When you miss a payment or send it in a couple of days late, your lenders profit from your mistakes. They will charge you fees, which sometimes lead to additional fees. An account very close to its maximum account balance could go over due to interest charges and a late payment fee, which may then trigger an over-limit fee.
Credit card companies and other unsecured lenders often begin collection activity as soon as you miss a payment by a few days and will intensify their collection efforts as more time passes without bringing the account into financial compliance. Filing a civil lawsuit is an effective way for lenders to force someone to pay them back. The courts can garnish your wages or place a lien against your property when a lender takes you to court.
If you just got served with a creditor lawsuit, it may be time to consider a bankruptcy filing.
How does bankruptcy resolve a pending lawsuit?
A creditor taking you to court is just a very aggressive attempt to secure payment for a debt. You can temporarily stop all collection activity with an automatic stay when you first file for bankruptcy. The civil courts will even dismiss pending debt-related lawsuits until the courts finalize your bankruptcy or dismiss it.
For some people, finding a lawsuit notice posted to their front door or encountering a process server in their work parking lot will be the reason that they file for bankruptcy. Not only will a timely filing prevent the lawsuit from going to court, but it can even eliminate the debt that caused the lawsuit. If you qualify for the discharge of your debts, you may never face collection activity for the account again.
The right timing for a bankruptcy filing is before things get worse. It is never too late to file for bankruptcy as your financial circumstances deteriorate. However, bankruptcy can be most helpful in stopping that slide into financial disarray. You will better protect yourself when you recognize that your financial obligations now exceed your ability to repay them instead of trying to tread water for months as collection activity intensifies.
Learning more about how individual bankruptcy works can take the mystery and stigma out of filing.