A bankruptcy filing automatically stays (or temporarily stops) all collection activity against the debtor or property of the debtor; and that includes virtually all lawsuits involving the debtor. That is the easy answer. Yes, a bankruptcy filing will stop that lawsuit against you! It just isn’t always the whole answer.
Most of the time when people call they are asking about a simple collection case – an old credit card, medical bills, maybe the balance due after a repossession. In those cases a bankruptcy filing stays the lawsuit; and when the discharge is entered a few months later, the lawsuit is stopped for good. That answer is accurate for the vast majority of callers. So, if you are worried about a simple collection case, a Bankruptcy will fix it.
The problem comes when whomever answers the phone in the law office doesn’t ask enough questions. If the lawsuit isn’t a simple collection case, for instance, if the person calling is being sued by a former employer for stealing or embezzling money. If the lawsuit is alleging any type of fraud. If the lawsuit is alleging intentional and willful injury to property. If the lawsuit is a paternity action or an attempt to collect past due child support or alimony. Those lawsuits won’t just go away, although the Bankruptcy filing will slow them down some. The worst scenario, though, is a case that looks look like a simple breach of contract case or maybe simple negligence, it may be between former business partners or friends; but the case has gotten emotional and angry and it has become more about a pound of flesh than recovering specific economic damages. In other words, the worst case scenario is a lawsuit that has started to look more like a divorce than normal litigation.
In those cases the answer is still correct that a Bankruptcy filing will stay the lawsuit – it just might not end it, and it really might not stop the fight.
The Bankruptcy Code includes a list of things that are excepted from the Debtor’s discharge. That means that even though the Automatic Stay might stay the problem, when the stay is replaced by the discharge, this type of problem will still be there – waiting. The most common of these are debts incurred shortly before the bankruptcy was filed (presumably with the intention of filing bankruptcy and not paying it), student loans, recent taxes, child support or alimony.
Some of these require that something called an Adversary Proceeding be filed within the bankruptcy. Some of them don’t; and some times the creditor may just cause other problems within the bankruptcy. Stay tuned for more on this subject. I will tag these posts as “persistent creditors” to make them easy to find.
Elaine