Which Lawsuits Will Bankruptcy Stop?
Bankruptcy protection is an important safety net for all Americans. And one of its less-understood— but vital — features is the automatic stay. If you are facing a lawsuit at the same time you begin the bankruptcy process, will this stay protect you against that lawsuit? Here's what you need to know.
What Lawsuits Does the Stay Affect?
The automatic, temporary stay comes with all chapters of bankruptcy and generally stops further collections efforts. So if you are being sued by a creditor, that lawsuit is usually put on immediate hold.
Even though a credit card company or lender suing for payment is the most common lawsuit prevented by the stay, it can also stop suits over breach of contract, business disputes, and even eviction in its early forms.
What Lawsuits Are Not Affected?
Bankruptcy matters deal with debts and creditors, not all legal matters. So the stay may not stop all types of lawsuits. A criminal case, for example, is not affected. And family law issues like divorce, separation, and child custody will continue as well.
Finally, an eviction order may continue unabated depending on how far along the suit was before the bankruptcy filing. If the court has already granted the landlord an order for possession, it may be able to stand.
Can a Lawsuit Be Restarted?
The bankruptcy stay may be automatic, but it's also temporary. A creditor or legal opponent can ask the court to allow a suit to restart. However, to do so, the lawsuit or legal action must fit strict criteria.
The most common exempted lawsuit is the foreclosure or repossession of an asset in which the debtor has no equity or cannot reaffirm. If there's no way for the debtor to keep the asset and the lender will suffer financial harm if there are delays, they may be allowed to continue getting it back.
In rare cases, the lawsuit itself can help resolve issues related to the bankruptcy case. If your business partner is suing you over business assets, for instance, the bankruptcy court could let that lawsuit continue so as to determine what assets are really yours.
Where Can You Learn More?
How will your particular legal issues be affected by your upcoming bankruptcy filing? Find out by meeting with a bankruptcy attorney in your state today. With their guidance, you can make the best decisions no matter what your circumstances are.