Bankruptcy Effect on Lawsuits

Bankruptcy effect on lawsuits is a common question for those considering filing bankruptcy.  Particularly so with those who are being sued.  Bankruptcy filings invoke what is known as an automatic stay.  It is a bankruptcy term meaning you are instantly shielded from your creditors when you file bankruptcy.  This includes creditors who are suing you.  And it includes creditors who have already sued you and won.  No matter the creditors’ claims, they can no longer pursue a lawsuit against you if you file for bankruptcy.

200_sCreditors can ask the bankruptcy court to continue with a lawsuit.  But that is very rare.  The bankruptcy effect on lawsuits is to stop them.  This mens stopping lawsuits no matter where they stand.  Some believe it is too late to file for bankruptcy if they have already been sued. Others think it is too late if they have already lost a lawsuit and face a judgment.  Not so.  The bankruptcy filing will cause the lawsuit to be dismissed.  Often lawsuits prompt the filing of bankruptcies.  Hulk Hogan, the wrestler, sued in a sex-tape scandal lawsuit.  The party he sued filed for bankruptcy to block the lawsuit and any judgment.  It is an interesting news story and a common application of filing for bankruptcy.

With the bankruptcy effect on lawsuits, not only are the suits stopped, so are the consequences.  Lawsuits can result in judgments if you lose.  As a law professor once told me, judgments are like hunting licenses.  With a judgment a creditors can legally hunt any assets you have.  Your wages, bank accounts and possessions are all fair game to a judgment.  To save your stuff, lawsuits must be stopped.

If you have no defense to a lawsuit, bankruptcy is likely your only option.  But it is a good one.  The bankruptcy effect on lawsuits is powerful, sure and immediate.

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