the discharge, you are no longer legally liable for that debt (barring some exceptions under bankruptcy law), so that means your debt as reported on your credit report after the bankruptcy discharge, essentially goes down to zero. And this means that your credit rating will gradually start to improve even if the bankruptcy filing is still on your credit report.

Now, it’s not all hearts and flowers. You will now be considered a “subprime borrower” and will likely pay higher interest rates. It is likely, however, that you are already in credit trouble if you are reading this article. Post bankruptcy filing, you are still a credit risk. But if you file a Chapter 7, you are not eligible to file another Chapter 7 for eight years so creditors see this as less of a risk in extending new credit. If you file a Chapter 13, it may take a while longer for you to see the benefits because you will have to be in a repayment plan between thirty-six and sixty months but it will happen. Pointing out to a new potential creditor that you learned to live within your budget, paid back a portion of your old debt to your creditors and completed a Chapter 13 will make you less likely to stand out as a credit risk post bankruptcy. A bankruptcy discharge also means that a new creditor is not competing with your old creditors for payment.

Establishing credit after bankruptcy can take between 18-24 months and debtors should start with small accounts and avoid predatory lenders like payday loans and really high interest rate credit cards. But it is possible to improve your credit score after bankruptcy and get that fresh start for you and your family!

If you believe that you are ready to take control of your debt and work on improving your credit, please call our office today at 800-234-9524 or use the online contact form to schedule a free consultation.