Can Bankruptcy Stop Lawsuits Against Me?

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Can bankruptcy stop lawsuits?  Yes, usually.  From the moment a Bankruptcy is filed the Automatic Stay stops most legal actions to enforce claims against the debtor or the debtor’s property. 11 U.S.C. §362(a). The Stay remains in effect until the discharge is granted or denied or until the case is dismissed or closed, whichever comes first. 11 U.S.C. §362(c)(2).

A creditor who violates the Automatic Stay can be sanctioned by the Bankruptcy Court. Sanctions for deliberate violations may include fines or even imprisonment for the worst violations.

However, there are exceptions to the stay for some creditors. A new debt which arose after the Bankruptcy was filed would not be covered. Other exceptions include:

a. criminal actions against the debtor;

         b. many actions regarding domestic support obligations, paternity, divorce, child custody and visitation, domestic violence and division of property in divorce actions (if the property of the bankruptcy estate is not involved);

c. enforcement of certain medical obligations under Title IV of the Social Security Act;

d. various actions by the bankruptcy trustee involving property of the estate or enforcement of the Bankruptcy Code; and

e. various actions by federal government authorities including many actions to administer and enforce tax laws. There are other exceptions, many quite technical. For more detailed information, talk to a bankruptcy attorney.

A warning: The Automatic Stay will even prevent a creditor from acting against secured property (collateral). However, if arrangements have not been made to repay any payments on the secured debt a creditor may ask the Bankruptcy Court to “lift” the automatic stay, which would permit the creditor to enforce its lien against the debtor’s property under terms and conditions set by the Court.

If a debt is discharged, the Bankruptcy Code will stop actions against the debtor by enjoining (prohibiting or restraining by court order) the start or continuation of any legal action, and enjoining the use of legal process to collect on the debt.

If a debt is NOT discharged, the creditor will be free to pursue the lawsuit after the Automatic Stay has expired or been lifted.

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