10 Mar Been sued? Talk with your lawyer.
“I just got served papers for a repo car from 2007. I made copies of it for my paperwork, but I am not sure what to do.”
I just got this message from a client. The office is working with him to prepare his chapter 7 bankruptcy filing but he is not yet ready to file, and he has just been served with a complaint for the deficiency left after a repossessed car was sold by the creditor for less than the contract note. What should he do, he asks.
My general advice is that a debtor should not “let” a default judgment happen, if it can easily be avoided. Don’t let a default judgment happen without discussing its implications with your lawyer. A default judgment is the judgment a judge can give the creditor when the defendant fails to show up and participate in the lawsuit. While court rules in some circumstances permit that defendant to go back in and challenge the judgment later, no one should count on that. Stopping a default from happening does mean entering a appearance in the lawsuit in some effective way.
Why do this if the debtor expects to file a bankruptcy and discharge any possible deficiency debt?
Who knows what will happen between now and the discharge of debts pursuant to a bankruptcy? What if the debtor has an unexpected delay in filing, and, with a default judgment, the creditor is able to garnish wages? Or place liens on property? Yes, some of these consequences can be remedied in a bankruptcy, but usually at some expense of time, money and energy, resources a debtor can find hard to muster.
What if the debtor has a problem getting the debt discharged? Usually things do not go bad for a client, who is working well with his attorney, but what if the client has forgotten something critical, or failed to tell the attorney something, and, in the end, the debt is not discharged? (And if the debtor is pro se, not working with a bankruptcy lawyer, there are greater odds of problems happening.)
And what is lightning strikes and money somehow comes to the debtor, and a bankruptcy is not necessary in the end? (Okay, this is much less likely, but still… keep it in mind.) The debtor at that point will probably owe more on that deficiency judgment than would have been owed had he not defaulted, and been able to address it under the more controlled circumstances of a bankruptcy proceeding.
I’ll be talking with my client later today. If you have a bankruptcy lawyer, be sure to talk with her, too.
For more posts on this subject, see How Does Repossession Work, http://www.bankruptcylawnetwork.com/2009/12/18/how-does-a-repossession-work/, and Karen Oakes’s post on notice and default judgments, http://www.bankruptcylawnetwork.com/2009/07/31/you-never-got-notice-of-being-sued-the-judge-just-may-believe-you-now/.
Gini Nelson is a Santa Fe, New Mexico bankruptcy lawyer who helps people file (or avoid) chapter 7 bankruptcy.
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