Will Bankruptcy Help Me With A Lawsuit?

Lawsuits Around The Years In The U.S.

For many years, people have tried to sue other people, companies, or the Government for many different reasons.

It’s estimated that every year over 40 million lawsuits are filed just in the U.S. alone.

Some lawsuits have a huge social impact, Roe versus Wade comes to mind, and others have permanently affected how Justice is achieved.

One example of that is the 1966 decision in Miranda versus Arizona, which gave us the Miranda warning (a right that connects next to the phrase you have the “Right to remain silent” and so forth).

While 40 million lawsuits may seem like a lot, in reality only a portion of those ever go to trial, the rest are settled out of Courts, either through mediation, arbitration, or other settlement discussions.

When someone faces a lawsuit it can be a scary time. They might be sued for tens or hundreds of thousands of dollars for something they may or may not have been a part of.

Many people wonder if bankruptcy could help them out in some way or another. 

What Is A Lawsuit?

The term lawsuit is a dispute that you go to court to try to settle.

In a lawsuit, you’ve thought that there’s been something wrong that has happened, and you ask a court to try to figure out what happened, and at the same time to exact some kind of punishment.

A lawsuit can be criminal, where the punishment is going to be something like a loss of freedom, going to jail or prison, or it also could be a civil lawsuit, where the punishment is monetary in most cases.

How Does Bankruptcy Affect Civil Lawsuits?

Civil lawsuits are usually lawsuits where somebody is asking for money because there was some kind of harm suffered.

If for example you haven’t paid your credit card bill, and your credit card company comes to you and says: “Hey, friendly neighbor, where is our money?” and then, if you don’t respond, or you’re not able to pay, they’ll go to court.

The credit company will file what’s called a complaint. The complaint is what kicks off the lawsuit, and you only have a chance to respond.

After that, they’re going to sue you for a certain amount of money.

Bankruptcy has everything to do with money, and if you have been sued, bankruptcy will do what’s called an automatic stay.

The automatic stay stops the lawsuit from going forward, especially if it has to do with a collections lawsuit.

So, bankruptcy will affect it on that side if you are the one being sued.

On the other hand, if you are for example the one suing because you were in a car accident, you can sue the other driver because they smashed your car and you already had a hundred thousand dollars in medical bills, then that lawsuit becomes an asset to you.

You list that potential recovery from the complaint that you have filed in your bankruptcy petition as an asset, and some of what you recover could go to the creditors to pay part of what you owe or all of what you owe 

Can A Lawsuit Be Stopped In Bankruptcy?

If the lawsuit has been filed against you and you file your bankruptcy, the correct proceeding of a bankruptcy attorney is to write letters, call other attorneys, or to clerks of the court to stop everything in that process.

Then, they will often just dismiss the lawsuit or file what’s called a non-suit, which means that they’re not going to move forward with the lawsuit proceedings, that’s how bankruptcy will stop everything.

If you’re the one doing the suing, you need to be in contact with the trustee and your attorney about how that lawsuit is going.

What Happens If I Am In A Bankruptcy Case & Go Into Lawsuit Proceedings?

Suppose that you’re the one being sued when you already have filed bankruptcy and the wrong that was done was done before you filed the bankruptcy, for example, let’s say that you’re behind on your credit card bills, then, no, they cannot sue you at that point.

Once you’ve filed the bankruptcy, the automatic stay stops any collection activity including lawsuits.

In case you have already received your discharge from bankruptcy, there’s no automatic stay but the provisions of the discharge mean that they cannot collect against you.

If you defaulted on something after you filed bankruptcy, that’s a post-filing debt, and you can be sued for something that happened after you filed the bankruptcy, but if it’s before, then it stops the lawsuit in its tracks.

Is It Possible To Sue Someone To Prevent Them From Filing For Bankruptcy?

This is usually seen in divorce situations but no, you cannot waive your bankruptcy rights, you can’t barter that away in exchange for something else.

You can’t sue someone to say you’re not going to file bankruptcy or else, it just doesn’t work that way, you will always have that right to file a bankruptcy.

Can I File For Bankruptcy After A Lawsuit Has Ended?

Yes, you can file for bankruptcy after the lawsuit has ended. A lawsuit will end with a judgment, and a judgment goes on your credit report.

Bankruptcy will not take the judgment off of your credit report but it can get rid of the obligation to pay the Judgment.

You might automatically have it on the credit report but you might not have to pay for it now.

There are exceptions to discharge. If there was a lawsuit, you lost and you were found guilty of fraud, or you mismanaged funds when you were in a fiduciary capacity, that can be determined to be non-dischargeable in your bankruptcy.

If you have a very smart bankruptcy lawyer and if you tell them about this lawsuit where they got a judgment against you, your bankruptcy lawyer will want to see the pleadings, they’ll want to see what was filed and what the judgment says, to be able to advise you.

It’s still a dischargeable debt so long as there’s no fraud, criminal activity, or those kinds of things.

Should I File For Bankruptcy Before Or After A Lawsuit?

Proactively it’s more efficient for someone to start their bankruptcy case before a lawsuit if they have the opportunity to take that step forward before the lawsuit even gets filed in court.

There are some situations where it might not be advisable to do that, it could be considered a bad faith filing.

Generally speaking, it’s so much easier to file your bankruptcy before you get sued, or at the very least before your response date.

You may want to at least file your case before that response date because if you don’t respond, you’re going to get a default judgment, and that’s a hard thing to undo.

