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The Most Important Things to Know If You Get Sued by a Creditor

Posted by on February 4, 2019 under Bankruptcy Blog | Comments are off for this article



Most debts that people get behind on are at some point—often quite quickly—assigned by the original creditors to collection agencies. This can happen two ways. Either the creditor still owns the rights to the debt and the collection agency simply gets a percentage of what it collects, or the creditor sells all of its rights to the debt to a collection agency and then is legally no longer in the picture.

Either way, the collection agency then tries to get you to pay the debt.  At first—it will tend to  contact you and try to make you pay whatever it can. Depending on the facts of the situation—including whether you have a job or real estate or other assets—the collection agency will then decide whether it’s worth suing you. If you ARE sued, there’s a good chance that the collection agency believes it can force payment from you by garnishing your paycheck or bank account, or by putting a lien on your home or by attaching other assets.

This is a signal you need to pay attention right away.

In fact, the collection agency is banking on you not taking the lawsuit seriously enough. The sad truth is that a large majority of the time people don’t respond to lawsuits so that judgments are entered against them by default.

Don’t assume that there is nothing you can do. Learn your options.  How? Most consumer or bankruptcy attorneys will give you a free consultation.  This consult should provide you with the following:

a) You will understand the consequences of the lawsuit, and your options for dealing with it. Know what your options are instead of assuming you have none.

b) You may have defenses so that you don’t legally owe the debt after all. Collection agencies routinely try to collect debts on which the statute of limitations has expired. They can sue the wrong person. They may include allegations which are not accurate or supported by law.

c) You may have a counterclaim—an argument that the creditor acted illegally in some way and actually owes you money for damages. At the least this could give you leverage to settle the debt under much better terms.

d) Once the time to respond expires and a judgment is entered, it is usually too late to deny the allegations in the complaint.

e) By having an attorney review the lawsuit and your overall debt picture, and discuss your options, you may end up solving deeper problems. Most consumers do not have an attorney who they talk with regularly. So problems accumulate. You don’t have a chance to ask questions when they arise. This often leads to lots of confusion and anxiety. Seeing an attorney about a pending lawsuit could lead to addressing how to improve your entire financial life.

Final advice worth repeating- if you are sued, you must act quickly.  In NJ, you have only 35 days to respond to a lawsuit.

Why You Should Not Allow a Creditor to Get a Default Judgment against You

Posted by on March 26, 2016 under Bankruptcy Blog | Be the First to Comment

Not responding to a lawsuit by a creditor can harm you in more ways than you think.


Three Different Sets of Reasons

Judgments can harm you in three distinct ways:

1) Give the creditor powerful collection tools against you to collect the debt.

2) Force you into filing bankruptcy when it’s not to your best advantage.

3) Makes it harder sometimes to discharge (write off) the debt later in bankruptcy.

Today’s blog addresses the first one of these. The other two will be covered in my next blogs.

The Temptation to Let a Lawsuit Turn into a Default Judgment

Most lawsuits filed by creditors and collection agencies to collect debts result in judgments against the people being sued. That’s because the main allegations in most of these lawsuits simple argue that the debt at issue is legally owed. And that’s usually not in dispute. So the people being sued understandably figure that there’s no point in responding to allegations that appear to be true.

Practically speaking, most of the time the people being sued are at the end of their financial rope. So they believe that they can’t afford to hire an attorney to find out what their options are, or the consequences of doing nothing.

What ARE the Consequences of Doing Nothing?

You may know that a judgment gives a creditor the right to garnish your wages and bank accounts. You may believe that you can prevent such garnishments from happening to you by keeping your money out of bank accounts and by being paid other than a regular wage or salary (although even those are not practical options for most people).  Perhaps, but the “judgment creditor” usually has other rights against you once it gets that judgment.

The laws differ state by state, but generally a judgment becomes a lien against any real estate you own, or will own in the future. Depending on the facts and applicable law, the creditor may then be able to foreclose on that real estate to get its debt paid. Think about not only property under only your own name, but also your rights to property held jointly with a spouse, parent, or through a trust or estate.

An aggressive creditor usually has other tools available. In most states it can get a judge to order you to go to court to answer questions under oath about what you own so that the creditor can find out what it can take from you. The creditor may be able to get a court order sending a sheriff’s deputy to your home or business to seize some of your possessions for payment of the debt. If someone owes you any money (or anything else), that person can be ordered to pay that debt to the creditor instead of to you.

Similarly, if you own a business, the creditor can force your customers to pay it instead of you. This can be devastating both to your cash flow and to your business reputation. Your business could even be subjected to a “till tap”: a sheriff’s deputy arriving at your place of business to take money directly out of the cash register to pay towards the judgment debt.

