Bankruptcy Can Stop A Lawsuit

Bankruptcy stops most lawsuits dead in their tracks. This is the primary reason that after being served with a lawsuit, many people choose to file a bankruptcy case. Although as there are always exceptions to almost any rule, not all lawsuits will be stopped, but the majority of lawsuits will be terminated by the filing of a bankruptcy case under any chapter.

When a debtor files a bankruptcy case, the bankruptcy court (automatically) enters an order called the automatic stay. The “stay” stops creditors from commencing or continuing any collection activity. This includes litigating a cause of action seeking to be awarded a money judgment by a civil court. Not only does the automatic stay allow a debtor to regroup and get a fresh start with no creditor interference, but the stay also ensures that one creditor does not receive a preferential and disproportionate share of the debtor’s available non-exempt property.

The following types of cases will not be terminated by the filing of a bankruptcy case and the automatic stay:

  • criminal cases
  • divorce matters, and
  • child custody and support cases.

Bankruptcy will stop the following types of lawsuits:

  • a credit card balance,
  • a deficiency balance (the amount of the debt remaining after a liquidation sale of the property),
  • damages for breach of contract,
  • compensation for a negligence-related personal injury case, such as a motor vehicle accident, or
  • a foreclosure.

It is important to note that in any bankruptcy case, a creditor may request the court to lift or remove the stay so that the collection activity, whatever it is, may continue. If the lawsuit is relevant to the bankruptcy or the creditor may be subject to financial harm otherwise, the collection activity, in this case, a lawsuit, may continue. Experienced bankruptcy counsel may be necessary to protect your rights in this situation.

In 2021, bankruptcy remains an excellent option for any Utah resident to obtain a well-deserved fresh start. To discuss and determine your options for filing bankruptcy, contact the experienced attorneys at the Morrison Law Group. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, Orem, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.

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Theron Morrison

Utah’s top bankruptcy and consumer protection attorney.