Being Sued or Threatened Over A Debt: Is Bankruptcy the Next Step?

If I’m Being Sued For a Debt, Is Bankruptcy a Logical Next Step?‍

When you find yourself facing a legal threat over a debt, the idea of bankruptcy often enters the equation. But should you consider bankruptcy if you’re being sued or threatened over a debt? In this article, we will explore the ins and outs of this question.

Understanding Legal Threats in Debt Collection

Legal threats are typically the final card that a collection company plays when attempting to secure payments on an overdue debt. While this can be a stressful experience, it’s important to remember that very few people ever face an actual lawsuit. However, the threat itself can be enough to spur action.

In Ontario, for example, there are two types of court that can be involved in such a case. If the total debt is less than $25,000, a claim may be filed in Small Claims Court. On the other hand, debts exceeding $25,000 must be pursued in the Superior Court of Ontario.

Bankruptcy as a Stay of Proceedings

When you decide to file for personal bankruptcy, a consumer proposal, or a Division I proposal, an automatic Stay of Proceedings is set in motion. This legal term means that any legal actions against you are halted, no matter the stage of proceedings.

However, if a creditor desires to continue with the lawsuit, they must present a motion in the Bankruptcy Court and ask for permission. This will only be granted if the debt in question may survive bankruptcy. Cases such as Family Court matters, allegations of fraud or misrepresentation fall under this category.

The Big Question: Should You Consider Bankruptcy?

Whether or not to consider bankruptcy as an answer to a lawsuit threat is a complex question.

If you’re like many individuals facing a legal threat over an unpaid bill, chances are you have more than just this one debt. If the total amount you owe is significant and considering your personal situation, filing for bankruptcy may be the solution.

Alternatively, a consumer proposal may offer the same protection as bankruptcy, with additional benefits. It’s definitely something worth considering.

If the debt you’re being sued for is your only debt, deciding to file for bankruptcy could be more challenging. It’s possible for a creditor to complicate, lengthen, and consequently make your bankruptcy more expensive. This is more likely to occur when there is only one creditor involved.

If you’re being threatened with a lawsuit over an unpaid debt, it’s imperative to contact a bankruptcy trustee to review your situation and options. Although a trustee isn’t a lawyer and can’t assist with the lawsuit, they can explain the process in more detail and help you understand how bankruptcy might help you deal with the issue.

Final Thoughts

When faced with a lawsuit threat over a debt, it’s essential to carefully consider all your options before deciding to file for bankruptcy. It’s a decision that should not be taken lightly, as it could significantly impact your financial future. Always seek advice from a professional trustee to ensure you make the best decision for your situation.

Remember, you’re not alone in this. There are resources available to help you navigate this challenging time. The most important thing is to take action and not let the threat of a lawsuit push you into hasty decisions.

Should you consider bankruptcy if being sued or threatened over a debt? The answer is not a straightforward yes or no. It’s a decision that needs to be made on a case-by-case basis, taking into account your unique financial circumstances.

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