Can Bankruptcy Stop a Lawsuit From Being Filed Against Me?
Learn more about the bankruptcy process and how filing for bankruptcy may be able to help you disrupt certain lawsuits and collection attempts. Filing for bankruptcy can be a helpful way to manage your finances and protect your property if you're facing significant debt. But one of the questions we often get asked is whether bankruptcy can stop a lawsuit from being filed against you.
The answer is: maybe. It depends on the type of lawsuit that's being filed against you and the stage that the lawsuit is in.
Let's take a closer look at how different types of lawsuits may be affected by bankruptcy.
Types of Lawsuits That May Be Affected by Bankruptcy
If you're facing any kind of civil lawsuit, filing for bankruptcy may put the case on hold temporarily while your bankruptcy case is pending. This is because bankruptcy gives you what's called the "automatic stay." The automatic stay is a court order that stops most kinds of lawsuits from being filed or proceeding against you once you've filed for bankruptcy.
The automatic stay will usually stop:
- Creditors from trying to collect on debts
- Landlords from trying to evict you
- Utility companies from disconnecting your service
- Most wage garnishments
- Lawsuits that have been filed against you
However, there are some exceptions to the automatic stay. For example, the automatic stay will not stop:
- Criminal proceedings against you
- Divorce proceedings
- Child custody proceedings
- Proceedings to collect alimony or child support payments
If you're facing any of these types of lawsuits, you'll need to talk to an attorney to find out how bankruptcy might affect your case.
How Long Does the Automatic Stay Last?
In most cases, the automatic stay will last until your bankruptcy case is over. However, there are some situations where the automatic stay may be lifted before your bankruptcy case is complete. For example, if you've filed for bankruptcy more than once in the past year, the court may lift the automatic stay after a certain period of time.
Or, if the court finds that you're filing for bankruptcy in bad faith or to harass your creditors, the court may also lift the automatic stay. If the automatic stay is lifted in your case, that means that the lawsuit against you can proceed. However, you may still have some options for protecting yourself from the lawsuit, even if the automatic stay is lifted.
For example, if you're facing a foreclosure, you may be able to file a motion with the court to put the foreclosure on hold while your bankruptcy case is pending. Or, if you're facing eviction, you may be able to use bankruptcy to get caught up on your rent and stop the eviction proceedings.
Chapters of Bankruptcy that Allow for an Automatic Stay
The automatic stay applies to all types of bankruptcy cases. However, it's important to note that the length of the automatic stay may be different depending on the type of bankruptcy you file.
For example, if you file for Chapter 7 bankruptcy, the automatic stay will last until your case is closed. However, if you file for Chapter 13 bankruptcy, the automatic stay will last for the duration of your repayment plan, which is usually three to five years.
What Happens if the Automatic Stay is Lifted?
If you're facing a lawsuit and the automatic stay is in danger of being lifted, you'll need to file a motion with the bankruptcy court. The court will then hold a hearing to decide whether or not the automatic stay should be held in place. At the hearing, both you and the person or entity who filed the lawsuit against you will have a chance to present your case. After hearing both sides, the judge will decide whether or not to lift the stay.
You'll need to show the court that:
- The lawsuit against you is causing you financial hardship
- You have a valid defense to the lawsuit
- Allowing the lawsuit to proceed would be unfair
If the judge decides to lift the stay, that means the lawsuit can proceed. However, in some cases, the judge may decide to put certain conditions in place before lifting the stay. For example, the judge may require you to post a bond. A bond is a type of insurance that protects the person or entity who filed the lawsuit against you from having to pay any damages if they win the case. The amount of the bond will be based on the estimated amount of damages that could be awarded in the case.
If you can't afford to post a bond, the stay may still be lifted under certain conditions. For example, you may agree to allow the person or entity who filed the lawsuit against you to garnish your wages or attach a lien to your property. You may also be required to give the court regular updates on your financial situation and notify the court if anything changes.
How Bankruptcy Can Stop a Lawsuit That Has Already Been Filed Against You
If a lawsuit has already been filed against you before you file for bankruptcy, the automatic stay will still apply to the case. However, the length of the stay may be different than it would be if the lawsuit was filed after you filed for bankruptcy.
For example, if you're facing a foreclosure and you file for Chapter 7 bankruptcy, the automatic stay will last until your case is closed. However, if the foreclosure lawsuit was already filed against you before you filed for bankruptcy, the stay may only last for a certain period of time — from anywhere between 30 to 60 days. After that period of time, the court may lift the stay and allow the foreclosure to proceed.
If you're facing eviction and you file for Chapter 13 bankruptcy, the automatic stay will last for the duration of your repayment plan, which is usually three to five years. If the eviction lawsuit was already filed against you before you filed for bankruptcy, the stay may only last 30 to 60 days.
Again, the court could still lift the stay and allow the eviction to proceed. Your landlord may also appeal to the court to remove the stay.
An automatic stay is a powerful tool that can help you protect yourself from creditors and lawsuits. If you're facing a lawsuit and you want to keep the case from proceeding, you may be able to do so by filing for bankruptcy. However, it's important to understand that the length of the automatic stay may be different depending on the type of bankruptcy you file.
Additionally, as we have seen, the court may still lift the stay under certain circumstances.
A Final Note on Filing Bankruptcy to Stop a Lawsuit
While filing bankruptcy may stop a lawsuit from being filed against you, it's important to understand that bankruptcy is not a magic solution for all of your financial problems.
In many cases, you may be better off working out a payment plan or settlement with your creditors rather than filing for bankruptcy. And, in some cases, filing for bankruptcy may not stop the lawsuit against you from proceeding. If you're facing a criminal proceeding, for example, bankruptcy will not stop these proceedings against you. Talking to an attorney is incredibly important if you're facing any kind of lawsuit and considering using bankruptcy to stop the proceedings. An experienced bankruptcy attorney can help you understand your rights and options under the bankruptcy laws and can help you decide whether filing for bankruptcy is the best option for you.