Last week I received a call from a prospective client who was just beginning his research into the bankruptcy process. As I have stated many times I encourage anyone who thinks that bankruptcy may be even a remote possibility to call or come in because pre-bankruptcy planning will always produce a better result (even if you end up deciding not to file) and because you will inevitably learn something from talking to me that will help you deal with your debts.
In any case, this potential client asked a few questions and just as we were about to conclude the call he mentioned that he had been sued 3 weeks prior but “it really doesn’t matter because I am currently unemployed and I can get rid of that debt in a bankruptcy later on.”
Nothing could be further from the truth.
In Georgia, if you are sued by a creditor like a credit card lender or medical provider, you have 30 days in which to file a written answer in the state court where you were served. After 30 days, the lawsuit goes into “default,” but Georgia law actually gives you an additional 15 days to reopen the default by paying court costs.
If you let the lawsuit go into default the plaintiff creditor will get a judgment and then a “fi fa” that he can use to go after wages, bank accounts or property.
Why, then, should you care if a creditor gets a judgment when you are unemployed and own no property? There are several reasons:
First, you may not always be unemployed and not own property. Judgments in Georgia last 7 years and they can be renewed thereafter. It is not uncommon for creditors to sit on uncollected judgments and then sell the right to collect or renew collection efforts years after the original date on the judgment. Even if a creditor tells you that the claim or judgment against you has been “written off” it can come back with a vengeance if a creditor or creditor’s agent discovers that you own property or that you now employed.
Second, the language in the lawsuit could include allegations of fraud or other wrongful behavior. If a default judgment is issued on the basis of such language, the judgment lien will most likely not be dischargeable in bankruptcy.
Third, while you can, in theory, get rid of a judgment lien by filing something called a “motion to avoid judicial lien” in your bankruptcy, this type of motion is not applicable in every case and these motions can add cost to your bankruptcy case.
Fourth, it is possible that the creditor may not actually have the evidence to prove its case and by filing an answer you may be able to negotiate a settlement on favorable terms and thereby avoid bankruptcy completely.
Fifth, your financial situation may change such that you are not eligible for bankruptcy or you stand to lose too much by filing. A default judgment could put you in a very uncomfortable position, either now or in the future.
The bottom line is this: if you receive a lawsuit, contact a lawyer immediately for advice about your options and never assume that a default judgment is harmless.