Actual Problem vs. Thinking Problem

So I understand that circumstances are neutral and our thoughts create our feelings and we get to choose how to feel.  While doing this exercise it made me curious about how to handle a model where the circumstance would be someone yelling angrily or fighting with someone for whatever reason or someone who is making a false assumption.  How do you handle these types of dynamics in a way where you are not judging or creating negativity nor deluding yourself?  What would be a better way to handle such scenarios (is it thoughts or boundaries)?