Filing for bankruptcy can be a way to halt some legal actions in their tracks (like the civil debt collection action.) But it cannot stop everything. Other legal matters like child support action or criminal action will proceed even after filing a bankruptcy case.
That being said, if you are looking to file for any type of bankruptcy, it is important to know what lawsuits will not be stopped after filing for bankruptcy. When filing for bankruptcy, an order called the automatic stay puts a halt on creditors engaging in debt collection actions, which can include a lawsuit. But the following are two types of lawsuits that will not be affected by that automatic stay:
- Dissolution/Support Cases – filing for bankruptcy will not stop a divorce proceeding. The bankruptcy court will also not get involved in a family court’s decision-making when it comes to the amount of child support or alimony someone should pay.
- Criminal Actions – the reason why a criminal case will proceed regardless of the automatic stay is simple. They matter is not something the bankruptcy court can handle because it is not within its jurisdiction. The prosecution of an alleged violation of law is not related to the debt problems of the person who owes money in the bankruptcy. In contrast, the automatic stay would apply to a civil lawsuit. For example, if you stand to lose money to reimburse accidental damage you may have caused to a person or property, it is most likely a civil case and falls under the jurisdiction of the bankruptcy court.
While most types of lawsuits will fit under the above categories, there are other situations/lawsuits where filing for bankruptcy will take no effect as far as the automatic stay.
For instance, if you stand to make money from a lawsuit, the award you might be entitled to receive is considered an asset in the bankruptcy case. So if you were injured in an accident and seeking compensation for medical expenses, you will not be able to keep that money if you are not able to protect (exempt) it.
Under Chapter 7 bankruptcy it means the trustee will choose whether to take over the case, litigate it on your behalf and distribute any proceeds to the creditors. Under Chapter 13 bankruptcy you would continue to pursue the action and then turn over nonexempt proceeds to creditors.
Lastly, a creditor can make a motion to remove the automatic stay if doing so will not affect the bankruptcy case and the moving party will suffer harm otherwise. An example of this would be a mortgage lender standing to lose money if they are forced to wait to pursue foreclosure until after the bankruptcy closes.
Needless to say, although helpful, filing for bankruptcy can be tricky. If you are juggling a lawsuit and looking to file for bankruptcy you should contact an experienced lawyer. New Jersey attorney Joel R. Spivack has the experience to handle your case and get you the help you need. Call the Law Office of Joel R. Spivack today at 856-488-1200 or contact us via our online contact form.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.