Declaring Bankruptcy After Being Sued for Credit Card Debt

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As millions of consumers fall behind on their credit card bills, banks are becoming more and more aggressive in their efforts to collect the money they are owed.  In the past, many banks would simply write off defaulted credit card bills as bad debt.  Today, however, banks are choosing to sue consumers who have defaulted.  If you are being sued for credit card debt, declaring bankruptcy will stop the lawsuit. 

What Happens When a Bank Sues For Credit Card Debt?

When a bank sues to recover credit card debt, most consumers don’t respond.  This is a big mistake.  When a consumer doesn’t respond to a lawsuit, the creditor is not required to prove its case; the court will simply take the allegations in the complaint as true and enter a default judgment in favor of the bank. 

If a consumer files an Answer to the lawsuit, the parties will be entitled to conduct discovery and if they are unable to settle, the case will go to trial.  At trial, the bank must prove that the consumer is legally and contractually obligated to repay the debt.Additionally, it must prove that the consumer actually owes the amount alleged in the complaint.   If the bank proves its case, the court will enter a judgment in its favor. 

When a bank is granted a default judgment or wins at trial, it has the right to collect the judgment by garnishing the consumer’s wages or levying on his bank accounts or other property.  Interest will accrue on the judgment until it is paid in full. 

Bankruptcy and Credit Card Debt Lawsuits

When a consumer files bankruptcy, the automatic stay prevents his creditors from taking any actions to collect the debt from him.  This includes filing lawsuits, prosecuting lawsuits which are pending at the time the bankruptcy case was filed, and collecting on judgments obtained as a result of a lawsuit. 

Unless the bank has obtained a judgment, credit card debt is treated as unsecured debt in bankruptcy.  In a Chapter 7 case, unsecured debt is generally dischargeable; only under very limited circumstances is credit card debt non-dischargeable.  In a Chapter 13 case, whether a debtor must repay credit card debt depends on whether there is enough money available to pay unsecured creditors after payment of secured and priority unsecured creditors.  All unsecured debts which remain unpaid at the completion of a Chapter 13 case, will be discharged. 

If a creditor has obtained a judgment on a credit card debt, the judgment becomes a lien against all of the debtor’s property and is treated as a secured debt in bankruptcy.  However, the Bankruptcy Code gives debtors the ability to avoid judgment liens which impair exemptions.  If a judgment lien is found to impair an exemption, it will be treated as an unsecured debt. 

Getting Legal Help

If you are being sued for a credit card debt, you should schedule a consultation with a bankruptcy attorney immediately.  A bankruptcy attorney can explain the bankruptcy process to you and help you decide if filing bankruptcy is the best option for you.