Getting served with a collection lawsuit can be intimidating. But even after a consumer gets served, they still have rights under the law.
A lawsuit is a shocking and stressful indication that you should quickly determine your best course of action by seeking the advice of a qualified professional. As an Asheville bankruptcy lawyer, I frequently speak with consumers immediately after they get served, because the stress and uncertainty of a lawsuit springs them to action. Clients generally achieve better results if they reach out for help with their debt problems earlier in the process. Even so, many times clients can defeat a filed collection lawsuit, and preserve what’s left of their assets, by taking the appropriate action in bankruptcy. The bankruptcy court’s automatic stay is a powerful tool which can offer help at almost all stages of the collection process.
The “automatic stay” can help with collection lawsuits and judgments.
If you have already been served, you still have rights.
In North Carolina, you have 30 days to respond with an “Answer” after being served with a complaint in district or superior court. If the debt in question is owed, many clients achieve a better outcome by protecting their assets rather than contesting whether the debt exists. In that case, a person may choose not to answer the complaint, and never appear in court. The creditor would likely then be issued a “default judgment,” which is a court order indicating the money is owed.
The default judgment can help the creditor collect the money owed. However, wage garnishment on simple unsecured debts (mainly credit cards, medical debts, personal loans, repossessions, etc.) is not permissible in North Carolina. Seizing assets is also more difficult because consumers have a right to protect a significant amount of their property by claiming their exemptions outside of bankruptcy. The creditor is required to serve a consumer with a “Notice of Right To Claim Exemptions,” before executing on any property to satisfy a default judgment.
Collection Lawsuits in Bankruptcy
The collection process is halted immediately with the filing of a bankruptcy case via the “automatic stay.” Most of the time, the creditor will file a voluntary dismissal when they get notice of a bankruptcy case because the Bankruptcy Court will likely determine whether that creditor is entitled to payment under the law.
Avoiding Judgment Liens in Bankruptcy
If the debt has already become a default judgment, and attached to real property owned by the consumer, the Bankruptcy Court can issue an order ‘avoiding’ that judgment in certain circumstances. The key to judgment avoidance is whether the lien impairs an exemption which the consumer is entitled to under the law.
Halting a Sheriff Execution in Bankruptcy
The Bankruptcy Court is designed to determine what assets a judgment creditor has a right to seize from a consumer. In over 95% of the Chapter 7 cases filed, consumers are allowed to keep all of their property by properly claiming their exemptions. An attempted execution on a consumer’s property by the Sheriff is immediately halted by the automatic stay when a bankruptcy case is filed.
Ready to figure out your best course forward? If so, I would be pleased to speak with you during a free, initial bankruptcy consultation.
Photocredit: Skippyhaha Vintage
