New York consumers are sued every day for past due debts. Some of these lawsuits are settled, others go to default judgment when the consumer doesn’t show up for court or take action to defend the lawsuit. Faced with a judgment and enforcement action, the thought of filing for bankruptcy comes up.
When you receive a Summons and Complaint you may start to wonder about whether filing a Chapter 7 or a Chapter 13 makes sense. You are not alone – many people come to my office the day after they receive a Summons and Complaint in the mail.
Sometimes people do nothing about the lawsuit, other times they enter into settlements with the creditors. Sometimes they do file for bankruptcy.
The fact of the matter is that it’s not too late to file a case when you’re being sued. In fact, many people make the decision to file only after they’ve received notice of the lawsuit.
Lawsuits range from collection actions to a complex business cases, so there’s no single answer about whether you should file for bankruptcy if you’re being sued. And even if you do file, the question becomes one of what kind of case you should file. Chapter 7 is very different from Chapter 13, and everyone’s situation is different.
If you don’t answer the complaint, you lose automatically and a judgment will be entered by the court. Once a judgment is entered in New York, the plaintiff can put a lien on your assets, levy on your bank accounts and garnish your wages. In New York the creditors can take up to 25% of your pre-tax income until a judgment is paid in full (with interest). If you’ve living on the edge right now, imagine what a reduction of 25% of your pre-tax income will do!
You can avoid this scenario by filing for bankruptcy. In general a judgment in New York for an unsecured debt (credit card, personal loan, arrears on a car loan, etc.) can be discharged. But it’s important to remember that if the complaint alleged fraud or other grounds that would make a debt non-dischargeable in bankruptcy, entry of a judgment against you may prevent you from later getting the debt discharged in bankruptcy.
The decision to file bankruptcy should not be driven by the fact that you’ve been sued on a single debt. You need to look at your entire financial picture and discuss all of your options with an experienced consumer bankruptcy lawyer.
This photo of Grant’s Tomb (don’t ask me who’s buried there) is courtesy of wallyg.
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