I was just served with a lawsuit. Will filing for bankruptcy stop a lawsuit?
This is a common question I receive from debtors who have just been served with lawsuits. Mainly collection law suits served on debtors cause a world of panic for unsuspecting debtor since it adds even more tension to respond to a creditor attempting to collect a debt. Further, attempting to defend a collections lawsuit is not only expensive, but also fruitless since the collections agency (“Plaintiff”) has verification of the debt sufficient enough to satisfy the burden of proof needed to succeed in the action.
Fortunately, there is hope. A bankruptcy filing initiates the “automatic stay” provision of the bankruptcy code which is intended to prevent such collection lawsuits, permits the debtor to reorganize and or liquidate assets and debts, and provides relief from any other collections actions by other creditors.
There are some exceptions to the automatic stay provision in which it would not apply. For example, if a debtor had filed for bankruptcy within 180 days prior to the current filing and had their case “dismissed,” the debtor may not be afforded the relief of the automatic stay in the second filing; any lawsuits filed against the debtor after the filing of the bankruptcy if the basis of the lawsuit arose after the filing of the bankruptcy;; criminal proceedings; collections of alimony or spousal support; bad/bounced/dishonored checks; and/or set offs.
It is crucial that before filing, for bankruptcy an experienced bankruptcy attorney review your case as a whole to determine the optimum time to file for bankruptcy relief amongst the other crucial issues to be determined. Feel free to contact my office to make an appointment and discuss your situation further.