December 9, 2019

Will Bankruptcy Protect Me from A Lawsuit?

Financial hardships can happen to anyone. People can find themselves unable to honor their obligations due to medical debt, job losses, and a number of other issues. In some cases, filing for bankruptcy can help you avoid certain legal woes. Here is what you need to know, and why you need advice from your lawyer before deciding what to do.

Lawsuits That are Stopped by Bankruptcy

One of the benefits of bankruptcy is the automatic stay. Essentially, the court bars the pursuit of collection claims or pending lawsuits related to your debts. The goal is to temporarily alleviate the financial burden while the court determines if you will be granted bankruptcy protection.

Any suits that have to do with unsecured debt like credit cards or signature loans come to a halt when your lawyer files the bankruptcy petition. If you have a business partner and there’s some sort of lawsuit pending, it’s placed on hold for now. If someone is suing you for damages after a traffic accident that involved injuries, it will also be stopped.

If you owe taxes to a local, state, or federal revenue service, it’s possible to place a hold on any collection efforts. That includes attempts to obtain a court order to garnish your wages.

Keep in mind that many of these debts can be discharged as part of a Chapter 7 bankruptcy. If a significant amount of your debt cannot be discharged using this approach, your lawyer is likely to recommend seeking Chapter 13 bankruptcy protection. With either approach, the automatic stay remains in place while your petition moves through the system.

Lawsuits That are Not Affected by Filing Bankruptcy

Some legal actions will continue even if you’re filed for bankruptcy. Many of these actions have to do with matters related to family law. For example, a divorce action or cases involving child custody or the support of minor children will continue to move forward. It would be in your best interests to consult with a lawyer who understands how issues related to family law may or may not intersect with current bankruptcy laws.

Criminal cases will also continue. If you’re been accused of a crime, the fact that you’re seeking bankruptcy protection will not prevent the case from progressing through the court system.

Your Bankruptcy and Providing Full Disclosure to Your Attorney

The most practical approach to determining what could and could not happen in your case is to provide full disclosure to your attorney. Once your bankruptcy attorney has all the information, it’s possible to offer advice about how to proceed. That includes recommending a specific type of bankruptcy and possibly advising you to retain the services of another lawyer who can help you with anything that cannot be stopped or at least delayed while your bankruptcy petition moves through the court.

Remember that the point of bankruptcy is to bring order to what can be a chaotic time in your life. Make sure you understand what can be managed through the bankruptcy court and what you will have to deal with in a different venue. Once the details are settled, you can look forward to getting back to a place where it’s possible to feel in control of your life again.