Served with a collection lawsuit? You still have rights.

Getting served with a collection lawsuit can be intimidating. But even if you have already gotten served, you still have rights under the law.

Collection lawsuits (for credit card bills, medical debts, etc) are a painful indication that you should quickly determine your best course of action by seeking the advice of a qualified professional. As an Denver bankruptcy lawyer, I frequently speak with consumers after they get served with a summons, because the stress and uncertainty of a lawsuit springs them to action.

Clients generally achieve better results if they reach out for help with their debt problems earlier in the process. Even so, many times clients can defeat a filed collection lawsuit, and preserve what’s left of their assets, by taking the appropriate action in bankruptcy. The bankruptcy court’s automatic stay is a powerful tool which can offer help at almost all stages of the collection process.

If you have already been served, you still have rights.

In Colorado, the paperwork you are served with will indicate how long you have to respond with the form “Answer” after being served with a complaint in district or superior court. This guide from Colorado Legal Services explains in more detail. If the debt in question is owed, many clients achieve a better outcome by protecting their assets rather than contesting whether the debt exists. In that case, a person may choose not to answer the complaint, and never appear in court. The creditor would likely then be issued a “default judgment,” which is a court order indicating the money is owed.

The default judgment can help the creditor collect the money owed. In Colorado, a common way for judgment creditors to get the money owed is to garnish a consumer’s wages or seize a consumer’s bank account.

Collection Lawsuits in Bankruptcy

The collection process, including wage garnishments or bank account levies, is halted immediately with the filing of a bankruptcy case via the “automatic stay.” Prior to judgment being rendered in the state court action, many creditors will file a voluntary dismissal when they get notice of a bankruptcy case because the Bankruptcy Court will likely determine whether that creditor is entitled to payment under the law. Frequently, creditors who file lawsuits against consumers are not entitled to any of that consumer’s money or other property because Colorado residents have a right to claim to “exempt” all of their property under the law. The end result in these situations is that the lawsuit is resolved, and the consumer gets to keep their wages, bank accounts…all of their property and possessions.

Avoiding Judgment Liens in Bankruptcy

If the debt has already become a judgment, and attached to real property owned by the consumer, the Bankruptcy Court can issue an order ‘avoiding’ that judgment in certain circumstances. The key to judgment avoidance is whether the lien impairs an exemption which the consumer is entitled to under the law.

Halting a Sheriff Execution in Bankruptcy

The Bankruptcy Court is designed to determine what assets a judgment creditor has a right to seize from a consumer. In the majority of Chapter 7 cases filed, consumers are allowed to keep all of their property by properly claiming their exemptions. An attempted execution on a consumer’s property is immediately halted by the automatic stay when a bankruptcy case is filed.

Ready to figure out your best course forward? If so, I would be pleased to speak with you during a free, initial bankruptcy consultation.

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