There are few things in life scarier than being served with a lawsuit. Whether you run a business or you’ve made some mistake in your personal life, dealing with a lawsuit can put a strain on your finances and cause you to consider your options. If you are close to insolvent when you’re sued, then you may be thinking about declaring bankruptcy. This brings to bear some practical questions. Namely, can you file for bankruptcy after you have been sued or after a judgment has been issued against you? The short answer is yes, but you need to think more about your individual situation to be totally sure.
General bankruptcy rules
In bankruptcy proceedings, there are some debts that are dischargeable and some that are not. For instance, you can discharge credit card debt in bankruptcy, but you cannot discharge most student loan debt. You’ll need to check to see whether your debt is dischargeable in your bankruptcy. You’ll get relief from most debt when you go through bankruptcy, and if yours applies, then there are no restrictions on filing even when you’re facing a lawsuit.
Does it matter if I already have a judgment against me?
When you file for bankruptcy, the court in question will conduct an inquiry into your finances. It will confirm whether you were being truthful and whether you actually have legitimate insolvency. If you are legitimately broke, then it does not matter whether you have been served initially, whether you have been hit with a judgment, or whether you’re in the middle of a court battle. If you happened to file bankruptcy without merit, then you will be denied just as you would if you had no court proceedings going on. Bankruptcy courts have a built-in protection that prevents people from fraudulently filing bankruptcy to avoid paying what they owe. This means they won’t stop you from making a legitimate bankruptcy claim if you qualify.
Fraud exceptions matter
There are some lawsuits and judgments that cannot be discharged in bankruptcy. For instance, if you have been found to have committed fraud, then the judgment against you likely cannot be discharged. There are rules in place that prevent you from declaring bankruptcy prior to receiving this kind of judgement, as well. If the court finds that you are trying to declare bankruptcy because a lawsuit on fraud is imminent, then you may still be liable. Know that the allowances on bankruptcy filings during lawsuits are much more limited when you’re accused of fraudulent behavior.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!