Financial damages from a lawsuit can cause some of the most devastating economic injuries to a defendant's finances. If you face a lawsuit that could result in serious damages, bankruptcy can help. But should you file for bankruptcy now? Or is it better to wait until the case is finalized?
The answer may surprise you. Here's what you need to know.
Why File Bankruptcy Early?
In general, most debtors should consider filing for bankruptcy before their civil case is concluded. There are a few important reasons for this.
First, this move may halt the lawsuit itself. Bankruptcy comes with something known as an automatic stay. This temporary measure stops all current and future collections efforts — usually including pending lawsuits, no matter what stage they're in.
While the stay itself isn't permanent, it buys time and may deter the plaintiff from attempting to get it waived. Even if they can receive a waiver and continue pursuing you for damages, your bankruptcy serves notice that they're less likely to get those damages. In turn, this may even convince them not to waste their money and both of your time on a lawsuit.
Second, you will likely lose at least some assets if you wait until a judgment is filed. Plaintiffs may move quickly to turn a judgment into court orders for payment, including liens and garnishments. If your bankruptcy doesn't come faster than these, some of your wages may be garnished or you might lose assets in bank accounts or other areas. It's best to prevent these collections efforts entirely.
Finally, there is the matter of potential fraud. The bankruptcy trustee will examine your records and actions closely to determine if there are any signs that you are misusing the bankruptcy system.
Losing a court case and immediately filing for bankruptcy to avoid paying a judgment can be seen as intentional bankruptcy fraud. And if that happens, the court may either prevent you from discharging that debt or even dismiss the bankruptcy case entirely. On the other hand, filing with an open civil case is often viewed the same as filing when you have normal debts.
Where Can You Get Help?
The timing of a civil lawsuit and bankruptcy filing is key to getting the relief you need and deserve. Start finding the right timing for your particular case by meeting with an experienced bankruptcy attorney in your state today. With their guidance, you'll find the right path forward both legally and financially.
Reach out to a lawyer to learn more about bankruptcy filing.Share