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What Happens When A Creditor Sues Over Missed Payments?

On Behalf of | Jun 26, 2023 | Bankruptcy

When someone’s monthly expenses are higher than their household income, they may have to make difficult choices. Sometimes, it may be impossible to send the necessary payment to every creditor each month, which means that some accounts will end up in poor standing.

Lenders that don’t receive payment may send collection notices and assess fees on affected accounts. They might actually impose a higher interest rate as a penalty, in some cases. If those penalties and collection efforts don’t lead to someone quickly bringing their account into good standing, a lender might then decide to file a lawsuit against them.

The borrower’s income and property will be at risk

The consequences of a creditor lawsuit may differ depending on the circumstances. However, such lawsuits often put someone’s income and most valuable assets at risk. Creditors with unsecured debts, like credit card companies and hospitals, often seek either to garnish someone’s wages because of the outstanding balance on their account or to place a lien against their personal property. A lien would force someone to pay the debt in full before they can access the money from selling a home or vehicle. The garnishment of someone’s wages will mean they have even less take-home pay from each check, which may push them into bad standing with other creditors.

How can someone resolve a creditor lawsuit?

Especially when there is a clear contract between the borrower and the creditor and a record of missed payments, a debt-related lawsuit is often a very straightforward process. Borrowers have a hard time defending against such claims. The civil courts are unlikely to give much consideration to claims of personal hardship as a defense for non-payment. Sadly, a large portion of creditor lawsuits end in the favor of the plaintiff and push someone already struggling financially into an even more precarious position.

In many cases, the better approach may involve filing bankruptcy before the court date for the creditor lawsuit. Bankruptcy leads to an automatic stay that halts collection activity, which typically results in the temporary dismissal of creditor lawsuits. Unless they file a request for a special hearing, the creditor typically will not be able to sue or pursue other collection activity until after the courts either grant someone’s discharge or dismiss their bankruptcy filing.

Seeking legal guidance to learn more about what happens when a creditor sues an individual may help people choose the best path forward to protect themselves financially.