Crucial Question: How Quickly Will the Creditors Stop Calling, Suing, Garnishing?
Two steps: 1) Hiring an attorney stops collection calls and some other creditor actions. 2) Filing bankruptcy stops everything else.
You need relief from the financial pressure. The tense phone calls. A mailbox with nothing but bad news. Stress that weighs you down, hurts your relationships, and affects your physical and emotional health.
How fast can you get relief?
Step #1: Retaining an Attorney
You may have heard that once you file a bankruptcy case, the force of law stops your creditors from calling you, sending threatening collection notices, suing you, getting a judgment against you, and such.
True enough. But you may understandably assume that kind of help won’t happen for at least a few weeks until your bankruptcy case is filed. You know you have to first figure out whether and what kind of bankruptcy you need, get a bunch of paperwork together, pay court fees and attorney fees, and sign a bunch of papers.
Putting aside that a bankruptcy case can often be filed very quickly, you can often get some immediate relief right after (or sometimes even during) your first meeting with your attorney. Why? Because the attorney can stop certain things from happening before filing your bankruptcy case.
What Mere Attorney Representation Can Accomplish
When you are represented by an attorney:
- Usually creditors and collectors can no longer call you.
- They generally can’t send collection letters to you except through your attorney.
- They can start a lawsuit against you but are often don’t do so—for at least a certain amount of time—because:
- they usually count on getting a “default judgment”—one they would get if you did not respond on time—which they know is much less likely if you have an attorney in your corner; and
- if they have good reason to believe that you are about to file a bankruptcy case they will be less inclined to pay the court filing fee and other costs of suing you.
- If they have already sued you, their attorney will not, in many jurisdictions as a matter of local practice, enter the judgment for a certain extra amount of time, allowing you to file your bankruptcy case and stop that judgment from being entered.
Immediate Attorney Intervention that Can Be Crucial
Sometimes stopping these events doesn’t just get you some immediate emotional relief. It can make a huge difference in the outcome. Two examples:
- If you have been sued and enough time has passed so that the creditor is about to take a default judgment against you because you have not responded in time, that judgment could create a lien against your home. Sometimes such judgment liens can be “voided”—undone—in your bankruptcy cases. But depending on factors such as the value of your home, the debt against it, and the amount of your homestead exemption, you may be stuck with that judgment lien. That could effectively turn a debt that would be able to discharge (legally write off) into one that you would have to pay in full.
- Avoiding the filing of a lawsuit in the first place can be very important. Many special benefits of bankruptcy are based on good timing. For example, you can discharge certain income tax debts if you wait long enough before filing the case. Or you may be able to save thousands of dollars on your vehicle loan once it is old enough to do a “cramdown” against it. But once a lawsuit is filed, that starts the clock ticking, and your attorney can usually hold off for only limited amount of time before a judgment is entered. Since a judgment means a judgment lien against your real estate, likely garnishments on your paycheck and/or on your bank accounts, and other dangerous legal procedures against you, you would usually want to file your bankruptcy case before entry of the judgment. But if rushed into doing so, that may prevent you from discharging thousands of dollars of taxes, saving thousands on your vehicle loan, or other similar potential benefits. Having the attorney stop the lawsuit from being filed in the first place could prevent these kinds of Catch-22s.
Your attorney can often stop certain bad stuff from happening to you immediately, before filing your bankruptcy case. And some of that bad stuff could really hurt.
Step #2: The “Automatic Stay”
But stopping much of what creditors can do to you does take filing bankruptcy. That’s when the “automatic stay” kicks in, shutting down just about anything that creditors can do to you. More about that in our next blog post.