Can bankruptcy stop lawsuits? Yes! This is one of the most powerful features of filing bankruptcy.
The instant a person files a bankruptcy case, the “automatic stay” goes into effect. The automatic stay is intended to give a debtor (the person that filed bankruptcy) some breathing room to sort out his or her finances. Crucially, the automatic stay immediately pauses all civil legal proceedings against the debtor.
Lawsuits are complex and time-consuming. Defending a lawsuit in court will cost a substantial amount of money. Some defendants prefer to file bankruptcy to avoid the consequences associated with protracted litigation.
A typical lawsuit that I see in this office is a debt collector suing someone over a defaulted credit card. Lawsuits from auto repos are also very common. Most of the time there is not a good basis to defend the lawsuit. The defendant probably has to admit that they owe the money. Despite the liability, the person can not afford to pay the debt associated with the lawsuit. Bankruptcy can help.
Many times a judgement in a debt-collection lawsuit will be significantly larger than what was originally owed. This is because a plaintiff may add on certain costs to the judgement. Typical costs included: 1) court filing fee; 2) process server fees; 3) back interest; and 4) attorney’s fees. These various add-ons can easily double the amount of the judgement once your lawsuit is over!
Once your bankruptcy case is filed, the plaintiff in your original lawsuit will have to seek permission from the court to proceed. This almost never happens.
Filing bankruptcy to stop a lawsuit will have the additional benefit of eliminating your other unsecured debts.
As you can see, filing bankruptcy to stop a lawsuit and has many benefits. Please contact my office if you have any questions about filing bankruptcy to stop a lawsuit. My office number is (916) 333-2222.