Question:  “I just received a summons and am being sued by one of my creditors to collect an unpaid debt.  What does this mean, and how will bankruptcy help me deal with this?”

I.          The Meaning And Implications Of The Action Against You

When a creditor sues you to collect an unpaid debt, it does so under California state law.  The creditor’s goal is to obtain a judgment against you in California State Court, and use that judgment to garnish wages, levy funds from your bank account, or record liens against your assets. 

If you take no action to defend yourself, the creditor will request a default judgment against you.  Once the default judgment is granted, the creditor will use the local Sheriff as an intermediary to garnish wages and levy funds.

If you wish to dispute the claim, you must file a written response within thirty days or else face the possibility of a default judgment.  If you file the response the State Court will set the matter for hearing.  Due to the current huge caseload backlog, State Courts are generally setting the hearing dates many months into the future.  Thus, filing the written response will buy you some time.  However, two caveats are in order: 

  1. Courts generally frown on the filing of frivolous papers.  Therefore, if the debt is legitimate and no statute of limitations is implicated, it is unclear what sort of defense you will be able to assert.
  2. If the action was filed in Small Claims Court Division of the California Superior Court, your response will not buy very much time because that court is a sort of “rocket docket.”

II.        What Bankruptcy Can Do

As previously noted, collection actions are prosecuted pursuant to California state law.  On the other hand, since the Bankruptcy Code is Title 11 of the United States Code, bankruptcy cases are prosecuted under federal bankruptcy law.  Indeed, the Bankruptcy Code was enacted pursuant to Congress’s enumerated bankruptcy power found in Article I, section 8 of the U.S. Constitution:  “The Congress shall have power to . . . establish . . . uniform laws on the subject of bankruptcies throughout the United States . . .”  Why is this important?

Article VI of the U.S. Constitution provides:  “This Constitution, and the laws of the United States which shall be made in pursuance thereof . . . shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any state to the contrary notwithstanding.”  As we saw in the previous paragraph, the Bankruptcy Code was enacted “in pursuance” of the U.S. Constitution, so it is part of the supreme law of the land.  This means that your bankruptcy filing will trump the State Court action.

Consequently, as long as the underlying debt in question doesn’t fall within the ambit of any of the non-dischargeability categories of 11 U.S.C. § 523(a) that we discussed in an earlier blog, the debt will be discharged in your bankruptcy.

In addition – and this is really important – when you file for bankruptcy protection the stay of 11 U.S.C. § 362(a) goes into effect.  In fact, the very act of filing your papers triggers the stay, so it’s called the “automatic stay”.  A stay in law says:  “Stop!”  In this case, the automatic stay stops all actions by your creditors against you as a human being, against any of your possessions, and against the bankruptcy estate that is created upon your bankruptcy filing.  In particular, the automatic stay immediately stays the State Court lawsuit