You've fallen behind in your bills. Maybe you had to keep using credit cards for living expenses, and now you've maxed out your credit and still can't afford basic necessities. Perhaps you experienced a car accident or sudden medical event that left you unable to work and with a pile of medical bills. It only takes a few days or weeks for the average American household to fall desperately behind on paying bills. Many times, lines of credit, credit card and old debts are the first thing you stop paying when times are financially tough.
Unfortunately, if you miss one or two payments, you're going to start getting collection calls. Some places are so overzealous that they will start calling in the days before your payment is even due. If you don't make payment arrangements or if you fail to keep an arrangement with one of your creditors, you could soon find yourself served with documentation for a civil lawsuit. Your creditor wants to sue you over how much you owe!
Lawsuits are a legal method to seek repayment
Accepting a line of credit or a loan typically involves executing a contract. When you violate the terms of that contract by failing to pay, your creditors have a right to seek compensation. Most companies will try basic collection efforts first. When those are unsuccessful, your creditors will probably pursue a lawsuit against you for the amount owed.
If the courts side with your creditor, which they are likely to do regardless of your current financial situation, you'll have another black mark on your credit score. A judgment on your credit report can keep you from accessing many forms of credit in the future. Even worse, it can result in the garnishment of your wages or even the loss of your income tax return in the future.
Sometimes, creditors make mistakes. If you made payments without your creditor applying them to your account, you may have a chance to defend against the lawsuit. Similarly, if there are issues with the contract or the lawsuit documents, you may choose to go to court. For many people, avoiding court with a creditor is a better option.
Bankruptcy provides you with an automatic stay
When you file for bankruptcy, you receive an automatic stay. This stay protects you from current, ongoing and near future collection activities. That means your creditors need to stop calling you. It also means that any civil lawsuit related to a dischargeable debt, such as credit cards, will stop until your bankruptcy goes through court.
Bankruptcy will also stop wage garnishment, temporarily halt foreclosure proceedings and even stop repossession of certain assets. If you're faced with a lawsuit from creditors or other aggressive collection tactics, it may be time to consider if bankruptcy can provide you with a fresh start.