If you’ve lost a lawsuit and are facing a judgment, you may be wondering if filing for bankruptcy is an option. The answer depends on a few factors, including the type of debt involved and which kind of bankruptcy you file. Here’s what you need to know about filing for bankruptcy after losing a civil suit and when to contact an experienced Texas bankruptcy attorney for help.
Understanding The Automatic Stay
If you’re being sued, filing for either Chapter 13 or Chapter 7 bankruptcy will put an automatic stay on the lawsuit. This means that the person suing you, or the court that ordered you to pay a civil judgment, cannot continue to sue you or continue collections activities while you’re going through the process of bankruptcy. However, the automatic stay will only last for a certain amount of time, typically about six months. After that, the individual or company can resume their lawsuit against you.
There are some exceptions to this rule. For example, if you are being sued for child support or alimony, the automatic stay will not apply. And, if the person or business suing you has obtained a “secured claim” against you, like a mortgage or car loan, they may be able to continue with the foreclosure or repossession process even though you have filed for bankruptcy.
Secured Vs. Unsecured Debts
Not all debts are created equal. Before you decide to file for bankruptcy, it’s important to consider the types of debt you have.
There are two main types of debt — secured, mentioned above, and unsecured. Secured debt is often protected by collateral, and if you default on a secured loan, the lender can repossess the collateral. Or, the debt may be owed to certain types of institutions that don’t allow discharge, like the IRS. Unsecured debt doesn’t have any collateral backing it up and is considered dischargeable in most cases if the plaintiff can prove their inability to pay. Credit cards are the most common type of unsecured debt, along with medical bills and furniture or payday loans.