Can I File Bankruptcy While a Civil Lawsuit Is Filed?

Pennsylvania allows individuals to file for bankruptcy even if a lawsuit is already filed against them. These lawsuits can be anything from defaulting on a loan to contract disputes. Civil lawsuits occur when someone (the plaintiff) files non-criminal legal action against another person (the defendant) seeking a judgment from the court for damages.  Most of the time, these damages are from breach of contract.  This can add additional stress on a person already owing other debt. 

 Filing for bankruptcy actually stops lawsuit proceedings when an automatic stay is put into effect. For this reason, those owing debt that they cannot repay in the midst of a lawsuit may consider this option.  It can eliminate or reduce the amount to be paid. Or it can provide a significant amount of time to repay the debt without losing assets. 

Automatic Stay

When an automatic stay goes into effect, a court order stops creditors or lenders from taking action against an individual. This includes foreclosure, car repossession, and civil lawsuits. Automatic stays protects people from losing their assets. This allows the court time to eliminate the debt or provides time for the person to reorganize their debts through a bankruptcy plan that can be carried out month over month for a specific duration of time until the debt is repaid. 

However, even with an automatic stay in place, a creditor has the right to file a motion for relief.  If approved by a judge, the automatic stay can be removed or modified. In this case, the creditor may be able to continue certain efforts of debt collection against the debtor.  An experienced bankruptcy attorney can reduce or eliminate the risk of this type of motion.  

How Long Does an Automatic Stay Remain In Effect?

An automatic stay can remain in effect in Pennsylvania for the duration of the bankruptcy case. When a civil lawsuit is filed against the debtor, this means that their assets are protected from the lawsuit for the duration of their bankruptcy case, until their debt is discharged or the case is dismissed. An automatic stay begins immediately upon filing for bankruptcy. 

What Happens After an Automatic Stay Is Lifted?

After an automatic stay is lifted, creditors are allowed to resume collection actions. In terms of a civil lawsuit, this means that the lawsuit may resume once the automatic stay is lifted. However, having the automatic stay in place while filing for bankruptcy gives the debtor time to consult with their attorney over the civil lawsuit. Because automatic stays are in place for the duration of a bankruptcy filing, the debtor’s position within a civil lawsuit, depending on the case, may change due to the outcome of their bankruptcy petition. It’s best to consult directly with your bankruptcy attorney about civil lawsuits that are filed in the midst of a bankruptcy case. Each case may be handled differently depending on a person’s unique circumstances. This requires experienced legal expertise and representation from someone versed in handling bankruptcy petitions. 

Will Filing Bankruptcy Stop a Civil Lawsuit?

A bankruptcy filing will stop a civil lawsuit, either by eliminating the debt or allowing the person time to repay it. This occurs through the automatic stay that is put into effect when someone files for bankruptcy. It also allows the debtor time to assess the civil lawsuit as they go through their bankruptcy process. Giving themselves time also gives them more time to protect their assets from a civil lawsuit. 

Does Filing for Bankruptcy Clear Lawsuit Debt?

There are limitations as to what debts can be discharged when filing for bankruptcy. This includes some limitations to what lawsuit debts can be cleared. Lawsuits directly related to unpaid credit card balances or breach of contract due to lack of payments, can usually be eliminated or delayed when a person files for bankruptcy.  However, other debts such as child support cannot be stopped when filing for bankruptcy.  Additionally, some debts are only dischargeable in Chapter 13 bankruptcy and not in Chapter 7 bankruptcy.  Consult with your bankruptcy attorney about which debts can be discharged by a bankruptcy case and see if it makes sense for you to get relief.