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Can You Still Be Sued While in Bankruptcy?

The effect that personal bankruptcy has on lawsuits is important but often misunderstood. Essentially, bankruptcy has the power to stop some lawsuits that relate to debt; other lawsuits cannot be stopped by filing for bankruptcy. Here's a look at some of the details of this issue.

Lawsuits and Bankruptcy

The legal protection that protects bankruptcy filers from certain lawsuits is called the automatic stay.

  • Automatic stay: This protection takes effect as soon as a bankruptcy case is filed with the court and may remain effective for the duration of the bankruptcy case (usually about four to six months in Chapter 7 bankruptcy and three to five years in Chapter 13 bankruptcy). The automatic stay prevents collection actions of all kinds, including garnishment, foreclosure, repossession, phone calls, creditor mailings and debt lawsuits for as long as it is in place. Because of its power to halt collection, the automatic stay offers welcome relief from dealing with creditors and debt collectors to many bankruptcy filers.
  • Creditor notification: When a filer submits his petition with the bankruptcy court, the court sends a notice to all creditors listed on the forms. This is called a "Notice of Commencement of Case" and indicates that the filer is pursuing bankruptcy and that the automatic stay is in effect. Any creditor who attempts improper contact could face legal repercussions.
  • Some lawsuits not halted by the automatic stay: Lawsuits brought against a filer that relate to criminal or civil matters are not affected by the automatic stay. Similarly, the automatic stay has no effect on lawsuits about student loan debt, child support debt, alimony (spousal support) debt and other types of debt that are not dischargeable in bankruptcy.
  • Lawsuits halted by the automatic stay: Legal debt-related actions brought by creditors whose debt would be dischargeable in bankruptcy (including credit card issuers, medical care providers or third-party debt collectors) can be halted by the automatic stay.

Being Sued while in Bankruptcy

The details concerning lawsuits and bankruptcy cases are fairly complex and may be best understood with help from a legal professional. If you are interested in connecting with a bankruptcy lawyer practicing in your state, please fill out this form for a free legal consultation.