Many people think of filing for bankruptcy as a horrible thing, something that can ruin their credit and that speaks poorly on their behalf. And, while bankruptcy typically isn’t ideal, it can actually end up being quite helpful in the long run and can enable people to have somewhat of a fresh start. Furthermore, there are actually some surprising benefits of filing for bankruptcy, especially if you do it when a lawsuit is pending or, even better yet, before a judgment against you has been obtained.
How Bankruptcy Affects Lawsuits
Sometimes, when people owe money that they cannot pay and haven’t paid, they can be taken to court and sued for the money they owe. Fortunately, however, when a person, even a person who is being sued, files for bankruptcy, something called an “automatic stay” is issued. This stay will alert all creditors, including any with whom you may be involved in a lawsuit, that bankruptcy has bee filed. As a result, the case is basically put on hold for the rest of the bankruptcy proceedings and, depending on what type of bankruptcy is filed, the debt may be discharged (Chapter 7 bankruptcy) or restructured (Chapter 13 bankruptcy).
How Bankruptcy Affects Judgments
If a person has already been taken to court and a judgment has been issued against them, these judgments may or may not be discharged or restructured as a result of a bankruptcy filing. It really depends on where you live, the type of debt involved, or if the judgment falls into a special “protected” category, such as when fraud was involved.
If bankruptcy is filed before a judgment is issued, however, the person typically has many more options and protections. Filing bankruptcy before the issuance of a judgment can help people to avoid negative actions, such as wage garnishments or levying of their assets. Early filing of bankruptcy can also keep judgments from being issued in the first place.
As you can see, more often than not, earlier is better when it comes to filing for bankruptcy. However, a lawyer is really the best person to inform you on if you should file bankruptcy and, if so, when. With the right legal advice, you can file at the perfect time- the time that is most going to benefit you financially, so it is definitely in your best interest to speak with an experienced bankruptcy attorney before you do anything else.