Stop Credit Card Lawsuits By Filing for Bankruptcy

When a credit card company files a lawsuit against a debtor, the debtor needs to take immediate action to stop that lawsuit. If the credit card company succeeds in obtaining a judgment against the debtor, they can then put a lien on any property owned by the debtor and make it difficult to sell or transfer. It also does considerable damage to the debtor's credit rating, making it difficult to secure new credit.

If the credit card debt isn't valid, as in a case of identity theft in which someone else uses the debtor's identification information to open an unauthorized credit card, then the debtor may well be able to fight the lawsuit in court. Otherwise, fighting the lawsuit is just likely to increase the debt that is owed as collection costs and attorney fees are usually added to the debt when the judgment is rendered.

Sometimes debtors can negotiate with credit card companies to stop the lawsuit in return for paying a portion of the debt or making payments on an installment plan. However, if the debtor has not taken such steps before the lawsuit was filed (and credit card companies usually offer plenty of opportunities to do so) then the credit card company may decide that they need the judgment and, subsequently, a lien on the debtor's property to ensure payment.

Oftentimes there is no way to bring a credit card lawsuit to a complete halt other than by filing for bankruptcy. When a debtor files for bankruptcy, regardless of whether it is a Chapter 7 or Chapter 13 bankruptcy, an automatic stay goes into effect that requires all creditors to stop collection efforts. This includes any lawsuits for credit cards or any other debts that are in process. Such lawsuits cannot resume unless the bankruptcy lifts the stay.

What Happens to Credit Card Lawsuits in Bankruptcy?

Putting a halt to a credit card lawsuit is not the only advantage of bankruptcy when dealing with a credit card debt. Most likely the debt will get discharged completely at the end of the bankruptcy process. Exactly what happens to the lawsuit and debt will depend on which chapter of the bankruptcy code a debtor files under.

If a debtor files under Chapter 7, his or her assets (except for those protected by exemptions) will be sold and the proceeds distributed amongst the debtor's creditors. Since credit cards are unsecured debts, they are among the lowest priority debts and other creditors will get paid first. If there's any money left over after higher priority debts, like taxes or delinquent child/spousal support payments, are paid, then the credit card company may get a portion of the proceeds. After that, though, any remaining credit card debt will be discharged. The credit card company must drop the lawsuit and cannot take any further action against the debtor.

If the debtor files under Chapter 13, then the debtor will enter into a repayment plan that will last three to five years. During the plan, the debtor will make payments to the bankruptcy trustee who will distribute it to creditors. Again, because unsecure credit is low priority, credit card companies are likely to get little if any payment unless higher priority debts are paid off first. Once the repayment plan is complete, any remaining credit card debt will be discharged completely, just as in Chapter 7 bankruptcy. However, if the debtor fails to complete the repayment plan, the automatic stay will be lifted and the credit card company allowed to resume the lawsuit and any other collection efforts.

When Bankruptcy Can't Protect Debtors Against Credit Card Lawsuits

There is one occasion in which filing for bankruptcy won't protect a debtor against credit card debts and lawsuits. When a debtor incurs the debt fraudulently, the creditor can file an adversary proceeding and request that discharge of the debt be denied by the bankruptcy court. For example, if a debtor applies for a credit card and racks up debt on that card with the intention of filing for bankruptcy to discharge it, that is a form of fraudulent debt. If a creditor can prove to the court that a debt is fraudulent, the court will deny the discharge and lift the automatic stay so that the debtor is forced to pay the debt. Look for more information on dischargeability of fraudulent debts in ourBankruptcy Articles section.

Stop credit card lawsuits and other collection efforts with help of an experienced bankruptcy and debt solutions attorney

If a credit card company or other creditor has filed or threatened to file a lawsuit against you, you need a Maryland bankruptcy attorney who can take action immediately and prevent a judgment from being rendered against you. In Maryland, bankruptcy and debt solutions attorney John D. Burns and his firm can assist in identifying your best options and put a plan into action that will stop the credit card lawsuit and resolve all your debt issues. Call our office at 301-441-8780 to schedule an appointment or e-mail us at jburns@burnsbankruptcyfirm.com.