Unfortunately, the title to this article is very much a reality. I often have calls with people in a panic that they were just served a lawsuit for a credit card they had to stop making payments on the last several months because the credit card company increased the interest rate from 3% to 24% for no reason. Or worse yet, I have people calling whose wages were just garnished for a lawsuit they didn’t even know existed. I’m still not sure how a creditor can manage to find an individual’s workplace but somehow was unable to properly effectuate personal service of process, but it happens all the time. This article is meant to educate those who find themselves in these unfortunate predicaments and provide some guidance on what the process may be moving forward, which includes filing bankruptcy.
Let’s say it’s late at night and you hear a knock on the door. You open the door (which you should never open the door to a stranger regardless) and the person asks your name and hands you some papers stating to you: “You’ve been served.” Yes, just like on television. Under Arizona Rules of Civil Procedure, Rule 4.1(d), you have likely been properly served with a lawsuit. Now what do you do? This fact pattern will assume that the lawsuit served upon you concerns a large credit card debt that is owed. It’s unlikely that you’re ever going to be able to pay the credit card debt because the interest rate significantly increased several months ago, you can’t afford an attorney to represent you in the lawsuit and you’re barely making ends meet with the income you’re making at your job as well. There are two options at this point, you can file an Answer in the lawsuit Pro Se, which means you will be representing yourself but you’re at least still responding to the lawsuit, or you can look at the big picture and consider filing a Chapter 7 or Chapter 13 bankruptcy. Filing bankruptcy will immediately stop any pending litigation, which will include the lawsuit you just received. Keep in mind that a bankruptcy cannot be filed overnight and your bankruptcy attorney will require you provide a substantial amount of information so that your bankruptcy petition can be properly drafted, but bankruptcy is an option that will allow you to wipe out the unsecured debt, including the credit card debt that is contained within the lawsuit.
Once you receive a lawsuit, you will have 20 days or 30 days to file an Answer, depending on if you reside in state or out of state. If you do not file within this period, the creditor’s attorney will have to file an Application for Default Judgment with the Court. If you change your mind and decide you do in fact want to file an Answer, you can still file the Answer if you show good cause to the Court on why you didn’t file one during the initial 20 day or 30 day period response period. There are many reasons why an individual doesn’t respond to a lawsuit: a person may not have the funds necessary to hire an attorney to represent them in the lawsuit so just ignore it; a person may not know the lawsuit even exists to file an Answer; the most common of all, a person is just downright scared at the notion of a lawsuit and participating in a lawsuit without an attorney is just not something the individual is willing to do. Whatever the reason, just know if a Default Judgment is entered against you, filing bankruptcy may be a very good option for you to utilize and any pending lawsuit will immediately stop upon the filing of your bankruptcy petition with the U.S. Bankruptcy Court. At that point, the creditor’s attorney will have to dismiss the lawsuit because the underlying debt will no longer be collectible upon entry of your Bankruptcy Discharge Order by the U.S. Bankruptcy Court, or the creditor’s attorney will have to file a motion with the Court to set aside a Default Judgment, if the bankruptcy was filed within this period of the lawsuit.
The main thing to remember is that should a lawsuit be filed against you and you’re swimming in debt that isn’t going anywhere but up as it is, you are not without options and may need to seriously consider filing a Chapter 7 or Chapter 13 bankruptcy. If you find yourself in this position, contact my office so I can discuss your situation with you and determine what your best options will be moving forward.
Article By: Scottsdale Bankruptcy Attorney Whitney G. Coats J.D.
Whitney G. Coats, J.D., Of Counsel, is a bankruptcy attorney who works with the Dana Law Firm in its Consumer Bankruptcy Department.