It’s common for people who have consumer debts such as credit cards and medical bills to be sued and have judgments entered against them prior to filing bankruptcy. The first thing to realize is this is all very normal. In fact, lawsuits are so common that the threat of wage garnishment stemming from a judgment is one of the leading motivations for people to file bankruptcy sooner rather than later.
The second thing to realize if you have been sued is that lawsuits move fast and your money and earnings are at risk. In Minnesota, lawsuits are generally initiated when the plaintiff serves the defendant with a summons and complaint stating the basis for the lawsuit and amount owed. For lawsuits involving the collection of debt such as credit cards, the complaint typically will set forth the outstanding balance owed as well as tack on accrued interest and attorney fees. From the date that a summons and complaint are served, the defendant has 20 days to submit an answer or the plaintiff can quickly ask the court for a default judgment. Once a judgment is entered, the creditor is now a judgment creditor” and has additional remedies available to collect on the amount owed, including garnishment of wages and levying any bank account that is linked to the “judgment debtor”.
Bankruptcy stops a lawsuit the moment a bankruptcy petition is filed with the court. If the lawsuit is still pending at the time the bankruptcy is filed, a judgment cannot be entered. However if the lawsuit has already been reduced to a judgment, the judgment can still be discharged by bankruptcy. In some circumstances money that has been garnished from wages or levied from a bank account prior to the bankruptcy can be returned to you. There is a process to remove judgments post-bankruptcy discharge, which is advisable to help restore credit quicker after bankruptcy.
If you have been served with a lawsuit, you may wish to act fast to consult your bankruptcy options within the first couple weeks. While it’s generally best to head off a lawsuit before it gets to the point of judgment, you still have options even after a judgment is entered. A bankruptcy attorney can clearly explain what you can expect as far as the lawsuit, judgment and the return of any garnished or levied funds are concerned. Just remember that the legal process moves quickly and prevention is the best defense.
Lynn Wartchow is the founding attorney of Wartchow Law Office and has represented clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings since early 2005.