When someone breaks a contract or injures you somehow, you can file a lawsuit asking for money to reimburse your loss. But, you might be out of luck if the person you want to sue files for bankruptcy. Whether you can sue will depend on the type of issue involved and the date of the incident.
When someone files a bankruptcy case, a court order called the automatic stay immediately goes into effect. The stay stops a creditor's attempt to collect a debt from the debtor.
For instance, a creditor must stop calling the debtor, as well as sending bills. The stay's power includes stopping many types of lawsuits cold.
But the automatic stay has limitations. It only ends litigation involving debts that can be forgiven (discharged) in the bankruptcy case. Other types of court proceedings can continue to move forward.
You won't be able to file or continue with a lawsuit if the damage occurred before the bankruptcy filing and relates to one of the debts below:
Learn more in Will a Pending Lawsuit Go Away If I File for Bankruptcy?
The automatic stay doesn't prevent you from filing or continuing with all court proceedings. For instance, some court cases:
Below you'll find examples of obligations that fall into each category.
Actions not related to the debtor's debts or property:
Lawsuits involving debt that won't be discharged in the bankruptcy:
Debt that arises after the bankruptcy filing:
A bankruptcy will only involve debt that existed before the bankruptcy filing date. An incident that arises afterward won't be included in the bankruptcy.
You can file a lawsuit in both of these cases because the incident occurred after the debtor filed the bankruptcy case.
If the lawsuit was already pending when the debtor filed the bankruptcy case—and it involves an issue other than a debt that will be discharged—the parties can choose how to proceed. They can:
If the debtor filed for bankruptcy before the filing of a lawsuit, the parties can:
Learn more by reading about the types of bankruptcy cases you must file as an adversary proceeding.
Before deciding to sue someone who has filed for bankruptcy, consider consulting with a bankruptcy attorney specializing in litigation. After reviewing your case, a bankruptcy lawyer will explain the likelihood of prevailing and help you develop an effective litigation strategy if you decide to go forward.
Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.