How a Bankruptcy Can Stop Pending Lawsuits and Judgments

Filing for bankruptcy is a very serious financial procedure. Part of the reason bankruptcy takes such a toll on your credit is because this is the price you must pay to use such a powerful tool. In most cases, a bankruptcy will stop a lawsuit immediately and limit a creditor's ability to place liens on your property or garnish your wages.

Lawsuits and Judgments

Typical lawsuits and judgments would be from creditors attempting to collect some sort of payment on their debts. Credit card companies sometimes sue borrowers, and others creditors may attempt to place liens on your personal property or assets. Some creditors even go straight to your source of income and garnish your wages. As a result, many individuals resort to bankruptcy for protection. In doing so, your attorney will file a document alerting the courts and other applicable parties that you are considering filing for bankruptcy.

The Automatic Stay Protection

The protection that stems from a bankruptcy filing originates with the automatic stay. The automatic stay is set in place to protect individuals from harassment and stops creditors from enforcing their claims. Under the protection of automatic stay, creditors would be in violation if they filed a new lawsuit or continued to press a lawsuit that has already been filed.

It is important to note that the combination of the automatic stay and bankruptcy filing does not grant you immunity of any sort. The automatic stay does not protect you from criminal proceedings, civil violations, or government claims. These types of debts are considered non-dischargeable and most typically include unpaid taxes, student loans, and child support or alimony. In addition, if the lawsuit is based on alleged fraud or criminal activity, protection from bankruptcy becomes further limited.

Considering Your Options

Filing for bankruptcy can be a strong negotiating tactic when facing lawsuits and judgments, but it should not be your sole reason for considering bankruptcy. As mentioned, any chapter of bankruptcy makes a significant dent in your credit history and the damage could remain for years. In addition, the debts and costs that may result from a lawsuit or judgment will still be considered. Although certain filings of bankruptcy allow for discharged or reduced debts, there is no guarantee of either. In addition, keep in mind that creditors and plaintiffs can always file a motion in the bankruptcy courts to request relief from the automatic stay protection.

Lawsuits, judgments, and bankruptcies are all very serious issues. If you find yourself facing these unfortunate matters, it is strongly advised to seek qualified professional help. There may be more associated costs, but in this case, the fees of a bankruptcy attorney or other legal professional would be justified because of the complex nature of the situation

Source:
USCourts.gov - Bankruptcy Courts

About the Author:
Heindrick So works for a Bay Area Real Estate company that specializes in residential wholesale lending. His work experience is comprised mostly of sales and marketing background which included a high end media sales position at Magnolia Hi-fi. Heindrick is also in his final year of pursuing his Bachelor's Degree in Electrical Engineering at San Jose State University.