Dealing with a lawsuit while managing serious debt is stressful. Filing for bankruptcy may protect you from many collection actions. But it does not stop every type of lawsuit. What happens depends on the nature of the claim and what the bankruptcy court decides.
Does bankruptcy stop a lawsuit right away?
Filing for bankruptcy triggers an automatic stay. This prevents creditors from taking most collection actions against you. It takes effect the moment you file your petition.
The stay can pause lawsuits over pre-bankruptcy debts. It can also stop wage garnishments, repossessions and some foreclosure proceedings. But filing does not automatically dismiss the underlying lawsuit.
Are there exceptions to the automatic stay?
Yes. Certain legal proceedings are exempt from the automatic stay. Family law matters are a common example. The stay generally does not prevent proceedings involving child support, alimony, child custody, visitation or other domestic support obligations. Criminal proceedings against the debtor also generally may continue.
Government actions involving police or regulatory powers may also proceed despite the stay. These exceptions allow certain public and family-related matters to continue even after a bankruptcy case begins.
A creditor may also ask the bankruptcy court to lift or modify the automatic stay. The court may grant that request when the creditor meets the applicable legal requirements and shows sufficient grounds for relief.
What happens after a bankruptcy discharge?
A discharge eliminates personal liability for most debts, but it does not automatically resolve every pending lawsuit. Certain debts remain outside the scope of a bankruptcy discharge. These may include claims based on fraud, willful injury and domestic support obligations. In some cases, the court must determine whether a particular debt falls within one of these statutory exceptions. Secured creditors may also retain certain rights against collateral even after the discharge takes effect.
What should you do if you have a pending lawsuit?
Do not assume filing will resolve the case. Before you file:
- Identify the claim type and whether the debt is likely dischargeable
- Confirm whether the automatic stay applies to that proceeding
- Disclose the lawsuit in your bankruptcy schedules as required
Taking these steps can help protect your rights and ensure the pending lawsuit is handled properly during the bankruptcy process.
How bankruptcy may and may not affect a pending lawsuit
A pending lawsuit does not stop you from filing for bankruptcy. But it does require careful planning. You need to know whether the stay applies, which debts may survive discharge and how the case might proceed. A bankruptcy attorney can review your situation and help you decide the best path forward.