Will filing bankruptcy get me out of paying damages regarding a lawsuit that I lost?

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Will filing bankruptcy get me out of paying damages regarding a lawsuit that I lost?

I’ve been working to pay off 50K of credit card loans slowly over the past 5 years since my career change. I’m down to about 25K but have very little disposable income or assests (make about 25K a year after taxes). I worked as an independent insurance representation for a while, and after I left to start a more profitable job, a client sued me for an Errors and Ommissions issue. The state board said I was clear of wrongdoing but the lawyer still thinks I’ve only got a 11 in 4 shot of winning the case. They offered to settle out of court for 60K and state that damages, plus my legal fees will be in the mid-six figures. If I lose at court. If I win, I still have 40K in legal fees. Will bankruptcy cover either?

Asked on January 31, 2013 under Bankruptcy Law, Texas

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Filing for bankruptcy regarding a potential lawsuit can prevent the plaintiff (the person who is suing you) from collecting a judgment or placing a lien on your home. You can file even after you have been sued but if you wait until after the lawsuit is over and the court rules against you, any damages levied against you will become a secured debt; you may  not be able to discharge it through bankruptcy at that point.

However, you will need to decide which chapter of bankruptcy to file under. If you file a Chapter 7 bankruptcy, all of your property that is not legally exempt can be sold off to meet your debts; once the property is gone so too are your debts (all of them, not just the amount oed for the lawsuit). If you file a Chapter 13, you can keep your assets but you must enter into a repayment plan (3-5 years) under which your all of creditors are paid a discounted amount of what is owed them.

This is just a basic explanation. At this point, you should consult directly with a bankruptcy attorney in your area. They can best advize as to your spedific situation.


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