Getting served is usually an experience you don’t expect to happen, which makes it relatively unsettling. A stranger confirms your name with you and then hands you paperwork, informing you that this is service for a legal matter. For hundreds of people across North Carolina every year, those papers relate to a creditor attempting to collect on a debt that has gone unpaid.
Whether your family fell behind on credit card payments and couldn’t make them anymore or incurred massive medical expenses because of a car accident or illness, you could find yourself facing a lawsuit from your creditors, despite the nature of the debt or your current financial circumstances. In fact, even nonprofit hospitals can and will sue people who make minimum wage over unpaid medical debt.
Regardless of what creditor wants to take you to court, it’s important that you educate yourself about your rights. You have the right to be free from unfair collection practices. If you have reached the point where your debt is unmanageable, another of your rights is the right to declare bankruptcy and seek its protections. Those protections include an automatic stay, which will mean the dismissal of pending legal action related to the collection of a debt.
Timely action is critical if you face a creditor lawsuit
Creditors often take action when they no longer have reason to believe that payment will be forthcoming in the near future. If you fail to take action shortly after receiving notice of the lawsuit, they may be able to secure a judgment against you, which could impact your credit and result in a garnishment of your wages.
Seeking bankruptcy protection before the lawsuit goes to court can be a way to avoid a judgment on your credit report and the potential embarrassment of such a lawsuit. That means that you may only have a few days or weeks in which to handle your initial application for bankruptcy.
Bankruptcy doesn’t just stop the lawsuit
Bankruptcy can give you immediate peace of mind and improve your quality of life by ending creditor harassment and collection activities. Provided that you successfully complete the bankruptcy process and receive a discharge, bankruptcy will also formally end your obligation to repay certain debts, thus freeing up your income for other payments, like your mortgage or rent.
Unsecured debts such as medical debt and credit card debt are eligible for discharge in standard personal bankruptcy proceedings. However, priority debts, including tax debts, past-due child support and other important financial obligations may not receive a discharge.
Secured debts, including your mortgage or vehicle loan, may require renegotiation or reaffirmation as part of the bankruptcy proceedings if you want to retain the collateral property. Most unsecured debts, with the exception of student loans, are typically eligible for discharge.