17 Jan What If I Am Being Sued, But I Have To Wait To File My Bankruptcy?
Lawsuits filed against a person intending to file bankruptcy can pose a special problem when the bankruptcy case cannot yet be filed due to timing considerations. For most persons, this is not an issue; when they start getting sued they simply file their bankruptcy case and that is normally the end of the problem. However, if there is an important reason to wait to file the bankruptcy, the question becomes, what should be done about the lawsuits that are started before the bankruptcy can be filed?
Although it is usually a good idea to file a bankruptcy once a person knows there is no other way to address the financial issues, there are numerous reasons that could justify waiting to file the case, such as recent property transfers, a prior bankruptcy discharge, or a recent bonus received by the debtor which could negatively affect the means test. If the delay in filing is long enough, creditors might begin filing lawsuits. This is sure to create uncertainty and fear in the debtor unless he or she does something to prevent the lawsuits from turning into judgments.
One idea is to hire a lawyer to defend each of the lawsuits, but this is usually too expensive to seriously consider. Another idea is for the debtor to actually answer the lawsuit, without the help of a lawyer, to prevent a default judgment from being entered. This has the advantage of involving little or no expense at all.
An answer usually must be prepared so that it looks like the complaint that started the lawsuit, except it is captioned as an “answer” rather than a complaint. The answer should be mailed or personally served on the attorney for the creditor.
It should deny any allegations in the complaint which reasonably could be the subject of a dispute, or at least the answer should deny that the creditor is entitled to a judgment, for example, because the amount of the debt is disputed or because the debtor is willing to make a payment arrangement with the creditor. Care should be taken to prepare the answer in good faith, and not to make any statements that are not true.
In this context, the goal in submitting an answer to the lawsuit is not necessarily to win the case, but rather to prevent the creditor from quickly obtaining a default judgment against the debtor. If the creditor’s attorney receives an answer, he cannot certify to the court that no answer was received.
The case then moves to the next phase, discovery or motions, which often involves lengthy delays. Hopefully, before the time the case is ready to go before a judge, the bankruptcy case is ripe for filing. This means the debtor avoids the necessity of removing judgments after the bankruptcy discharge. It also means the debtor also avoids any unpleasant collection activity which could occur before filing if a judgment were to be entered.
Bankruptcy Law Network (BLN)
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