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Should You File Bankruptcy Before A Creditor Lawsuit Is Filed?

Posted By admin || 21-Nov-2011

Should You File Bankruptcy Before A Creditor Lawsuit Is Filed?

Filing Bankruptcy Before a Creditor Files a Lawsuit

While bankruptcy offers a tremendous amount of protection for debtors even after a creditor files a lawsuit, filing bankruptcy before any lawsuit is filed against you may be a better strategy.

Here's why:

Pre-Bankruptcy Wages Unprotected

If a creditor files a lawsuit and eventually garnishes a debtor's wages, pre-bankruptcy wages will not benefit from a bankruptcy filing.  For example, if your wages were garnished in October and you filed bankruptcy in November, any wages earned before that filing in November is "fair game" for creditors.  It's only the wages earned after your bankruptcy filing that are protected from wage garnishments .

Creditor Lawsuits May Create Financial Crunch

If a debtor allows a lawsuit to go forward without filing bankruptcy, the lawsuit could actually worsen the debtor's financial situation. For example, if a creditor wins a judgment and levies the cash in your bank account that could make it impossible to pay your rent or hire a bankruptcy attorney.  If you're considering bankruptcy, make sure you file the bankruptcy petition before any lawsuit is filed or at least before a judgment is granted to protect assets in your bank account along with wages.

Judgments Receive Priority In Bankruptcy

If a debtor waits until after a lawsuit is filed and after a judgment is won to file bankruptcy, the judgment debt may go up a level in priority.  This is especially important in Chapter 13 bankruptcy cases.  Unsecured debts which have judgments have a priority over other unsecured debt, which means the debtor may need to pay them first.

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