Can You File for Bankruptcy to Avoid a Lawsuit in Pennsylvania?

If you fail to make monthly credit card payments or default on a loan, a creditor in Pennsylvania has a right to sue you in civil court. In addition to what you contractually owe a creditor, you could be required to pay additional court and attorney fees if a judgment is entered against you.

You have several options if you are sued, including fighting the lawsuit, attempting to settle the claim, ignoring it, or filing for bankruptcy to stop the suit and any other legal proceedings you are facing. Bankruptcy protects you from lawsuits and, in Pennsylvania, avoiding a judgment could have long-term beneficial implications.

Filing for bankruptcy should be a well-thought-out decision. By speaking with one of our Philadelphia bankruptcy attorneys, you will better understand the pros and cons of filing – especially if you are a defendant in a pending lawsuit. Call Young, Marr, Mallis & Associates at (215) 701-6519 to review your options during a free consultation.

Understanding Creditor Lawsuits in Pennsylvania

If you default on a contractual payment, for example, a personal loan, credit card, or medical bill, your creditor has various options available to collect the money owed. While a creditor might begin with a letter requesting payment, one of the most effective tools available is a civil lawsuit.

By filing a lawsuit, a creditor could obtain a judgment against you. In Pennsylvania, a judgment in a creditor lawsuit results in a lien against your real property, including your home. This means that if you wish to sell your property or refinance your mortgage, you will have to satisfy the judgment lien and any accrued interest. Furthermore, with a judgment, a creditor has the right to levy your bank account. In some situations, a creditor might offer a settlement option but will still move forward with the lawsuit, so it could have the security of the judgment should you default a second time. Before a judgment is entered, you should speak with our experienced Pennsylvania bankruptcy attorneys.

Pennsylvania Creditor Lawsuits and Bankruptcy

If you are in default and do not have an adequate defense, filing for bankruptcy might be your best option to stop the lawsuit and avoid a problematic judgment. Whether you file for Chapter 7 or Chapter 13, a court injunction goes into immediate effect. Commonly called an automatic stay, this court injunction stops all collection actions, including lawsuits, against you.

If you have a pending civil lawsuit, filing for bankruptcy will stop the proceedings in their tracks. As long as a judgment has not been entered, it does not matter how far the case has progressed. The moment the bankruptcy is filed, a creditor lawsuit will stop. Therefore, filing for bankruptcy could help you avoid a lien against your home or prevent a creditor from gaining access to your bank account and savings.

It is important to note that while filing for bankruptcy stops a pending lawsuit, the way your debt will be handled will depend on what chapter of bankruptcy you filed.

What Chapter of Bankruptcy will Stop a Lawsuit in Pennsylvania?

Whether you file a Chapter 7 or Chapter 13 bankruptcy, it will stop a pending lawsuit. However, people are sued for various types of debts in Pennsylvania. The kind of debt will affect what type of bankruptcy you should file. For example, if a credit card company filed a collection lawsuit, the debt is most likely unsecured and could be discharged in a Chapter 7 bankruptcy. However, if you were sued because of a secured loan, for instance, a mortgage foreclosure, you could stop the lawsuit by filing for bankruptcy but will have to file a Chapter 13 bankruptcy if you want to keep your home. Our Pennsylvania bankruptcy attorneys will thoroughly review your debt, any pending lawsuits, and your assets to provide you with experienced legal advice and guidance.

Chapter 7

Chapter 7 is the type of bankruptcy most people think of when they think of bankruptcy. After filing a Chapter 7, the majority of your debt is discharged or eliminated. As stated above, the most common debt discharged is unsecured. You could discharge a secured debt, such as a car loan, but you would have to surrender the vehicle. Once your debt is eliminated, your creditors will not have any basis to file a lawsuit or continue a pending claim in court.

Chapter 13

In Chapter 13, a debtor will make monthly payments to a court-appointed trustee for three to five years. These payments will be distributed among creditors who filed valid and timely claims. Depending on your debt, income, and assets, you could be required to file a Chapter 13. While this does not sound as beneficial as Chapter 7, it still provides many debtors financial relief. For instance, you could be sued for $80,000 in civil court but, once your assets have been valued and your monthly disposable income calculated, you might only have to pay $30,000 through your bankruptcy. Chapter 13 cases are complicated and require an experienced Pennsylvania Chapter 13 bankruptcy attorney to take full advantage of its benefits.

Avoiding Pennsylvania Court Judgments in Bankruptcy

Unfortunately, some people will not contact our Bucks County bankruptcy lawyers until after a judgment has been entered. Fortunately, there are some tools available to help a debtor even after a court-ordered judgment. Under certain circumstances, a judgment lien could be avoided if it impedes a debtor’s exemptions. For example, you file a Chapter 7 bankruptcy after a judgment of $50,000 has been entered against you. Under Pennsylvania law, you have a judgment lien against your home. If your property is worth $200,000 and you have a $190,000 outstanding mortgage, then you have no exempt equity in the property. Because the judgment lien has no exempt equity to attach to when your case is filed, the judgment lien could be removed. Avoiding a lien in bankruptcy could be challenging, especially if a creditor challenges the value of your property.

Call Our Pennsylvania Bankruptcy Attorneys Before a Judgment is Entered

Bankruptcy is an option if a creditor is suing you. However, you should file before a judgment is entered. Contact our Pennsylvania bankruptcy lawyers at Young, Marr, Mallis & Associates to discuss what steps you should take if you have been sued. Call (215) 701-6519 to schedule a confidential and free appointment.