Understanding Legal Steps Before Bankruptcy: Avoiding Common Pitfalls

Hi there, Professor Alex here to talk about what to do when facing a creditor lawsuit. Many people think that when filing for bankruptcy, that’s it, but that’s not the case, since a suggestion of bankruptcy is sometimes required. I’ll go over the steps to ensure everything goes smoothly so your wages aren’t garnished, your bank accounts aren’t frozen, and no liens are placed on your property. Let’s get down to business.

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What Steps to Take When A Creditor Files a Lawsuit

Filing for bankruptcy can stop creditor lawsuits, but the key question is: When are you filing for bankruptcy? Do you have the money now to hire a lawyer, or are you planning to do this in the next three to six months, or maybe even longer?

If you are not filing for bankruptcy immediately, how do you handle the civil lawsuit in the meantime? People often believe that if they call the creditor, they will stop the lawsuit. However, the creditor doesn’t know if you are being truthful, and even so, they will proceed. In the meantime, your money is at risk if the creditor seeks to garnish your wages.

• Stopping Foreclosure: Filing for Bankruptcy Without a Lawyer

The first thing you can do is file a response. How to file a response is a separate topic, but basically, you’ll admit or deny specific allegations made in the complaint. You can also counter-sue and file a counter-complaint.

At this point, the case is considered litigated or contested, triggering several processes, including discovery. Discovery is the exchange of relevant documents, such as bank statements, contracts, balances, and pay stubs. This is standard in any case, whether criminal or civil.

Once you’re done with the discovery process, which can take a long time, the judge might schedule a pretrial conference or mediation. Depending on your jurisdiction, the pretrial conference might be scheduled automatically when the case is filed, typically 45 days later. This is an opportunity to work out an agreement, such as a minimal payment plan, to buy you time.

For example, paying $25 or $50 every paycheck is much less than losing 15-25% of your paycheck to wage garnishment. Sometimes, it’s best to negotiate a payment plan, like $100 a month, to avoid immediate financial strain. Then, you can file for bankruptcy a few months later. Now, this is key: creditors will tell you that you can’t wipe out that agreement. They just lied. You can!

Suppose you can’t work out an agreement, and the case goes to trial. If it goes to trial, that’ll be the last step. You can still work out a deal before the trial, but by then, a lot of time has passed.

For example, in Miami, it can take two or three years to get a hearing from the day the case is filed. Dismissing your case can take another six to ten months. I’ve successfully delayed cases this way so that when my clients are ready, they can file for bankruptcy.

• How Bankruptcy Impacts Lawsuits in Different States

Remember, you can’t always file for bankruptcy immediately. There could be multiple reasons why this needs to be put off. But with a pending lawsuit and time not being on your side, you have to create “time, ” which can be done by following these steps. This way, you’re protected.

Let’s say you filed for bankruptcy and have a pending lawsuit, or they will garnish your wages. What is the next step? The automatic stay will prevent most lawsuits from going forward. I say most lawsuits because criminal matters and alimony and child support cases are unaffected. I know the default move from most family court judges is to delay those cases, even though they shouldn’t.

The Suggestion of Bankruptcy When Filing for Bankruptcy

Once the bankruptcy petition is filed and approved by the clerk’s office, besides the automatic stay, there’s an extra step that should be taken: filing the Suggestion of Bankruptcy. You can get this through Pacer.gov. Registering is free, and you might get billed depending on how many documents you obtain. But for the most part, there’s no cost. Through Pacer.gov, the federal government website, you can research all cases, including your bankruptcy case.

You can also get the Suggestion of Bankruptcy from the clerk’s office. Once you have the Suggestion of Bankruptcy, file it in your civil case. This puts everyone on notice of the bankruptcy.

From a practical standpoint, let’s say you file for bankruptcy, and three days later, the creditor still takes money out of your paycheck. Did you lose that money? No, you get that money back. However, contacting the creditor or their attorney, sending proof, and getting it reimbursed takes time, money, and energy. That’s why it’s easier to file the Suggestion of Bankruptcy to avoid that.

Conclusion

To my paralegal students using my textbook, I hope you’re enjoying it! Give me a shout-out on social media—I worked hard on that book. Also, join the YouTube family where you can post any questions or comments.

Thank you, everyone. I hope you enjoyed today’s podcast recording. Remember to like and subscribe to my YouTube Channel.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link.

Additional blog content is available below or by using the search bar at the top of this page:

• Bankruptcy (124)
• Your Wallet (249)

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

This podcast transcript was edited for clarity.