Some people delay filing for bankruptcy for months. They may struggle to choose which debts to make payments on and may slowly fall farther and farther. Eventually, they may embrace the necessity of bankruptcy to re-balance the household budget.
Other times, a single incident is enough to make someone acutely aware of their need for financial relief. Frequently, the reason people give for filing for bankruptcy is a creditor trying to file a lawsuit against them to force them to pay. People worry about wage garnishment or losing valuable assets, so they take legal action to protect themselves.
Those who file for bankruptcy when a creditor initiates a lawsuit, but before the case goes to court, can potentially protect themselves from the negative impacts that a judgment in favor of a creditor could inspire.
Bankruptcy leads to an automatic stay
There are several types of protection extended to those dealing with major financial challenges during bankruptcy. The first benefit people derive is typically the protection of an automatic stay. The courts notify the credit bureaus of the pending bankruptcy case. An automatic stay forces a temporary halt to any attempts to collect on a debt until the courts resolve the bankruptcy filing.
The automatic stay takes effect immediately and applies not just to creditor phone calls and letters but also to lawsuits. When a hospital or credit card company sues someone because they have fallen behind on their payments, the automatic stay can result in the courts dismissing that pending lawsuit.
The filer then has an opportunity to address their debts and may be able to discharge the debt that triggered the aggressive collection efforts. Even if that debt in particular isn’t eligible for discharge, the filer may be able to avoid future litigation by discharging other debts. It may be much easier for them to remain up to date on their financial obligations when they eliminate certain unsecured debts with a successful bankruptcy filing.
Securing an automatic stay by filing for bankruptcy can provide people with immediate protection from most aggressive collection efforts, including lawsuits brought because of substantial debts. People struggling to control their financial circumstances may find that bankruptcy helps them avoid a worse financial situation by protecting them from pending creditor lawsuits.