Bankruptcy is a legal process that is designed to help you recover financially after you go so deep in debt that you have no effective way to pay off what you owe. When used properly, it can give you a fresh financial start.
Typically, people declare bankruptcy as a final measure when all other options have been exhausted. This is the intended use of this legal action. Unfortunately, waiting until the last minute means that you might be the subject of civil lawsuits from creditors seeking compensation before you file for bankruptcy. Can filing for bankruptcy stop a civil lawsuit, or must you deal with lawsuits while going through the bankruptcy process?
Some Lawsuits Will Be Stopped
Bankruptcy has a dual purpose. It protects the debtor from incurring additional financial harm and helps creditors get as much recompense as possible, based on the financial circumstances of the debtor. The former is enacted in several ways. The first way is with an automatic stay. This means that when you file for bankruptcy, the court will inform all of your creditors that you have started the bankruptcy process. Once a creditor has been informed, they are required to cease all actions to collect the debts you owe. For the most part, this means that all civil lawsuits will immediately be halted.
These lawsuits are halted but are not dismissed. If your bankruptcy proceedings progress as they should and you complete the process, the lawsuits against you will be dismissed at the end of the process. However, if you fail to complete all the steps required of you, your bankruptcy claim will be dismissed without discharge. If that happens, all of the lawsuits that were halted will start where they left off.
Most lawsuits against you from creditors will be halted for the duration of your bankruptcy proceedings and will be dismissed if you complete all steps of the bankruptcy.
Some Lawsuits Will Not Be Stopped
The court will not place an automatic stay on the following types of lawsuits:
- Divorce cases
- Child custody cases
- Child support cases
- Some eviction cases
If you are facing eviction, your eviction case will be affected by the automatic stay only if the judge has yet to rule on your eviction. However, if your landlord can prove that you are endangering the property, the court will allow the eviction to continue. If you are facing eviction and a decision hasn’t been made, you should document how you are treating the property to protect yourself from accusations that you are endangering it.
Finally, an automatic stay will never stop a criminal trial. If you are facing criminal charges, that case will proceed regardless of whether you file for bankruptcy.
If you are overwhelmed by lawsuits from creditors seeking to get the money you owe them, you may need to file bankruptcy to get back on your feet financially. Contact Fesenmyer Law Office at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) to discuss your situation with experienced bankruptcy lawyers.
Other Lawsuits That Won’t Be Temporarily Halted
While the automatic stay stops all appropriate types of lawsuits, occasionally a judge will allow a lawsuit to continue while the bankruptcy is proceeding. There are two situations where a judge will usually approve the continuation of a lawsuit before the bankruptcy has ended.
The first is a situation in which the outcome of the lawsuit will not affect the bankruptcy case and the creditor faces financial harm if the lawsuit is delayed. This is a reasonably uncommon situation that usually comes up only when a creditor is seeking something that has a rapidly depreciating value.
The second situation in which a judge might allow a lawsuit to proceed is one where the results of the lawsuit will affect the bankruptcy case and must be resolved for the bankruptcy case to proceed. For example, if a creditor is alleging that you committed fraud, that issue of law must be resolved before the bankruptcy case can be pursued. While the lawsuit could be started anew as part of the bankruptcy case, that would be costly to the litigants and typically unnecessary. It is more efficient for the bankruptcy judge to let the lawsuit proceed as quickly as possible so the bankruptcy case is not unnecessarily delayed.
Judgments on Lost Lawsuits May Be Halted
For any current lawsuits against you, the automatic stay will stop the creditor from collecting against that judgment. This even stops the garnishment of paychecks and liens on property. However, these collection actions can proceed if you don’t address them during your bankruptcy proceedings. If they are addressed, the original judgments will typically become void and the creditors will instead receive whatever compensation the bankruptcy judge orders.
The Importance of Fulfilling Your Obligations
Bankruptcy proceedings place obligations on the debtor. You will have to provide the court or its representative with an accurate accounting of your finances. Additionally, you will need to attend all hearings and fill out all required paperwork. Depending on the type of bankruptcy you file, you may also need to fulfill a payment plan for several years. If you fail to fulfill any step in the process, the judge will likely dismiss your bankruptcy claim.
Judges often have little sympathy for malfeasance, so missing any hearing or not completing required paperwork could result in a dismissal. Once the case is dismissed, all benefits of bankruptcy evaporate. This includes the automatic stay. If you don’t want to be overwhelmed by civil lawsuits, you should be diligent about fulfilling the obligations of your bankruptcy.
Contact Fesenmyer Law Office Today
Bankruptcy protection can help you escape financial hardship when all other options are exhausted. Pursuing this option can even potentially protect you from lawsuits.
If you want to learn more about how filing for bankruptcy in Ohio can protect you from creditors, contact our law firm at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) today to talk to our experienced lawyer.