Can Filing for Bankruptcy Stop a Lawsuit?

Are your creditors suing you? If you are facing a civil lawsuit, you may want to consider filing for bankruptcy. In many instances, this will be your best option. A lawsuit can become stressful and costly. However, a bankruptcy will often ensure that a creditor never receives a judgment. This is because of one of the most powerful aspects of a bankruptcy, called the Automatic Stay. With very few exceptions, this injunction will stop the actions of creditors. So, a bankruptcy will stop a lawsuit.

In fact, it is a creditor filing a lawsuit that prompts many people to file for bankruptcy. Even when suffering harsh financial situations, most people intend to pay their debts. Regardless, when a creditor initiates a lawsuit, things become drastic and many will switch to survival mode. Filing a bankruptcy may be the best way to ensure that a creditor never receives a judgment. Nevertheless, each situation is unique. If you have a good chance of winning the lawsuit, it may be worth defending.

That said, when you file for bankruptcy, the Automatic Stay is immediate and creditors are ordered to stop all collection activity. This injunction will include almost all civil lawsuits and will also halt existing litigation. Essentially, the courts want to freeze your property for the purpose of the bankruptcy proceedings. Some of that property may be exempt, which means you will get to keep it. If any nonexempt property is sold, creditors may receive a portion.

Ultimately, filing bankruptcy is a way of alleviating some of the pressure. Unfortunately, most people don’t even try to defend themselves when a creditor lawsuit is filed. A lawsuit should never be ignored. Still, bankruptcy is not the right choice for everyone. It will depend on the facts and your assets. Every situation is different, and it is best to seek legal advice from a trusted bankruptcy attorney.

Do you have questions? What haven’t we covered yet that is important to you? If you would like to talk about filing bankruptcy to stop a lawsuit, or a related topic, please contact us.

Harris Ammerman
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