Lawsuits You Can't Stop By Filing for Bankruptcy

Find out what happens to lawsuits when you file for bankruptcy and learn which lawsuits can't be stopped by a bankruptcy filing.

By , Attorney

No one wants to be sued. Fortunately, filing for bankruptcy stops many legal actions in their tracks, including debt-collection lawsuits. But filing for bankruptcy won't stop all legal matters. Some lawsuits, such as criminal prosecution or child support actions, will continue even after your bankruptcy filing.

Here's what you'll want to know if you're involved in litigation and considering bankruptcy:

  • how bankruptcy stops lawsuits
  • which lawsuits bankruptcy won't stop, and
  • when a bankruptcy court will let a lawsuit finish in state court.

If you already have a lawsuit judgment against you, this article won't help. Instead, find out what happens to lawsuit judgments in bankruptcy here.



Why Filing for Bankruptcy Stops Some Lawsuits But Can't Stop All Lawsuits

Filing for bankruptcy can be very powerful, primarily because of the automatic stay order the bankruptcy court puts in place when you file your bankruptcy case. The stay stops creditors from collecting debts from you, including debt collection actions involving lawsuits.

But before your debt problems can be resolved in bankruptcy, everyone claiming you owe them money must be part of the bankruptcy case, including people suing you for money in state court. That's why bankruptcy stops civil collection actions.

Some of the lawsuits bankruptcy will stop include:

  • unpaid credit card debt, back rent, or lease payment cases
  • civil personal injury and property damage cases, and
  • disputes between business partners.

If bankruptcy "discharges" or wipes out the lawsuit debt, the case won't continue after your bankruptcy case ends. However, some lawsuits aren't affected by bankruptcy.

Lawsuits Bankruptcy Can't Stop

Here are examples of litigation that will continue to move forward despite your bankruptcy filing.

Family Support Cases

From a practical standpoint, most people file for bankruptcy before or after a divorce, and with good reason. Filing for bankruptcy during a divorce creates havoc in both processes, so lawyers rarely advise doing it. Here's why.

A Chapter 7 bankruptcy filing will stop the property division portion of a divorce proceeding because the Chapter 7 trustee appointed to the case must sell nonexempt property for creditors in a Chapter 7 case. Nonexempt property consists of assets you can't protect with a bankruptcy exemption.

However, the bankruptcy court won't get involved in a family law court's determination of the amount of alimony or child support someone should pay. Those actions will continue.

If you're dealing with this complicated area, you should seek advice from an attorney who understands how bankruptcy and family law intersect.

Criminal Actions

A criminal case will proceed despite the automatic stay. Why? Because the prosecution of an alleged violation of the law, such as an assault and battery matter or driving on a suspended license, isn't related to the bankruptcy filer's debt problems. Criminal cases aren't within the court's "jurisdiction" because they don't involve a legal area the bankruptcy court has the authority to handle.

Lawsuits that a Bankruptcy Filing Might or Might Not Stop

A lawsuit's outcome isn't always predictable. In some instances, the bankruptcy judge or the bankruptcy trustee will take a more significant part in deciding what will happen to the suit.

When a Creditor Can Lift the Automatic Stay

A person or business involved in any lawsuit can ask the bankruptcy court to allow the matter to proceed. A bankruptcy court will grant the motion when it won't affect the bankruptcy case and the person requesting the relief will suffer harm if the motion isn't granted.

The request can be made by filing a motion to lift the automatic stay when:

  • A mortgage lender would lose money if forced to wait to foreclose until after the bankruptcy case ends.
  • The debtor is surrendering a financed car, and the lender wants to limit losses by repossessing the vehicle.
  • A landlord is evicting a tenant but hasn't received an eviction order or judgment.
  • A government agency wants approval from the bankruptcy court to move forward with a lawsuit to avoid violating the automatic stay.

If the creditor fails to make the motion, the automatic stay will remain in place.

When the Lawsuit Starts as a Fraud Case in State Court

Here's another wrinkle. In many fraud cases, the plaintiff files the lawsuit in state court but the lawsuit is stopped by the automatic stay after the "defendant" or the person sued files for bankruptcy. Because a plaintiff must prove fraud in a court of law before the bankruptcy court will declare the debt nondischargeable, the bankruptcy case will wipe out the debt if the plaintiff does nothing.

The plaintiff can refile the state lawsuit as an adversary proceeding in bankruptcy court, but starting over is expensive. Instead, plaintiffs often ask for permission to finish the civil fraud case in state court. Many bankruptcy courts agree to adopt the state court's decision and will declare the debt nondischargeable if the state court finds fraud.

When the Bankruptcy Trustee Will Take Over the Lawsuit

If you have a right to sue someone, the potential money judgment you'd receive is an asset in your bankruptcy case. You can keep your right to sue and remain in charge of the lawsuit if you can protect it with a bankruptcy exemption. However, if you can't exempt it, the Chapter 7 bankruptcy trustee will decide whether to take over the case, litigate it on your behalf, and distribute any proceeds to creditors.

You might face this situation after being injured in an accident, when you're owed money under a contract, or if you're part of a class-action lawsuit.

Need More Bankruptcy Help?

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 need anything else!

Providing all information needed to file for bankruptcy is beyond the scope of this article. If you'd like to file without an attorney, a self-help book like How to File Chapter 7 Bankruptcy by Attorney Cara O'Neill and Albin Renauer J.D. or Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Cara O'Neill (Nolo) can help you make well-informed decisions about your bankruptcy matter.


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Helpful Bankruptcy Sites

Department of Justice U.S. Trustee Program

United States Courts Bankruptcy Forms


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