Lawsuits that Filing Bankruptcy Will NOT Stop
How Chapter 7 or Chapter 13 Bankruptcy Can Help You Get Rid of Creditors & Potential Lawsuits
Our AZ Bankruptcy Lawyers discuss how filing Chapter 7 or Chapter 13 bankruptcy may be able to assist you in getting rid of creditors and potential lawsuits. Contact our experienced debt relief lawyers for more information. Get yourself a “Fresh Start” bankruptcy through our law firm.
Many of our clients call to schedule their consultation after receiving a summons notifying them of an impending lawsuit against them. Most often, it is from a creditor seeking a money judgment, which that creditor can then use to garnish their wages. Depending on the type of lawsuit in question, filing bankruptcy may stop it, as well as discharge other debts. It’s important that you understand how declaring bankruptcy will affect your pending lawsuit before proceeding with either case.
Lawsuits that declaring bankruptcy will not stop:
If you have been charged with a crime, filing bankruptcy won’t do anything to stop it. Most crimes don’t have anything to do with debt, and letting bankruptcy be a literal “get out of jail free” card would cause widespread abuse of the system. However, it will pause civil litigation, even if it arises from a criminal act.
You may have child support debts, but this doesn’t affect your custody. Settling your debts can’t take precedence over the safety and welfare of your child, so bankruptcy won’t stop custody proceedings. It also won’t stop legal establishment of paternity.
Divorce & Support
Filing bankruptcy will stop the property division portion of a divorce, but won’t stop a divorce where property division is already completed or unnecessary.
Who Might File a Lawsuit Against Me in Arizona?
There are several categories of parties who may file a lawsuit against you. A creditor, anyone you owe a debt, may file a lawsuit once you fail to abide by the terms of your repayment agreement. This could be a credit card company, a vehicle lender, etc. Your landlord may seek a judgment against you for unpaid rent. Business partners, or someone you have entered into a contract with, may also file lawsuits against you.
You may be wondering what happens if you don’t respond to the summons, whether or not that deadline has already passed for you. If you don’t file a response to the summons or appear at your court date, the party who filed the lawsuit against you, or the plaintiff, will receive a default judgment against you. This judgment can be used to place a lien on your property, or to garnish your wages, bank accounts, tax returns, etc. Unless your income is fully protected from your creditors (i.e., social security), you need to act quickly before facing the harsh consequences of a default judgment.
Can I Stop a 2021 Lawsuit With a Bankruptcy Filing?
While bankruptcy’s ability to stop a lawsuit isn’t absolute, it can stop or stall the following types of litigation:
- Breach of contract
- Business disputes
- Repossession deficiency collection
- Personal injury claims
- Property division
Will a Pending Lawsuit be Stopped by Filing for Bankruptcy in Arizona?
Your bankruptcy will stop the above-mentioned pending lawsuits, with a few exceptions. Your creditor may file a Motion for Relief from the Automatic Stay, which allows them to proceed with collection or litigation in spite of your bankruptcy’s good status. There are a few situations where this motion may be granted. If a debtor doesn’t intend to reaffirm their auto loan or catch up on mortgage payments during a Chapter 7, the motion may be granted to mitigate losses for the creditor. Landlords who started eviction proceedings before the Stay went into effect may have a better chance of having it lifted. Creditors whose debts are excluded from bankruptcy due to fraud may be able to proceed despite the debtor filing bankruptcy. Government agencies have a better chance of having their motion granted than standard creditors, but any creditor has a chance at relief if they can provide a compelling reason.
If your bankruptcy trustee finds an issue in your petition or case, it may be dismissed. You can refile your case, but your Automatic Stay protections may be limited. If you file bankruptcy twice in a one year period, you will only be protected from lawsuits for 30 days. If you file more than two cases in a one year period, bankruptcy will provide you no protection from lawsuits at all. You may be able to request an automatic stay or an extension if this situation arises.
Do I Have to File Bankruptcy BEFORE There is Judgment Against Me?
Once there is a judgment against you, filing bankruptcy is one of your only options, besides paying the debt in full or negotiating an alternative payment arrangement. If you file bankruptcy before your judgment, the judgment will never make it to your credit report. However, the debt, as well as liens and garnishments, will be cleared whether or not your creditor obtains a judgment before your bankruptcy. If your creditor has already obtained a judgment against you, the clock is ticking until they obtain a writ to garnish your wages. You should be consulting with bankruptcy attorneys now so that your filing isn’t rushed.
What is an Automatic Stay in Bankruptcy?
An Automatic Stay is the legal protection that starts once your bankruptcy petition is filed. It freezes your assets to stop creditors from collection methods such as wage garnishment, foreclosure, and repossession. In most cases, the Automatic Stay protects you until your case closes through discharge or dismissal. Keep in mind that a Chapter 7 bankruptcy typically lasts 4-6 months, and a Chapter 13 bankruptcy lasts 3-5 years.
Should I Choose Chapter 7 or Chapter 13 to Protect Myself From a Lawsuit?
One major difference between Chapter 7 and Chapter 13 are the asset exemptions that apply in Chapter 7. If your assets aren’t protected by an applicable state exemption, the trustee can seize them. There are limits to how much equity you can have in your house, car, and other property, that vary by state. Check with a bankruptcy attorney to make sure your assets will be protected in Chapter 7- otherwise, you can file Chapter 13 without the restriction of state exemptions.
Based on your income and previous bankruptcy filings, you may only have one chapter of bankruptcy available to you as an option. If your income is too high for a Chapter 7, your case will be dismissed quickly and your creditor can proceed with actions against you. You may also want the extended protections of the Automatic Stay provided by Chapter 13. It’s essential that your petition is prepared correctly, and filed under the correct chapter, when you’re facing a lawsuit. If you file Chapter 13, your plan payments must be calculated accurately so that your plan will be approved.
What if I’m the Plaintiff?
This is most often an issue for our clients when they are the victim of an accident and pursue a personal injury claim. You should inform your bankruptcy attorney of this during your consultation if you intend to file a personal injury lawsuit in the near future, or are currently involved in one. Depending on your state exemptions, your award, and other factors, the trustee may be able to seize some or all of your personal injury award to pay your bankruptcy estate.
Contact Our Arizona Bankruptcy Attorneys if You are Facing a Lawsuit
Whether you’ve already received a summons for a lawsuit, or you know you will be served soon, you shouldn’t hesitate to learn about your legal options. Filing bankruptcy may be a viable solution to your current financial situation. To learn more about the options available to you, call our law office today to schedule your free consultation. Learn about the benefits and disadvantages of bankruptcy, as well as receive your quote for legal services, free of charge. Call My AZ Lawyers today to schedule your free consultation!