If a creditor sues you on a debt, you should know that you can file bankruptcy to stop a lawsuit. A creditor may sue you for the debt on repossessed car, broken lease, or credit card. Or a former lender may sue you for a deficiency judgment from a foreclosure. An individual plaintiff may claim that you have breached a contract or may seek damages from an accident. File bankruptcy to stop a lawsuit on a debt that you cannot or should not pay.
File bankruptcy to stop a lawsuit
When you file bankruptcy the “automatic stay” takes immediate effect. The automatic stay is a nifty feature of the Bankruptcy Code that orders your creditors to cease all collection attempts. That includes lawsuits. The bankruptcy court will find liable for damages litigants who violate the automatic stay.
In one scenario, a plaintiff may sue you for a large sum. If you have no affirmative defenses or cannot afford to mount a defense in the litigation, then you should consider filing bankruptcy to stop the lawsuit.
In another scenario, an aggressive creditor (Midland Funding, American Express, On Deck Capital) may sue you in order to lien against your home or to garnish you bank accounts or wages. You can not only file bankruptcy to stop the lawsuit, but the bankruptcy will also discharge the underlying debt.
Bankruptcy does not stop every type of lawsuit
Bankruptcy does not halt lawsuits for divorce, or for the establishment of paternity, child custody, or child visitation.
In addition, where a creditor alleges that a debt may be nondischargeable, bankruptcy may delay but not stop the lawsuit. For instance, bankruptcy may only temporarily stay the lawsuit if you are being sued for fraud or for an intentional injury. In those cases, the bankruptcy court will likely allow the lawsuit to move forward to determine whether the debt is dischargeable in your bankruptcy.
Talk to an attorney if you get sued
In many cases, but not in every case, it can be a smart choice to file bankruptcy to stop a lawsuit. If you get sued, talk to an experienced bankruptcy lawyer to discuss your options.