Bankruptcy can still stop you from having to pay on that judgment but it’s on your record, and it’s gonna hit your credit.

Is A Lawsuit Dischargeable With Chapter 7 Or Chapter 13?

Chapter 7 and Chapter 13 are both the same if we’re still talking about a collection lawsuit because they’re completely dischargeable.

Depending on your Chapter 13 plan, you may end up paying a portion of what is owed from the judgment on that lawsuit.

If the Judgment was never entered, there’s less that you would have to pay because it’s not a debt that’s come to fruition, nobody’s decided how much you would have to pay.

Eventually, you might end up paying a lower plan payment on Chapter 13 but a general collection lawsuit is going to be dischargeable no matter what bankruptcy you file.

Can A Subchapter 5 Help In A Business?

When somebody is suing a business, one of the things that need to be taken a look at is if the business owner wants to keep their business.

If they plan to keep the business running, a Subchapter 5 might be a good plan but if they’re okay with letting their business go shutting down and they’re getting sued, they would want to take a look at possibly just closing the business and filing a personal bankruptcy.

There are some situations where if somebody is suing the business but not the individual owner, then, just closing the business could help with that.

If they are suing the business and the owner, then, we’re looking at possibly a Subchapter 5 and a personal bankruptcy for the business owner, depending on the goal of the business owner, keeping it or shutting down the business.

In summary, it’s the same situation with a Chapter 7 or a Chapter 13, a Subchapter 5 will handle it the same way, and you’ll be able to take a look at what is dischargeable, what is not dischargeable, how much can you afford to pay to your creditors, takes all of that into account.

How Much Money Can Be Dischargeable In A Lawsuit With Bankruptcy?

There are no rules about how much money can be discharged but there are debt limits in Chapter 13 and also in Chapter 11 Subchapter 5.

Chapter 11 Subchapter 5 that’s specifically for businesses that have less than 7.5 million dollars in debt (all together, all the debt) whether it’s this lawsuit debt and everything else, credit card debt, or investors.

Chapter 7 has no debt limit, so you don’t need to worry about that.

Chapter 13, which is only available for individuals and families, not for businesses, does have a debt limit.

While it doesn’t matter how much the lawsuit is for, we would want to look at all the debt and decide if that bankruptcy filer is eligible for whatever kind of Chapter they want to file.

Can Someone Sue After Filing For Bankruptcy?

It depends on how it’s listed. If the debt was incurred before they filed the bankruptcy and that debt gets listed in the bankruptcy petition, even years later, the creditor cannot sue for that amount.

However, if there is something like defamation, discrimination, or harassment that happens before the bankruptcy, and they sue later, it could be considered a non-dischargeable debt but it’s necessary to have in mind that there are exceptions to discharge.

Depending on that, you want to take a close look at what’s happening but if we’re just looking at a monetary suit that’s years after the debt was incurred as that debt is listed in the petition, then, it’s discharged, and suing them down the road would be a violation of the discharge.

Does The Reason In A Lawsuit Have A Bearing In Bankruptcy?

It sure does but we’re back to those exceptions to discharge. If you are filing a lawsuit and it has to do with fraud, embezzlement, or you’re acting in bad faith as a fiduciary, that could be deemed non-dischargeable.

In the case that you’ve been sued for one of those things, the creditor, which is the person who is bringing the lawsuit, would file a different kind of lawsuit within the bankruptcy, called an adversary proceeding.

In the adversary proceedings, they’re asking the court to determine that that debt is nondischargeable based on fraud, embezzlement, or whatever the grounds are.

Does The Type Of Court Have An Impact On Bankruptcy?

It doesn’t, money is money whether it shows up in small claims civil, it doesn’t matter.

This is basically about urging people no matter what kind of court it is, to open their mail, get that registered mail from the mailbox, and make sure that they know what’s going on and where you’re supposed to respond.

Filing For Bankruptcy & Suing A Government Agency

This is the situation where if you’re filing a bankruptcy and you’re the one doing the suing, you’re the plaintiff in the lawsuit.

You have to list on your bankruptcy petition that you could recover this money for this lawsuit.

Your bankruptcy might not close, and you could get a discharge but your bankruptcy might not close for a very long time because the wheels of Justice turn slowly.

Could Bankruptcy Get Denied If You Are Suing Or Half-Sued The Government?

Bankruptcies don’t get either accepted or denied. When you file it, it’s presumed to be a go, you file your bankruptcy, it’s a petition, not a request or an application, so you’re not waiting for it to get accepted or denied.

If you are in the middle of a lawsuit, it doesn’t matter, you have filed your petition, and you’ve filed bankruptcy, so it’s not going to get denied unless there is some other finding like you have filed in bad faith, or you’re not eligible to file bankruptcy because you don’t have a Social Security Number (SSN).

Just suing the Government does not preclude you from filing a bankruptcy.

Can you sue somebody to stop them from filing for bankruptcy? No, you can’t, everyone can file for bankruptcy if they have a Social Security Number or a tax identification number.

Filing a lawsuit against the government will not stop you from being able to file for bankruptcy.

If you have additional questions about your lawsuit, your bankruptcy case, or your specific case, you can contact us at (855) 502-0555. After a brief 10-minute evaluation of your case over the phone, we will let you know what options you have. You can also follow us on our social networks so you don’t miss our weekly broadcasts on Facebook, YouTube, and Twitch.
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