Can Bankruptcy Stop a Civil Lawsuit?
When one files for bankruptcy, an automatic stay immediately goes into effect. The stay is not dependent on your repayment plan being approved by the court if you file for Chapter 13, and you don’t have to personally notify your creditors of the stay, if you file for Chapter 7. It prohibits creditors from taking any action to collect from you, including initiating or proceeding with lawsuits.
Lawsuits Against Debtors
- If a creditor has already started a lawsuit against you, the proceedings must stop when you file for bankruptcy. Nor can a creditor file suit against you after you’re in bankruptcy. If there’s already a judgment against you, the automatic stay prevents the creditor from doing anything with it, such as placing a lien against your property or garnishing your bank account or wages.
Lawsuits Brought By Debtors
- If you want to file a lawsuit against someone, such as for personal injury or discrimination, bankruptcy’s automatic stay doesn’t prevent you from doing so. Any money you recover may become part of your bankruptcy estate, however. If you filed for Chapter 7, the trustee might be able to take the lawsuit proceeds to satisfy your debts. If you filed for Chapter 13, you might have to amend your payment plan to reflect the additional money available to pay down your debts.
Exceptions to the Stay
Debts for past due child support or alimony are excepted from the automatic stay. Other creditors can also file motions with the court to have the stay lifted for good cause, such as if they’re being unfairly affected by it.