Can Filing Bankruptcy Stop a Lawsuit?

I am being sued. Can filing for bankruptcy stop a lawsuit?

Yes and no. The end result of a lawsuit is a judgment against the loosing party, resulting in money damages.

If a creditor wins a lawsuit against the Debtor, the creditor must collect on that judgment. One way a creditor can collect on the judgment is by garnishing a Debtor’s wages. If the Debtor is self-employed, the creditor can garnish a Debtor’s bank account. Once a bankruptcy petition is filed, the Debtor is protected from all garnishment activities from the creditor. (See the section “Bankruptcy and Garnishment.”) Another way a creditor can collect on the judgment in the future is to put a lien on tangible property, such as a house.

Generally, a lien survives bankruptcy.  However, while the bankruptcy is still active, a judicial lien can be stripped off the property, especially if the lien is on exempt property and it impairs the  value of the exemption.  The lien is stripped off by filing a motion requesting the judge to issue an order to remove the lien.

However, bankruptcy will not protect against all lawsuits.  If a Debtor is being sued and is fearful of a monetary judgment, it is important to consult with a qualified bankruptcy attorney.  The Law Offices of Alice Vacek Aranda PLLC offers a free one half hour consultation.


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