Harassment & Lawsuits

Bankruptcy Benefit #1

Bankruptcy filing forces creditors to discontinue harassing creditor collection activities such as phone calls and letters.

Bill collectors often engage in outrageous conduct in an attempt to get their money. They can harass, engage in scare tactics, and outright lie to you. However, there is a way to stop creditors cold in their tracks. The filling of a Bankruptcy petition initiates an automatic stay against creditor collection efforts such as harassing phone calls and letters. The automatic stay is like a stop sign that has the power of the United States Bankruptcy Code behind it. Once the automatic stay is in effect, creditors are prevented from communicating with you or engaging in any attempt to collect your debt. If they violate this stay they can be subject to actual and punitive damages payable to you. Contact Dallas area bankruptcy attorney William Collins for a free and confidential initial consultation and start the process of taking control over creditors.

Bankruptcy Benefit #2

Bankruptcy will stop creditor lawsuits and prevent creditors from getting a judgment against you.

One collection effort that unsecured creditors will pursue against you is the filing of a lawsuit. The unsecured creditor’s goal in filing this lawsuit against you is to obtain a judgment against you. Once the creditor has this judgment they can pursue collection efforts which include: (1) trying to recover and sell your non-exempt personal property; and/or (2) putting a lien on your house.

The filing of a Bankruptcy petition initiates an automatic stay which stops creditor collection activities, including creditor lawsuits. Once the lawsuit is stopped, the creditor cannot obtain a judgment and thus cannot engage in the collection activities such as liens and/or recovering non-exempt personal property. The amount that you owe will be handled under the Bankruptcy plan. This means that if you file Chapter 7 Bankruptcy, the amount will likely be discharged in part or in full; and if you file Chapter 13 Bankruptcy the amount will likely be significantly reduced and paid back over a period of 3 to 5 years.

If you have had a lawsuit initiated against you then it is important that you act quickly to assert any defenses that you may have to the lawsuit and/or avoid getting a judgment against you. Contact Dallas area bankruptcy attorney William Collins for a Free and Confidential Initial Consultation regarding your rights.

• Example 1: Donny Defendant just received a complaint from his credit card company suing him for $12,000 consisting of his $10,000 unpaid balance and an additional $2,000 in attorney fees and costs. Donny does not respond and lets a default judgment be entered against him for the entire amount. Credit card company then takes this judgment and enters a lien for $12,000 against Donny’s home. Credit card company can now initiate foreclosure proceedings against Donny’s home and attempt to settle the judgment from the proceeds of the foreclosure sale.

• Example 2: Same situation as above except Donny Defendant declares a Chapter 7 Bankruptcy after receiving the complaint. The lawsuit is now stopped and the credit card company cannot use any collection efforts against Donny. Donny has no non-exempt assets to pay his general unsecured creditors in the Chapter 7 Bankruptcy plan. The $10,000 unpaid balance is discharged in Chapter 7, and Donny is not obligated to pay the $2,000 that credit card company claims in additional fees and costs.

Bankruptcy Benefit #3

Bankruptcy can avoid judicial liens placed on your home.

The general rule in a Bankruptcy is that a lien survives the Bankruptcy discharge. This means that if you owe money that is secured by collateral, a discharge will mean that you do not have to pay the actual money back the creditor (your personal liability is discharged). However, the creditor is still free to take back the collateral.

An important exception exists for judicial liens. Judicial liens are different from liens secured by collateral in that are obtained when a party (typically an unsecured creditor like a credit card company) obtains a judgment against you in Court. To help secure payment on that judgment the party will then place a lien on your home for the amount of that judgment. Under this exception, the consumer is allowed to avoid a judicial lien to the extent that it impairs (eats into) the exemption amount they are allowed to take for that property. See Chapter 7 page-exemtions section. This basic formula here is to compare the equity in your home to the amount of your exemption plus your judgment lien. Your judgment lien will be reduced to the extent that your judgment lien and exemption exceed the equity. This process can be confusing, Contact Dallas area bankruptcy attorney William Collins for a free and confidential initial consultation regarding your rights to avoid your lien.

• Example 1: Harry Homeowner has lived in his home for 15 years. His home is currently worth $250,000 with a current mortgage of $150,000. Recently a judgment creditor placed a lien on his home in the amount of $25,000. Harry can take advantage of Texas’ unlimited homestead and avoid the lien on his home (make it disappear) so long as he completes his case and obtains a discharge.

• Example 2: Harry Homeowner bought his first home two years ago in Texas. His home is currently worth $250,000 with a mortgage of $50,000. He recently had a judgment lien placed on his home for $100,000. Because Harry bought his home in Texas less than 1,215 days ago he is subject to a maximum exemption in his home of $125,000 (see exemption page for more detailed explanation). Harry’s judgment lien and exemption amount add up to $225,000 ($100,000 judgment lien + $125,000 exemption). Because this $225,000 exceeds the equity of $200,000 in his home, the lien is avoided to the extent of $25,000. Therefore, the lien will survive the Bankruptcy to the extent of $75,000.