Will These Happen to You?

We don’t want to give the impression that these kinds of aggressive collection procedures are used in most cases, or will necessarily be used in yours. Some of these are unusual, taking a fair amount of extra work and fees for the creditor or its attorney, and so likely won’t happen in most simple collection cases. The point is that once creditors have a judgment against you, they have many powerful options against you. We meet all the time with distressed new clients who have been shocked at how creditors with judgments against them have been able to financially hurt them.

Why See an Attorney If You Have No Defense to the Debt?

Flying blind is scary and dangerous. Getting sued and not knowing the potential consequences of just letting the creditor win is like flying blind. Besides potentially finding out about possible defenses to the lawsuit, consulting an attorney gives you the opportunity to consider your broader financial situation, and your options for addressing it. A lawsuit by a creditor is usually a symptom of a broader problem. By consulting with a knowledgeable attorney, you may learn about potential solutions to both the lawsuit AND the rest of your financial problems.


Please visit our website again for the next two blogs about the other very important reasons why you should not allow a creditor to take a default judgment against you.


Even Simple Chapter 7 Bankruptcy Can Do Much More Than Just Wipe Out Your Debts–Such As?

Posted by Kevin on July 5, 2014 under Bankruptcy Blog | Comments are off for this article

Chapter 7 bankruptcy can often also wipe judgment liens off the title to your home.


Liens against your property—such as the lienholder’s lien on your car or truck title, or your home lender’s trust deed on your home’s title—generally are not wiped out with a bankruptcy filing. The bankruptcy discharge (write-off) of debts ends your personal liability on that debt but does not end a creditor’s rights in any collateral. Accordingly, a judgment lien—the lien that attaches to your home if a creditor gets a judgment against you—gives the judgment creditor certain rights to your home, including often the right to foreclose on it. But under some circumstances judgment liens CAN be wiped away, or voided, during bankruptcy, so that the creditor would have no such further rights against your home.


If you still want to make good on your promise  to take charge of your financial life, this and the next few blogs may help. They are about less familiar benefits of filing bankruptcy, starting with some less familiar benefits of Chapter 7.

The Chapter 7 version of bankruptcy usually achieves two main goals—it stops all or most of your creditors from collecting against you and your assets, and it “discharges,” meaning it legally forever wipes out, all or most of your debts. In most cases, that’s pretty much what it does for you, and that’s often just what you need. In contrast, Chapter 13—the “adjustment of debts” payment plan—is the creative, lots-of-tools-in-the-toolbox version of bankruptcy, often significantly better for dealing with complicated situations.  But Chapter 13 takes at least 3 years compared to as short as 3 months for Chapter 7, it costs at least 3 or 4 times more, and is less likely to be completed successfully.

So here’s a tool which is available under Chapter 7—getting rid of certain judgment liens on your home. Here are the conditions for this to happen:

  • You must qualify for and claim a homestead exemption on the real estate upon which you have the judgment lien.
  • That lien must be a “judicial lien,” which usually means one gotten through a court judgment, but is specifically defined in the Bankruptcy Code as “a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
  • The debt underlying this judgment lien cannot be for child or spousal support, or for a mortgage foreclosure.
  • The judgment lien at issue must “impair” the homestead exemption, which the law defines to mean:
    • the value of all the liens on the house, including the judgment lien
    • PLUS
    • the amount of homestead exemption that you could claim if there were no liens on the house
    • the value of the house (assuming you are its sole owner).

So for example, if:

  • the judgment lien is $20,000 and your mortgage is $150,000
  • PLUS
  • your available homestead exemption is $30,000
  • that $20,000 judgment lien would be impairing the homestead exemption and could be voided in bankruptcy
  • as long as your house was worth less than $200,000.

Lastly, please understand that merely filing the Chapter 7 bankruptcy will discharge the underlying debt that caused the judgment and its lien. But voiding the judgment lien itself takes an extra step. In NJ that means filing a motion and obtaining an order or else the judgment lien will continue to exist against your home.   Also, that motion to void the judgment lien needs to be filed while your Chapter 7 case is still open and active, which usually means within about 90 days after your case is filed.   Finally,  lawyers usually charge a bit more than the ordinary flat fee for providing this service since it entails additional work.

So, if you own a home, find out if you have a judgment lien against the title. If you do, talk to a bankruptcy attorney about whether that lien could be voided in a Chapter 7 bankruptcy case. If so, gaining this very important extra protection for your home could make filing bankruptcy that much more beneficial for you.