When someone fails to pay back a loan or causes you another type of harm, it’s normal to want your day in court. However, that plan can quickly get thrown out the window if the person responsible files for bankruptcy. But it’s not always the case. In some situations, you retain your right to sue.
Once a debtor files for bankruptcy, an order called the automatic stay immediately puts a stop to most lawsuits (but not all—more below). If the bankruptcy wipes out a potential debt, the ability to sue on that obligation will go away permanently.
Here are examples of debts that usually get discharged in bankruptcy:
Filing for bankruptcy doesn’t stop all lawsuits. For instance, a district attorney can proceed with a criminal trial because the automatic stay doesn’t apply to criminal prosecution. Similarly, individuals can bring a suit against someone in bankruptcy in the following situations:
There are other types of obligations that don’t go away in bankruptcy. For instance, bankruptcy doesn’t get rid of a money judgment stemming from an accident that resulted in death or injury due to intoxication. However, you don’t automatically get to file suit for a nondischargeable debt while the bankruptcy remains open. If you believe the case warrants it, you can file a motion asking the court to allow you to file a lawsuit before the bankruptcy case concludes.
(For more information, see What Is a Nondischargeable Debt?)
Just because someone previously filed for bankruptcy, or is currently in bankruptcy, doesn’t mean that you can’t file your lawsuit at some point. Bankruptcy works backward. It only wipes out debt that was in existence before the bankruptcy filing. Any debt incurred after the filing date remains the debtor’s responsibility. So, the viability of your suit could depend on when the problem first surfaced.
For instance, your lawsuit won’t get wiped out if the debtor had already filed for bankruptcy before the incident giving rise to the lawsuit occurred. As long as the claim arose after the filing date, the bankruptcy won’t cause you to lose your right to sue.
For instance, suppose that an uninsured debtor filed for bankruptcy on April 1, 2017. On April 5, 2017, the debtor rear-ended you at a stoplight and gave you whiplash. Because the accident happened after the filing date of April 1, 2017, you’ll be able to sue for a monetary recovery. If, however, the accident had occurred on March 31, 2017—a day before the bankruptcy filing—the ability to file a lawsuit against the driver would have been wiped out in the bankruptcy case. (Bankruptcy doesn’t prevent you from making a claim against an insurance policy—just from recovering from the individual’s personal assets.)
(For more information, read What Is a Post-Petition Debt in Bankruptcy?)