The bankruptcy automatic stay can stop many kinds of civil lawsuits against you.
If you fall behind on your monthly payments, a creditor may decide to take measures to recover what it is owed, which can mean filing a lawsuit against you to secure a judgment that can be legally enforced through a judgment lien or by a court order for garnishment of your wages.
The automatic stay is meant to put a halt to all efforts to collect debts, including litigation. The stay ensures that creditors with lawsuits do not receive an unfair share of your available funds and enables the bankruptcy court to allocate your available assets appropriately among all creditors.
In this article, we explain how the bankruptcy automatic stay works to halt current civil legal actions against you and to prevent the filing of threatened lawsuits.
If you need help stopping a civil lawsuit from a creditor, please call Stone Rose Law at (480) 739-2448 to speak with an experienced bankruptcy attorney.
What Kinds of Lawsuits Does the Automatic Stay Stop?
Depending on your circumstances, debt-related lawsuits against you can include:
- A home foreclosure by your mortgage lender
- Breach of contract actions by service providers
- Credit card debt collection efforts
- Debt collection agency lawsuits
- Eviction proceedings if the court has not yet issued an order for the landlord to take possession
- Financial disputes with business partners
- Medical debt collection efforts
- Personal loan debt lawsuits
- Actions to collect utility debts
The automatic stay will be effective against all of these kinds of legal actions, beginning on the day you file your bankruptcy petition.
In most cases, the bankruptcy discharge will eliminate the underlying debt that is the basis for the lawsuit, although a few exceptions exist to this general rule.
Types of Lawsuits Bankruptcy Will Not Stop
The automatic stay is not effective against all legal actions that may be underway against you. Here are some exceptions to the automatic stay’s ability to stop a lawsuit:
- Child custody, divorce, spousal support, and child support cases.
- Criminal cases, including debts arising from fraudulent activity.
- Evictions, if a state court has granted possession to the landlord.
Can Creditors File a Lawsuit Once Bankruptcy Proceedings Begin?
A creditor can request the bankruptcy court to allow them to continue with a lawsuit it has already filed even after bankruptcy has been approved. The creditor must request permission to lift the automatic stay.
For example, if a creditor faces financial harm by waiting to collect on the debt, and the outcome of the lawsuit will not affect the bankruptcy case, then the bankruptcy judge may allow the lawsuit to proceed.
This can be the case when a home lender will lose money the longer it must wait to foreclose on a home that has no equity value.
Another situation is when a pending lawsuit will decide an issue that must be resolved in the bankruptcy case.
For example, if an existing lawsuit based on allegations of fraud must be resolved first to determine whether a debt will be discharged in bankruptcy, and it would be costly to require the issue to be relitigated in bankruptcy court, then the bankruptcy judge may allow the pending lawsuit to proceed.
Can You File for Bankruptcy If You Lose a Civil Lawsuit?
It is generally preferable to file for bankruptcy before a civil lawsuit against you has reached the judgment stage.
Filing for bankruptcy while a lawsuit is still ongoing can prevent a creditor from obtaining a judgment lien on your property or securing a fraud judgment against you. The automatic stay will also stop a creditor’s attempts to collect most money judgments, including garnishment of your paycheck or bank account.
If you file for bankruptcy after losing a civil lawsuit, then the automatic stay will still protect you from most of the creditor’s collection activities, including wage garnishment.
A bankruptcy will also temporarily stop a creditor’s attempt to sell your property to satisfy a judgment, but you must address any judgment lien that exists to prevent collection after the conclusion of your bankruptcy case.
Can Bankruptcy Stop an Eviction?
Whether you can stop an eviction action through bankruptcy depends largely on whether you petition for bankruptcy before the landlord can obtain a judgment for possession against you.
Bankruptcy Before an Eviction Judgment
If you file for bankruptcy before the eviction court issues an order for possession, then the automatic stay will stop the eviction. This is only temporary if you cannot pay the back rent promptly.
Your landlord may oppose the stay based on lease violations like drug use or if it claims that by remaining on the premises, you are endangering the landlord’s property.
After the Eviction Court Issues an Eviction Judgment
If your landlord has already obtained an eviction judgment before you file your claim, it may proceed with the eviction.
Unlike some states that allow a debtor 30 days to make up a rent deficiency, in Arizona, once the landlord has been awarded a possession judgment, the only way the tenant can stay in the rental unit is by working out an agreement with the landlord or by filing an appeal of the judgment and paying a supersedeas bond.
Are You Party to a Lawsuit and Considering Bankruptcy in Arizona?
In many cases, bankruptcy law will stop most civil lawsuits against you and clear lawsuit debts, but your creditors will be looking for ways to get around the automatic stay to continue pursuing a court judgment against you.
An experienced bankruptcy attorney, like one you will have if you retain Stone Rose Law, can help you understand your legal rights and options in the bankruptcy process, including how you can use the automatic stay to immediately stop most lawsuits including contract disputes and eviction cases, avoid a default judgment, end collection calls, and avoid wage garnishment.
Call us at (480) 739-2448 or use our contact form to reach an experienced bankruptcy lawyer today.
The post Will Filing Bankruptcy Stop a Civil Lawsuit? appeared first on Stone Rose Law.