It was late Friday afternoon when Mr. Jones called, panicked after receiving notice that a creditor was suing him for an unpaid debt. He was desperate to find a way to stop the lawsuit and regain control over his financial situation.
As a bankruptcy attorney in Texas, I’ve helped many clients facing overwhelming debt and related civil lawsuits. Mr. Jones’s case highlights how filing for bankruptcy can impact a civil lawsuit.
“No, I haven’t paid back this personal loan as promised, but I didn’t think it was enough to get sued over,” Mr. Jones said. “What should I do?”
“Many clients facing personal debt turn to bankruptcy protection when sued,” I explained.
“I didn’t want to admit it, but the legal action made me realize I can’t repay some debts. I guess I’m bankrupt,” Mr. Jones admitted, distressed.
“You and many others come to this conclusion. Calling me was the right move. Let me explain how bankruptcy can help and possibly stop this civil lawsuit,” I said.
If you’re facing a civil lawsuit and considering bankruptcy, you might wonder if filing can stop it. The short answer is yes, it often can, but it’s not always clear-cut.
When you file for bankruptcy, an automatic stay immediately goes into effect. This legal protection halts most collection actions, including civil lawsuits. However, not all lawsuits can be stopped, and the impact varies between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy can often eliminate the debt related to a lawsuit, while Chapter 13 can halt the lawsuit temporarily. Understanding these options is crucial. In our practice, we’ve guided many clients through these complexities. We can help you make informed decisions and achieve the fresh start you need.
Understanding Bankruptcy and Civil Lawsuits
If you’re facing a civil lawsuit, you may be wondering if filing for bankruptcy can stop it. The answer in many cases is yes, filing for bankruptcy can halt a civil lawsuit. But it’s important to understand how the basics of bankruptcy law affects civil lawsuits
Bankruptcy filings in the United States have been on the rise in recent years. In fact, over 750,000 cases were filed in 2019 alone. And civil lawsuits can be a significant financial burden when legal fees and potential damages add up, complicating the picture for people facing bankruptcy.
The Automatic Stay: A Shield Against Civil Lawsuits
When you file for bankruptcy, an “automatic stay” goes into effect. This is a powerful legal protection that feels like your legal hero that can stop most collection actions against you, including pending lawsuits.
The automatic stay essentially freezes any ongoing civil lawsuits in their tracks. This gives you breathing room to focus on your bankruptcy case without worrying about the immediate threat of a lawsuit judgment against you.
Filing for bankruptcy can provide much-needed relief from overwhelming debt. And the automatic stay is a key tool that can potentially stop or pause civil lawsuits, giving you a chance to get back on your feet.
Types of Bankruptcy: Chapter 7 vs. Chapter 13
There are two main ways individuals can file for bankruptcy: Chapter 7 and Chapter 13. Each has its own rules and procedures, and they impact civil lawsuits differently.
Chapter 7 Bankruptcy
Chapter 7 is often called “liquidation” bankruptcy. It’s designed to wipe out most of your unsecured debts, like credit card balances and medical bills. If you’re being sued in relation to this type of debt, filing Chapter 7 can often make the lawsuit go away permanently.
However, Chapter 7 doesn’t get rid of all debts. Some, like most student loans and recent taxes, survive bankruptcy. And if you have non-exempt assets, the bankruptcy trustee could sell them to pay your creditors.
Chapter 13 Bankruptcy
Chapter 13 is a “reorganization” bankruptcy. You pay back some of your debts through a 3-5 year repayment plan. This can help with things like catching up on missed car or mortgage payments.
If you’re facing a lawsuit for a debt that would be included in your Chapter 13 repayment plan, filing usually means the lawsuit gets put on hold. As long as you complete your plan, the remaining debt is discharged.
In Texas, both Chapter 7 and 13 are available. But each has its own eligibility rules and effects on your property and income. It’s crucial to understand the differences between the two options before you file.
Special Rules for Texas Bankruptcy Law
While bankruptcy is governed by federal law, each state has its own set of exemptions and procedures. In Texas, there are specific regulations under the Texas Bankruptcy Code that you know about when filing.
For example, Texas has generous property exemptions that can help protect your home, car, and other assets in bankruptcy. The state also has laws in place to safeguard debtors during civil lawsuits, providing additional protections for those facing legal action.
If you’re considering bankruptcy in Texas, it’s important to work with a local law firm or attorney who understands the ins-and-outs of Texas bankruptcy law. They can help you navigate the process and take full advantage of the protections available to you.
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Impact on Different Types of Civil Lawsuits
Bankruptcy can affect various types of civil lawsuits differently. Let’s look at a couple of common examples.
