Will Filing Bankruptcy Stop a Civil Lawsuit?
A civil lawsuit is a legal brought against an individual or entity by another individual or entity seeking compensation for damages or losses. If you are facing a civil lawsuit, you may be asking if filing for bankruptcy can help you stop it. In this article, we will explore how filing bankruptcy can halt a civil lawsuit, including looking at some of the benefits and drawbacks of this option and the process involved. Read on to discover if filing bankruptcy will stop a civil lawsuit.
When a plaintiff starts a civil lawsuit, the intention of the legal action is to obtain either relief from a condition (such as for child custody), or to be compensated for damages caused by the actions of another (like breach of contract). When the purpose it to be compensated for damages suffered, the end goal of the lawsuit is to obtain a money judgment. Although a party can try to collect a lawsuit debt before getting a judgment, once a party obtains a money judgment, that’s when they can leverage powerful collection activity, like a wage garnishment or bank levy. Additionally, if the defendant has real estate, money judgments can become judgment liens against the real estate, which would have to be paid off with interest to the judgment creditor if the defendant ever wanted to sell or refinance the property.
Filing Bankruptcy to Stop Collection Activity of a Money Judgment
Getting straight to it, in most cases, filing bankruptcy will stop a civil lawsuit, as well as stop collection efforts and enforcement action on lawsuit judgments. There are a few circumstances where filing bankruptcy may not stop a civil lawsuit, such as if you have filed consecutive bankruptcy cases such that bankruptcy protection does not apply. Barring special circumstances, filing bankruptcy generally invokes the automatic stay protection to all types of lawsuits, including lawsuits for credit card balances, lawsuits for medical debt, and may even stop eviction cases in some instances.
Although stopping a civil lawsuit may be your ultimate goal, it’s important to consider both the benefits as well as drawbacks of filing bankruptcy.
Benefits of Filing for Bankruptcy to Stop a Civil Lawsuit
Automatic Stay
One of the most significant and powerful benefits of filing any type of bankruptcy is the automatic stay. This is a court order that immediately goes into effect as soon as the bankruptcy case is filed, and operates to stop all types of enforcement actions against you, including debt collection efforts and civil litigation matters. The automatic stay is known as the Order for Relief, and operates to keep you and your creditors in status quo for a brief period, preventing creditors from garnishing wages, foreclosing on your home, repossessing your car and more.
Discharge of Debts
Another benefit of filing for bankruptcy is the bankruptcy discharge. The discharge from bankruptcy operates as a permanent injunction against creditors to enforce or otherwise try to collect a debt. While many, if not most, debts are dischargeable, such as credit card debt, medical bills, and breach of contract damages in a civil lawsuit, there are nondischargeable debts. These are limited in scope, and are mostly spelled out in the bankruptcy code.
Protection of Assets
Filing for bankruptcy can also protect your personal assets. Bankruptcy exemptions allow you to protect and keep certain property, such as your home, car, and personal property. This means that even if you are successful in your bankruptcy case, you may not lose everything you own.
Avoidance of Wage Garnishment
One of the greatest concerns people have when facing a civil lawsuit is the risk of having wages garnished if a judgment is entered. Filing for bankruptcy can stop wage garnishment and prevent creditors from taking money from your paycheck.
Relief from Creditor Harassment
If you have ever had an unpaid credit card balance, then you probably know how relentless the credit card company can be. The letters and calls from debt collectors seem to come in all day, every day. Filing for bankruptcy can provide relief from creditor harassment, as the automatic stay prevents creditors from contacting you or pursuing collection actions against you.
Drawbacks of Filing for Bankruptcy to Stop a Civil Lawsuit
Negative Impact on Credit Score
The filing of a bankruptcy may possibly have a negative impact on your credit score. A notation of bankruptcy filing will remain on your credit report for up to ten years, which can make it more expensive to obtain credit in the future.
Loss of Nonexempt Assets
While bankruptcy exemptions may protect many of your assets, nonexempt assets may be sold to pay off your creditors. This means that you may lose property that you would have been able to keep if you had not filed for bankruptcy.
Potential for Dismissal of Case
If you do not meet the eligibility requirements for bankruptcy or fail to comply with all of the procedural requirements, your case may be dismissed. This means that you may not receive the full benefits of bankruptcy, and your civil lawsuit may be able to resume. Additionally, if you file a bankruptcy case that gets dismissed, you may not be eligible for the benefit of the automatic stay in a subsequent case if you need to file one.
Public Record of Bankruptcy Filing
Bankruptcy filings, like most other legal matters, are public records, which means that anyone can access information about your bankruptcy case. This may be a concern for some people, and something to be considered when filing.
Conclusion
Facing is civil lawsuit can be stressful, time-consuming and expensive. In many cases, filing for bankruptcy will likely stop a civil lawsuit in its tracks, and can possibly be a solution to your legal troubles. It is important, however, to understand the benefits and drawbacks of a bankruptcy case before making a decision. Consulting with a bankruptcy attorney early on is critical, since it can help you determine if bankruptcy can work for you in the way you want it to. The filing of a bankruptcy petition can have immediate benefits, but it’s just as important to understand the long-term consequences, so it is essential to weigh your options carefully.
If you’re in the New York City area and facing a civil lawsuit, get in touch with the Law Office of Richard Kistnen, an experienced bankruptcy attorney, to learn how bankruptcy can help you, and you can book your confidential, no obligation consultation by clicking here.