When you have been sued

Being sued by a creditor is stressful, costly and embarrassing. A lawsuit often forces people to file bankruptcy to stop the lawsuit and keep a judgment from being entered. If you have been served with suit papers, you must answer and defend the suit. If you do not answer (file papers responding to the lawsuit) and successfully defend the suit, a judgment will be entered against you.

If you have a valid defense to a lawsuit, you may need to hire an attorney to assist you in raising those defenses. Examples of valid defenses are:

1. Statute of limitations – in general, the statute of limitations on most debts in Texas is four years. The four years normally begins to run from the date the last debt payment was due or the date the last payment was actually made. Old debts are often sold to debt buyers who attempt to collect well beyond the statute of limitations.
2. Debt previously satisfied – we often see people who are sued on old debts that they have compromised and settled. They frequently do not have a written agreement or do not keep proof of satisfaction of the debt.

By raising a valid defense, you may be able to win the lawsuit and not have to file bankruptcy to keep a judgment from being entered against you.

Once the creditor suing you takes a judgment, it can levy on your bank accounts and other non-exempt assets to collect the judgment. There are many assets that are exempt from levy under Texas state law, even without filing bankruptcy. Bankruptcy, however, will stop any levy, and may allow you to exempt or protect additional assets. In Texas, in most circumstances, the judgment creditor cannot take your homestead, however, the judgment still attaches to your property. The judgment may cloud your title and prevent you from doing such things as refinancing and conveying the property in certain circumstances. You may be able to sell your homestead, however, you would have a limited time to reinvest the proceeds in a new homestead or the proceeds of the sale may be seized to satisfy the judgment.

If you take no action to void a judgment that has attached to your home through bankruptcy, in most circumstances, when you pass away, the judgment will have to be paid. The judgment continues to accrue interest while it is pending unpaid.

What if I already have a judgment against me?

If you already have a judgment against you that is impairing your homestead exemption, bankruptcy can usually be used to remove the judgment. This is called voiding the judgment.  This does require an extra procedure called a Motion to Void Judgment Lien, but it is absolutely necessary to clear up the judgment so you can obtain your fresh start. If you can file bankruptcy before the judgment is entered, this is the best course of action because you will not have to pay for the costs of voiding the judgment lien, and your credit will improve faster following bankruptcy.

How long does a creditor have to collect on a judgment?

Generally, the creditor has ten years from the date of the abstract to take enforcement action. Taking enforcement action, such as requesting a writ of execution by the sheriff may extend the time to collect the judgment.