Personal Injury Cases
If you’re being sued for a personal injury claim, such as in a slip and fall case or a car accident, the impact of filing for bankruptcy can get complicated. The automatic stay will temporarily halt the lawsuit. But the injured party can ask the bankruptcy court for permission to continue the case.
If you have insurance that covers the claim, the insurance company will usually still have to pay, up to your policy limits, regardless of your bankruptcy. But if there’s a judgment against you for more than your insurance covers, bankruptcy can often wipe out that excess amount.
Debt Collection Actions
Debt collection lawsuits, like those for credit card balances or medical bills, are very common reasons people file for bankruptcy. If you’re being sued by a creditor or debt collector, filing bankruptcy will stop the lawsuit in its tracks.
In most cases, the debt at issue in the lawsuit will be discharged in your bankruptcy proceeding. This means you’ll no longer owe it, and the creditor can’t continue to sue you for it. However, some debts, like student loans and most taxes, generally can’t be discharged.
Bankruptcy can discharge many debts that are the subject of civil lawsuits. This can relieve you of the financial obligation to pay those debts. But it’s important to understand which debts can and can’t be eliminated in bankruptcy.
Dischargeable vs. Non-Dischargeable Debts in Civil Lawsuits
One of the main benefits of bankruptcy is the discharge of your liability of certain debts. In other words, these debts get eliminated. But not all debts can be discharged. Let’s look at the difference between dischargeable and non-dischargeable debts in the context of civil lawsuits.
Dischargeable Debts
Many types of debts that are commonly the subject of lawsuits can be discharged in bankruptcy. These include:
- Credit card balances
- Medical bills
- Personal loans
- Utility bills
- Some types of business debts
If you’re being sued for one of these types of debts, filing for bankruptcy can often make the lawsuit go away permanently. The discharge eliminates your personal liability for the debt.
Non-Dischargeable Debts
However, some types of debts can’t be discharged in bankruptcy, even if you’re being sued for them. These include:
- Most student loans
- Most taxes
- Alimony and child support
- Court-ordered restitution
- Debts obtained by fraud
If a lawsuit involves one of these types of debts, filing bankruptcy may not make the lawsuit go away permanently. The automatic stay will still temporarily stop the case and grant you some short-term relief. But the creditor can ask the bankruptcy court for permission to continue the lawsuit, or can resume it after your bankruptcy is over.
It’s important to understand which of your debts can be discharged and which can’t when determining if bankruptcy is the right solution for your situation.
Role of a Bankruptcy Attorney
Navigating the intersection of bankruptcy and civil lawsuits can be complex. There are many rules and exceptions, and the stakes are often high. That’s why it’s so important to work with an experienced bankruptcy attorney.
A knowledgeable bankruptcy attorney can help you understand your options and make informed decisions. They can advise you on whether bankruptcy is right for your situation, and if so, which type of bankruptcy to file.
Your attorney can also handle the bankruptcy process for you, from filing the initial paperwork to representing you in court hearings. They can communicate with your creditors and the bankruptcy trustee on your behalf.
Perhaps most on point, a bankruptcy attorney can help you understand how your bankruptcy proceeding will affect any ongoing civil lawsuits. They can advise you on which debts can be discharged, which lawsuits may continue, and what you can expect throughout the process.
Navigating Court Proceedings During Bankruptcy
If you’re juggling current civil lawsuits while filing for bankruptcy, expect to split your attention between various courtrooms. Navigating these different processes can be tricky so it’s important to have a bankruptcy attorney on your side to guide you through the process.
Interactions with Bankruptcy Court
When you file for bankruptcy, your case will be handled by the bankruptcy court. You’ll be required to attend a “341 meeting” where the trustee and your creditors can ask you questions about your finances.
If any of your creditors object to your bankruptcy or seek permission to continue a lawsuit against you, they’ll file motions with the bankruptcy court. You may need to attend hearings on these motions.
Your bankruptcy attorney can represent you in all of these interactions with the bankruptcy court. They can prepare you for the 341 meeting, respond to creditor motions, and argue on your behalf at hearings.
Dealing with Eviction Court
Bankruptcy can sometimes help delay or prevent an eviction, but the rules are complex. Generally, if your landlord has already obtained an eviction judgment against you before you file for bankruptcy, the automatic stay won’t stop the eviction.
However, if the eviction judgment was for non-payment of rent and you can catch up on the rent quickly, filing for bankruptcy might help. The automatic stay may give you a brief window to catch up on rent and stay in your home.
It’s important to act quickly and seek legal advice if you are facing eviction. Your bankruptcy attorney can advise you on whether bankruptcy can help in your specific situation.
