I Was Served, I Think I Am Being Sued. I Need To File Bankruptcy In The Next 5 Minutes So They Don’t Take Everything.

First of all, take a deep breath. I understand that receiving notice of a lawsuit can feel like a rather dramatic experience. Often times, the complaint is filled with aggressive legal vernacular that is pretty scary. However, if there is one thing you take away from this post, remember that everything in the legal system is a process. Several steps must be taken before a final outcome can be achieved (in this case, a judgement and possible garnishment against you) and that these steps take time. So, lets consider the prospect of lawsuits in bankruptcy a little closer.

The commencement of a lawsuit brings many clients into my office. It’s no wonder, as it is easier to ignore past due notices than court enforced garnishments of your wages. However, a lawsuit is only an additional puzzle piece contributing to your overall financial picture and bankruptcy should usually not be pursued based on a single debt. You still must consider your entire financial situation…weigh your assets against your liabilities, consider secured versus unsecured debts.

Should I Answer the Complaint?

You may or may not consider filing a response to the complaint. The law assumes that if you don’t answer the complaint, you are agreeing to the contention of the lawsuit. You may consider filing a response if you have a legitimate defense against the lawsuit or  if you would like to delay the end result of a judgement against you in order to explore your options.

However (this if for all you flat fee bankruptcy lawyers out there) assume that, unless your lawyer has already told you otherwise, he/she will not file a response to this lawsuit unless you pay them additional fees. I have said this before, but one of the perils of charging flat fees for legal services is that limits must be placed on services provided. Unfortunately, I wouldn’t stay in business as a bankruptcy lawyer if I answered every lawsuit my clients sent me as part of my low flat fee bankruptcy serves. Thus filing a response may be prohibited by cost, especially if any judgment will be discharged in bankruptcy.

What Happens if I Ignore the Lawsuit?

If you do not file an answer, the plaintiff that brought the case against you can ask for a default judgement. The amount is determined by that set forth in the complaint, and must equate to quantifiable damages. Once this has occurred, you will receive notice of a default judgement against you. At this point, you are one step closer to possible levy on your bank accounts/garnishment of your wages…. but you still h ave time.

Once the judgement is entered, the plaintiff can obtain a lien against your assets…this is paid by taking money from your bank accounts (i.e. a levy) or taking a portion of your paycheck (i.e. a garnishment). If all of your assets and income are exempt (for example your income is from social security payments and you don’t have money in your bank accounts), they may not be able to pursue a levy or garnishment….this makes you essentially ‘judgement-proof.’ In these situations, you may choose to ignore the lawsuit all together.

I Want to File Bankruptcy to Prevent a Judgement, Can We File in the Next 10 Minutes?

Okay, I know I am being a little facetious here…but I would like to make a point. Even after your receive notice of a lawsuit, it will take some time before you are at risk for garnishments. How long, that depends on the court system, the plaintiff, your judge…..I often tell my clients weeks to months, and if they push further I tell them 30 days. However as long as you monitor the status of the lawsuit and the entering a judgment, you can likely stay ahead of any garnishment or levy.

If you have received notice of an impending lawsuit, please don’t panic. As a bankruptcy attorney, I have had countless people call me wanting to file their petition within hours of receiving a complaint and I am telling you today that this is:

1. Not Necessary: Remember, you likely still have weeks to months before this lawsuit directly impacts you though loss of assets or reduced wages.

2. Not Smart: While your bankruptcy petition should be a priority, it should not be filed prematurely. These lawsuits are not an immediate emergency, and thus the time should be taken to make sure that the petition is prepared properly to maximize your exempt assets.

3. Not Possible: I hesitate to throw this one in, but since I am a huge proponent of transparency with my clients……here you go. Many attorneys are busy. They have lots of clients, court dates and sometimes even personal engagements. Thus it may not be possible for them to drop everything to prepare and file your bankruptcy petition, especially because they know what I hope you now know – that these situations are often not emergencies. Now if you call an attorney 8 hours prior to your scheduled foreclosure, I promise they will respond a little differently.