Threatened or impending lawsuits can often prompt consumers on the verge of financial disaster to take a serious look at something they've been trying to avoid--declaring bankruptcy. Many just want to know whether filing for bankruptcy means they can stave off a costly lawsuit. Unfortunately, there is no black and white answer. Instead, consumers have to answer questions about their own individual case.
Should I answer the complaint?
It's a good idea. The law typically presumes that if you don't answer the complaint brought against you, you're agreeing with the arguments in the lawsuit. If nothing else, defendants can request more time to answer the complaint while they decide whether or not bankruptcy is an option.
What happens if I do nothing?
If you fail to file an answer, the plaintiff who brought the suit can ask the court for an automatic entry of judgment in the amount stated in the complaint. If no specific amount is stated, the plaintiff will then need to submit proof of the amount of damages; generally, if you failed to answer the complaint, you will not be allowed to participate in the hearing to set the damages.
Do I have to file bankruptcy before my creditor gets a judgment?
The first thing to keep in mind is that it can take weeks if not months after filing the original lawsuit for a credit to actually obtain an executable judgment. Many jurisdictions have certain time periods which create an absolute minimum of time required to be met.
Generally speaking, a debt represented by a judgment is just as dischargeable as the same debt prior to entry of judgment. Meaning that if you file bankruptcy after the close of the lawsuit, you may still be able to declare bankruptcy and get relief against that debt.
Is bankruptcy the solution?
Typically speaking, no one single debt should drive someone to decide to file bankruptcy. Consumers should consider their total financial picture to decide whether bankruptcy provides adequate relief for them. If non-bankruptcy alternatives do not appear to be helpful in a particular case, then a bankruptcy attorney should be consulted as soon as possible to discuss whether bankruptcy is the right solution.