Debt litigation can involve a creditor suing a debtor for overdue payments or a debtor filing for bankruptcy to repay or cancel debts. Negotiations and settlements can occur before court, and bankruptcy proceedings can be initiated voluntarily or involuntarily.
The term debt litigation can refer to a couple of different types of lawsuits. In some cases, debt litigation is a type of lawsuit filed by a creditor in order to recover overdue payments from a debtor. For example, a bank may file a lawsuit to recover credit card debt owed by a borrower. Bankruptcy litigation is another type of debt lawsuit, and is usually filed for the purpose of allowing a debtor to repay or cancel outstanding debts under the protection of a bankruptcy court. Debt suits are considered a form of civil litigation in most countries.
In a debt litigation action to recover delinquent funds, a financial institution, collection company, or other creditor usually owes a significant amount of money from a debtor. The creditor typically serves the debtor with documents called a claim and summons. The claim specifies the type of relief sought by the creditor, and the summons requires the debtor to appear in court at a certain time. In response to the complaint, the debtor can provide a written response. In most countries, it is common, though not mandatory, for a debt law attorney to represent each party.
Before the case is heard in court, the creditor and the debtor can choose to negotiate an out-of-court settlement. It is often in both parties’ best interest to avoid going to court to save on attorney fees, court costs and time. As part of the settlement process, a creditor may agree to provide a flexible installment payment option or write off a portion of the debt.
Bankruptcy proceedings are usually initiated by a person who is unable to pay their outstanding personal debts. A business owner can also file a bankruptcy action on behalf of his business. If this occurs, the business usually closes or continues in operation while making reduced payments to its creditors under the supervision of a bankruptcy judge. In rare cases, a creditor may require the debtor to file a bankruptcy action. This is known as involuntary bankruptcy debt litigation.
Sometimes the bankruptcy attorney representing the debtor will work with the court and any creditors to establish a reasonable repayment plan. In other situations, debt litigation can lead the debtor to file for statutory bankruptcy. Different types of legal bankruptcy can be filed in different countries, depending on who is the debtor and what the desired outcome is. In some cases, almost all debts will be cancelled, even if the debtor will have difficulty securing credit in the future.
Protect your devices with Threat Protection by NordVPN
