Can I Be Sued By Creditors If I File For Bankruptcy?

Many people and businesses considering bankruptcy have concerns about the legal ramifications of filing, as well as the legal consequences if they do not file for bankruptcy. There are occasionally news stories about business debtors facing lawsuits from creditors when news breaks about a potential bankruptcy filing. Some of those businesses are already facing lawsuits from creditors. In addition, individuals can also face lawsuits from creditors or debt collectors, and many consumers ultimately decide to file for bankruptcy because they are concerned about lawsuits. Yet there is also a significant amount of misinformation concerning bankruptcy, and some parties think they can face lawsuits as a result of filing for bankruptcy (which is not the case). Our West Palm Beach bankruptcy attorneys can tell you more about lawsuits and bankruptcy filings.

Automatic Stay Halts Existing Lawsuits and Stops New Lawsuits from Being Filed 

The first and most important thing to know is that you cannot be sued by a creditor or debt collector because you filed for bankruptcy. The automatic stay will immediately apply to your case as soon as you file a bankruptcy petition. What is the automatic stay? It is an injunction that prevents creditors and debt collectors from taking any further action against you while your bankruptcy case is pending (unless the court lifts the automatic stay, which we will explain below). This means that the automatic stay puts a stop to any in-progress lawsuit against you, and it also prevents creditors or debt collectors from filing any news lawsuits against you in order to recover the money you owe.

Limited Circumstances Where the Automatic Say Can Be Lifted 

In some limited circumstances, the court might agree to lift the automatic stay if the creditor can prove that they will be harmed and that a lifting of the automatic stay is necessary. The court will only lift the automatic stay on a creditor-by-creditor basis (the court will not lift the automatic stay wholesale), and only after the creditor moves for this. Foreclosures and cases involving secured creditors are the typical types of cases where the court might lift the automatic stay following the creditor’s motion.

Automatic Stay Does Not Apply to Certain Types of Lawsuits 

There are certain lawsuits for which the automatic stay will not apply. For example, the automatic stay will not apply to lawsuits concerning non-dischargeable debts (such as child support or alimony, or certain kinds of tax debts, or debts owed as a result of certain personal injury lawsuits). In addition, the automatic stay does not stop pending or forthcoming criminal actions against the debtor, such as criminal cases for fraud or other types of crimes for which the debtor could be facing criminal repercussions.

Contact Our West Palm Beach Bankruptcy Attorneys 

If you are currently considering bankruptcy and have concerns about lawsuits, or if you have already filed and a creditor has violated the automatic stay, you should get in touch with an experienced West Palm Beach bankruptcy attorney at Kelley Kaplan & Eller as soon as possible. One of our lawyers can assess your case and help you to understand your options.

Source:

americanbar.org/groups/gpsolo/publications/gpsolo_ereport/2022/september-2022/automatic-stay-bankruptcy-overview/