Filing for bankruptcy while a lawsuit is pending can prevent the creditor from getting a judgment lien on your property or securing a fraud judgment against you.
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Bankruptcy Lawsuit
People often file for bankruptcy after being served with a civil lawsuit or losing one. Lawsuits can leave individuals with massive debt that can hit $1 million or more. When it comes to bankruptcy and civil lawsuits, multiple factors are involved. Working with a quality bankruptcy attorney can make all the difference for your case.
Can Filing for Bankruptcy Stop a Lawsuit?
Yes, filing for bankruptcy can stop a civil lawsuit. When you file a bankruptcy case, an order called an automatic stay begins.
An automatic stay prevents all creditors from continuing to pursue money judgments from the debtor, including those from civil lawsuits.
Types of Civil Lawsuits Bankruptcy Stops
Filing for bankruptcy can protect you from many different types of civil lawsuits. The bankruptcy “discharge” order will essentially wipe these debts away.
Types of lawsuits that bankruptcy can stop include:
- A home foreclosure
- Breach of contract debts with a lender
- Credit card debts
- Debt collection agency accounts
- Evictions (only if the state court has not issued an order for possession yet)
- Financial disputes between business partners
- Medical debts
- Personal loan debts
- Utility debts
Types of Civil Lawsuits Bankruptcy Can’t Stop
While filing for bankruptcy can help you get out of certain financial obligations, it will not protect you against other legal matters.
Types of lawsuits that bankruptcy can’t stop include:
- Child custody cases
- Criminal cases
- Divorce and alimony cases
- Evictions, if the state court has already granted possession to the landlord
Can Creditors File a Lawsuit If Bankruptcy Is Approved?
Yes, creditors can continue with a lawsuit even after bankruptcy has been approved. However, in order to do so, the creditor has to ask the bankruptcy judge to lift the automatic stay.
These requests are generally granted in two instances:
- The creditor faces financial harm the longer they wait to collect on the debt, and the outcome of the lawsuit won’t affect the bankruptcy case.
- The bankruptcy case will resolve an issue that the lawsuit will decide.
In any case, the suing party will always need permission from the court to continue their case after a bankruptcy has been approved.
Can You Still File for Bankruptcy If You Lose a Civil Lawsuit?
Yes, you can still file for bankruptcy after you have lost a civil lawsuit, although it is generally easier and preferred to file for bankruptcy while a civil lawsuit is still ongoing.
If you file for bankruptcy after losing a lawsuit, the automatic stay will still protect you from most of the creditor’s collection activities.
Even if there is a garnishment against your bank account or paycheck, you should still be protected from most collection actions with the automatic stay.
Stopping an Eviction by Filing for Bankruptcy
It is possible to stop an eviction by filing for bankruptcy, but it is very important to act fast in this situation.
Your case depends heavily on whether you can file your claim before an eviction judgment is issued.
If you file your bankruptcy case before the eviction court issues an eviction judgment, the automatic stay will work to stop the eviction. Keep in mind that your landlord may fight this action by claiming that you are endangering the property.
If your landlord has already obtained an eviction judgment before you file your claim, they may proceed with the eviction. Some states allow people to catch up on their past due rent within a 30-day period to avoid the eviction.
Whether you are the tenant or the landlord, bankruptcy and eviction can be complicated. If you find yourself in this situation, it would be to your advantage to consult with an experienced bankruptcy attorney.
How to File for Bankruptcy
You can take the following steps when you are ready to file for bankruptcy.
Step 1: Gather Financial Records
Since you will be asked to show the court all of the debt that you owe, it is a good idea to start gathering these documents immediately.
You will have to list both your secured debts (mortgages and car loans, etc.) as well as your unsecured debts (credit cards and medical bills, etc.).
Step 2: Reach Out to a Bankruptcy Law Firm
It is possible to file for bankruptcy without a bankruptcy attorney, but it is not recommended as bankruptcy can have long-term consequences both financially and legally.
A bankruptcy lawyer can guide you through every step of the filing process. They can also help you gather your financial records and file the claim.
Did you know?
One of the important steps that a bankruptcy attorney can assist with is deciding which type of bankruptcy to file for — either Chapter 7 or Chapter 13.
An attorney-client relationship is always private and confidential, and any top-quality attorney will always have your best interests in mind.
Step 3: Get Credit Counseling
Before you can file for bankruptcy, you must attend a credit counseling session with a counselor approved by the U.S. Department of Justice.
This counselor will look at your current financial situation and help you come up with a budget plan that you can use moving forward.
Depending on the type of bankruptcy that you are filing for, credit counseling may also include coming up with a repayment plan for your debts.
Step 4: File a Bankruptcy Claim
In order to file your bankruptcy claim, you will need to fill out all court-required forms, pay all court-required fees, and present all forms in person to the bankruptcy court clerk along with your bankruptcy petition.
The clerk will likely not be able to help you with your paperwork. You will need to ensure that everything is filled out completely before going to the courthouse. Of course, your bankruptcy attorney can review your forms and file them for you.
Get Help With Bankruptcy and Stopping Civil Lawsuits
Filing for bankruptcy may seem complicated, especially when there are pending or recently lost lawsuits involved in your case.
By working with a seasoned lawyer, you can ensure that your bankruptcy case is strong and goes smoothly from start to finish.
Bankruptcy Lawsuits FAQs
Is bankruptcy a civil judgment?
Bankruptcy itself is not a civil judgment, but it can be used to clear other civil judgments off of a person’s financial records.
While every type of judgment cannot be cleared from a person’s debt, many types can be cleared, such as a credit card balance or a home foreclosure.
How does bankruptcy affect a lawsuit?
By filing a bankruptcy petition, an order called an automatic stay will start, and it will prevent creditors from pursuing debts from the person who filed the bankruptcy claim.
The person who filed the petition, also known as the debtor, is protected from many kinds of financial obligations. However, bankruptcy does not protect them from all legal action.
Does Chapter 11 bankruptcy protect from lawsuits?
Chapter 11 bankruptcy is a type of bankruptcy that applies to companies and corporations. It is sometimes called a “reorganization” bankruptcy, because it allows companies to restructure their organization while continuing business.
Under a Chapter 11 bankruptcy, you are protected from lawsuits, and you may keep all of your assets.
Does bankruptcy apply to lawsuit debts?
Bankruptcy does apply to lawsuit debts and will erase those debts as long as they are not debts that are considered nondischargeable.
Examples of nondischargeable debts include student loans, criminal penalties and fines, certain taxes, and domestic obligations such as child support.
Can a lawsuit judgment have a worse outcome than filing for bankruptcy?
It is absolutely possible for a lawsuit judgment to have a worse outcome than filing for bankruptcy. This is why many people faced with lawsuits choose to file for bankruptcy.
Still, filing for bankruptcy has many pros and cons, and these must be weighed carefully. An experienced bankruptcy attorney can help you look at your options and decide if bankruptcy is the right choice for you.
Fact-Checked and Legally Reviewed by: Rae Theodore
Rae Theodore is a writer and editor with more than 30 years of experience in legal publishing. She earned a bachelor’s degree in English from Pennsylvania State University.
- United States Courts. “Chapter 7 – Bankruptcy Basics.” Retrieved from: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics. Accessed on August 6, 2024.
- United States Courts. “Chapter 13 – Bankruptcy Basics.” Retrieved from: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics. Accessed on August 6, 2024.
- United States Courts. “Discharge in Bankruptcy – Bankruptcy Basics.” Retrieved from: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics. Accessed on August 6, 2024.
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