Navigating a Creditor Lawsuit: The Strategic Use of Filing an Answer Before Bankruptcy
Facing a creditor lawsuit is stressful, but it’s important to understand that you can’t ignore the Summons and Complaint. Doing so means a default will be entered against you, and that means the court will automatically award the creditor everything listed in the complaint.
By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).
If you are planning to file for bankruptcy, how you respond to this initial lawsuit can be a powerful strategic tool to buy the necessary time.
Why File an Answer to a Creditor Lawsuit if You Plan to File Bankruptcy?
The ultimate goal of filing bankruptcy (Chapter 7 or Chapter 13) is to invoke the Automatic Stay, which immediately stops collection efforts, including the lawsuit. However, sometimes you can’t file for bankruptcy immediately. Common reasons include:
- Waiting Period: You are ineligible to file a Chapter 7 because you recently used your credit cards. I explain this issue in detail in this prior article regarding bankruptcy and shopping on Black Friday.
- Asset Planning: You need time to organize your financial affairs, such as selling non-exempt property or gathering documentation. Note that if exempt assets are being sold, that could be considered a fraudulent transfer, resulting in the trustee objecting.
- Means Testing: You need to wait for a change in your income to qualify under the Chapter 7 Means Test. Since the Means Test is based on the last 6 months of income, even one month of lower income could result in qualifying for Chapter 7 bankruptcy. I detail this information in this blog post when it comes to layoffs, furloughs, or the government shutdown.
Professor’s Note: The Means Test figures for your state are updated twice annually. The latest update took place on November 1, 2025. With the average income rising, this could help you qualify for Chapter 7 bankruptcy. You can see your state’s income figures in this article.
- Gathering Funds: You need time to save the attorney’s fees and filing costs for the bankruptcy petition. In this article, I explain the difference between attorney’s fees and costs and why you can’t pay your lawyer with your credit card.
If you don’t file a formal response (an Answer) to the lawsuit by the deadline, the creditor will likely get a Default Judgment. This process is often fast, resulting in a judgment that allows them to immediately begin collection actions like wage garnishment or bank levies, which are difficult to reverse even after bankruptcy is filed. If a creditor has continued to collect after bankruptcy has been filed, read about the steps you can take in this article and how the Suggestion of Bankruptcy is critical.
The Strategy: Filing a timely Answer prevents the swift entry of a Default Judgment, effectively forcing the creditor to litigate the case.
Buying Time: The Litigation Process
Filing a formal Answer extends the timeline of the lawsuit by weeks or even months. In large and busy districts, it could be years, as I commonly experienced in Miami-Dade County. This delay is the precious time you need to prepare and file your bankruptcy case.
Once an Answer is filed, the court process usually moves through these steps:
- Discovery: The parties exchange information (interrogatories, requests for production).
- Pre-Trial Conference or Mediation: This is a key stage. The court often mandates a conference or mediation session to encourage settlement before a trial.
This is a critical opportunity for a temporary strategy or agreeing with the creditor on a payment plan.
Strategic Settlement: Agreeing to a Temporary Payment Plan
During mediation or a pre-trial conference, the creditor’s attorney’s primary goal is to get a guaranteed payment.
If you cannot file bankruptcy immediately, agreeing to a short-term, low-amount payment plan may be the most advantageous move.
- It Halts the Lawsuit: Agreeing to a plan typically leads to a Stipulation or Agreed Order that puts the lawsuit on hold. This removes the immediate threat of a Default Judgment or trial.
- It Avoids Garnishment: Creditors will not pursue garnishment or levies as long as you are making the agreed-upon payments.
- It Preserves Your Time: This allows you to focus on the necessary steps to prepare your bankruptcy petition, not fighting the lawsuit.
Professor’s Note: You are not committing to this payment plan long-term. This is a temporary financial strategy. Once your bankruptcy is filed, the Automatic Stay will immediately stop all payments and discharge the underlying debt. Take into consideration that creditors may tell you that once a judgment is entered, bankruptcy does not wipe out that debt. That is simply false!
When the Time is Right: Filing Bankruptcy
The moment you file your bankruptcy petition, you must notify the creditor’s attorney. The following occurs:
- The Automatic Stay immediately takes effect.
- The creditor must stop all communication, collection efforts, and the pending lawsuit.
- The bankruptcy filing now voids any agreed-upon payment plan. Remember to file the Suggestion of Bankruptcy as referenced above. You can also see my YouTube video on how to do so.
The Professor’s Conclusion
Responding to a lawsuit before bankruptcy is a strategic move that leverages the court system’s timelines to your advantage, prevents immediate collection, and gives you the breathing room to file for bankruptcy.
Professor Hernandez is an attorney specializing in consumer finance and debt relief. He is the published author of Consumer Bankruptcy Law (Routledge Publishing) and teaches law and finance courses in both English and Spanish for an international university.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.
You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.
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