Bankruptcy: A Powerful Shield Against Collectors' Lawsuits

If you're facing a debt collection lawsuit, you might be considering filing for bankruptcy to stop it. The good news is that, in most cases, filing for bankruptcy does indeed stop any new collection-related lawsuits from being filed or from moving forward. This is due to something called an automatic stay, which is an injunction that prevents creditors from continuing any collection activity, including civil lawsuits. However, it's important to note that bankruptcy doesn't prevent all types of lawsuits, and there are some exceptions, such as child support actions and certain eviction cases. Additionally, if you file for bankruptcy after losing a lawsuit, the automatic stay will still offer some protection from the creditor's collection activities.

Bankruptcy can stop debt collection lawsuits

If you are facing a debt collection lawsuit, you might be considering filing for bankruptcy to stop it. In most cases, filing for bankruptcy does stop any new collection-related lawsuits from being filed or from moving forward. This is due to an automatic stay, which is an injunction that stops any new legal actions from being taken against you and stops any existing actions. The automatic stay prevents creditors from continuing any collection activity, including attempts to win a money judgment in a civil lawsuit.

However, it's important to note that bankruptcy doesn't prevent all lawsuits. For example, it doesn't stop criminal cases, some child support actions, and certain eviction cases. Additionally, if there is a court order for alimony or child support, this debt is considered non-dischargeable, and you must continue to pay it back.

It's also important to understand your rights when it comes to collection efforts by creditors and debt collectors. If a collector is trying to collect a debt that was discharged in bankruptcy, they must contact your attorney instead of you. Informing the collector of the bankruptcy protection will usually cause the collector to correct its violation. If the collector doesn't stop, the next step is to notify the bankruptcy court.

In summary, while bankruptcy can stop most debt collection lawsuits, it's not a guarantee, and it's important to seek legal advice to understand your specific situation.

Bankruptcy discharge and your rights

Filing for bankruptcy can protect you from many different types of civil lawsuits. When you file for bankruptcy, an order called an "automatic stay" begins. This prevents creditors from pursuing money judgments from the debtor, including those from civil lawsuits. The automatic stay is an injunction that stops any new legal actions from being taken against you and stops any existing actions. This means that if you file for bankruptcy, you can stop an impending debt collection lawsuit.

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay off any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

However, it is important to note that there are some lawsuits or judgments that are not impacted by filing for bankruptcy. For example, debts considered alimony or child support are non-dischargeable, so you must continue to pay and pay back any arrearage (missed payments). Similarly, you cannot walk away from any judgment regarding fraud. In Chapter 7 cases, the debtor does not have an absolute right to a discharge, and an objection can be filed by a creditor, the trustee in the case, or the U.S. trustee.

Bankruptcy and civil lawsuits

Filing for bankruptcy can stop or prevent civil lawsuits and judgments from creditors or debt collectors. It can also be used to clear other civil judgments from a person's financial records. However, bankruptcy does not protect individuals from all legal actions.

When a bankruptcy case is approved, the court is given jurisdiction over any cases involving allegations that the individual owes someone money. This could be due to failing to pay a debt or being held liable for someone’s accident injuries. The specific way in which bankruptcy will affect a lawsuit depends on the type of civil lawsuit or the type of debt that forms the basis of the case.

An automatic stay is an injunction that stops any new legal actions from being taken against you and stops any existing actions. It is issued the moment you file for bankruptcy and prevents creditors from continuing any collection activity, including attempts to win a money judgment in a civil lawsuit. The stay ensures creditors don't receive an unfair share of the debtor's available funds. Freezing the collection action allows the court to determine the available assets and divide them appropriately among all creditors.

However, there are some lawsuits or judgments that are not impacted by filing for bankruptcy. For example, debts considered non-dischargeable, such as student loans, criminal penalties and fines, certain taxes, and domestic obligations such as child support, are not affected by bankruptcy. Additionally, a creditor can ask the bankruptcy judge to lift the automatic stay and allow a state lawsuit to proceed in certain situations, such as when the outcome won't affect the bankruptcy case and the creditor faces financial harm.

It is important to understand your rights when it comes to collection efforts by creditors and debt collectors and to work with a seasoned bankruptcy lawyer to ensure your bankruptcy case goes smoothly.

The automatic stay

Filing for bankruptcy can stop debt collection lawsuits against you. This is due to the automatic stay, which is an injunction that stops any new legal actions from being taken against you and prevents creditors from continuing to pursue money judgments from the debtor. The automatic stay is one of the most important protections available to a debtor in bankruptcy and is provided for in section 362 of the Bankruptcy Code.

There are, however, some limitations and exceptions to the automatic stay. It does not extend to protect non-debtor third parties, such as principals, directors, officers, and shareholders of a debtor corporation. It also does not apply to actions against the debtor based on a cause of action arising after the bankruptcy petition was filed. The automatic stay is terminated automatically in two situations: when the property in question is no longer property of the estate, and when the case is closed or dismissed, or a discharge is granted or denied.

It is important to note that there are some lawsuits or judgments that are not impacted by filing for bankruptcy. For example, debt related to court-ordered alimony or child support is considered non-dischargeable, and fraud judgments cannot be avoided.

Non-dischargeable debts

While filing for bankruptcy can stop debt collection lawsuits, there are some lawsuits or judgments that are not impacted by filing for bankruptcy. These are non-dischargeable debts, which are debts that Congress has decided should not be discharged for public policy reasons. There are 19 categories of non-dischargeable debts, including certain types of tax claims, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to government units for fines and penalties, and most government-funded or guaranteed education loans.

Some other categories of non-dischargeable debts include credit card purchases for luxury goods worth more than $650 made within 90 days of bankruptcy filing, fraudulently obtained debts or those obtained under false pretenses, and debts incurred due to the debtor's improper behaviour, such as drunken driving. In addition, if the debtor has failed to follow rules and procedures or has filed for bankruptcy too frequently within a short window of time, the bankruptcy court may deny a discharge.

It is important to note that the timing of the discharge can vary depending on the chapter under which the bankruptcy case is filed. For example, in a Chapter 7 case, the discharge typically occurs about four months after the debtor files the petition, while in a Chapter 13 case, the discharge may take about four years.

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