Bankruptcy will delay or stop a credit card lawsuit no matter how far along it is. However, the effect of the bankruptcy on the lawsuit and the underlying credit card debt depends on the claims alleged in the lawsuit and whether it is a Chapter 7 or Chapter 13 bankruptcy. Read on to learn more about how bankruptcy affects credit card lawsuits.
The Automatic Stay Will Temporarily Stop Credit Card Lawsuits
When you file bankruptcy the automatic stay prohibits most creditors from trying to collect debts from you. This includes any ongoing credit card lawsuits. The automatic stay stops the lawsuit until your bankruptcy is completed, dismissed, or the court lifts the stay. (To learn more, see the articles in Bankruptcy's Automatic Stay.)
What Happens To Credit Card Lawsuits In Bankruptcy?
How bankruptcy affects a credit card lawsuit depends on whether you filed a Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is normally completed and discharged after a few months. While the bankruptcy is active the credit card lawsuit cannot proceed because of the automatic stay. After the bankruptcy is completed, if the underlying credit card debt is discharged, the creditor can no longer collect the debt from you so the lawsuit will normally be dismissed.
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, you pay a portion of your debts through a repayment plan over a three to five year period. The credit card lawsuit is stopped by the automatic stay and the debt is treated the same as your other unsecured debts such as other credit card debt and medical bills.
If you complete your bankruptcy plan and receive a discharge, the creditor will not be able to force you to pay the debt so the lawsuit will go away. However, if you fail to make plan payments and your case gets dismissed prior to your discharge, the automatic stay will end and the lawsuit will resume.
Credit Card Lawsuits Alleging Fraud
Claims based on fraud are nondischargeable in bankruptcy. A credit card lawsuit that alleges you committed fraud will be stopped by the automatic stay. However, the creditor will usually file what is called an adversary proceeding in your bankruptcy, asking the court to rule that the debt not be discharged. If the debt is deemed to be nondischargeable, the creditor will be able to resume collection efforts after the bankruptcy.