Specific Protections Under Texas Law
In addition to the protections offered by federal bankruptcy law, Texas has its own set of laws designed to protect debtors. These can be especially helpful if you’re facing civil lawsuits during your bankruptcy.
For example, Texas has robust wage garnishment laws. With a few exceptions for things like child support and taxes, creditors can’t garnish your wages in Texas. This protection remains in place even if a creditor sues you and wins a judgment.
Texas also has a strong set of property exemptions supplying additional protections.These laws allow you to protect certain property, like your home and car, from being seized by creditors. In many cases, you can claim these exemptions in addition to the protections offered by bankruptcy.
If you’re facing a civil lawsuit in Texas, it’s important to understand these state-specific protections. They can provide an additional layer of security as you navigate the legal process.
However, the interaction between state debt collection laws and federal bankruptcy law can be complex. That’s why it’s so important to work with a local attorney who understands both sets of laws and can advise you on how they apply to your unique situation.
Key Takeaway:
Filing for bankruptcy can halt civil lawsuits due to the automatic stay, which freezes ongoing cases. Chapter 7 wipes out many debts and may dismiss related lawsuits, while Chapter 13 reorganizes debt repayment. Understanding Texas-specific protections and consulting a local attorney is crucial when navigating these laws.
FAQs in Relation to Whether Filing Bankruptcy Can Stop a Civil Lawsuit
Should I file bankruptcy if I’m being sued?
If you’re facing a civil lawsuit, filing for bankruptcy might help. It can halt the case and give you relief.
What debts are not dischargeable in Chapter 7?
Certain debts like student loans, child support, and fraud judgments can’t be wiped out under Chapter 7.
What limitations could you face after filing bankruptcy?
You can’t get new credit easily or keep luxury items without court approval post-bankruptcy. Expect financial restrictions.
What happens when someone who owes you money files for bankruptcy?
Your claim becomes part of their bankruptcy case. You may get some payment depending on the assets they have left.
Conclusion
So, can filing bankruptcy stop a civil lawsuit? In many cases, yes. The automatic stay is a powerful tool that can give you breathing room and potentially even discharge the debt at the heart of the lawsuit.
But remember, not all debts can be erased in bankruptcy, and some types of lawsuits (like criminal cases or child support matters) can continue despite the automatic stay. That’s why it’s crucial to have an experienced bankruptcy attorney guiding you through the process and fighting for your rights.
If you’re ready to take control of your financial future and put that civil lawsuit behind you, give us a call. Our team is here to help you explore your options, understand the bankruptcy process, and get the fresh start you deserve. Don’t let fear or uncertainty hold you back – take action today and start writing your comeback story.
For more information, visit our website. You’ll find great resources there. Ready to start or talk to an attorney? Call our law office now at (888) 584-9614 or contact us online to schedule a consultation.
Back to Mr. Jones
I could sense a glimmer of hope in Mr. Jones’s voice as he asked, “So, if I file for bankruptcy, this automatic stay can at least slow things down and maybe stop the lawsuit?”
“Now I need you to understand, we’re going to need to go over the details of this suit before I can be sure, but upon first impression, yes, filing for bankruptcy will stop the lawsuit, and allow us time to make a plan to address all your debts,” I told him. “You’re going to have to send me the documentation about the suit ASAP. But as I understand it, you are telling me you are being sued because you haven’t repaid a personal loan, is that right? As long as the suit is not about a non-dischargeable debt, filing for bankruptcy should help.”
“Yes, yes, that’s right. I’ll get you the papers Monday morning and anything else you need to help. I need this stay automatically,” he said, mixing up the terminology, but I knew exactly what he meant, and how he felt, a touch relieved.
“Yes, Monday morning sounds good,” I said as I proceeded to tell him all the other information I’d need regarding his finances in order to get his Chapter 7 bankruptcy proceeding underway.
Mr. Jones had a busy weekend preparing all of the documentation he would deliver to me on Monday. He soon became a diligent client showing me he had the potential to properly manage his finances too. We indeed filed for bankruptcy. He got his treasured automatic stay. Soon the pressure from the lawsuit was off his back and we formulated a plan for him to get a fresh financial start.
Schedule a Consultation with our Dallas Firm to help you Assess your Allowable Living Expenses
Bankruptcy can be stressful and challenging, but you do not have to face it alone. Our team of experienced Dallas bankruptcy attorneys is ready to provide you with the guidance, support, and legal advocacy you need during these challenging times.
Whether you are facing a civil lawsuit or navigating other bankruptcy issues, we are here to help you every step of the way. We welcome you to schedule a consultation to discuss your situation and case objectives. We can answer your legal questions and discuss how we can help you move forward. Call our law office at (888) 584-9614 or contact us online to schedule your consultation.
