We often receive call from individuals living in Los Angeles who were recently served with a lawsuit. One of the questions often asked is whether a bankruptcy will stop this lawsuit and how a bankruptcy will one deal with a lawsuit in Los Angeles. As more fully explained below, a bankruptcy (no matter what chapter) will stop a lawsuit, at least temporarily. Additionally, bankruptcy may also get rid of the debt underlying the lawsuit, which would effectively render the lawsuit “moot” and unenforceable against the bankrupt debtor.
A Bankruptcy in Los Angeles Could Stop a Lawsuit Through the “Automatic Stay”
The “automatic stay” is a protection afforded by the bankruptcy Code to all individuals who file a bankruptcy. The effect of the automatic stay is that all collection actions against the bankrupt Debtor will cease and the underlying debt will often be wiped out. Although creditors can seek termination of the automatic stay by filing a Motion with the Court, said process takes at least a few weeks. Generally, however, the Bankruptcy Court will not terminate the automatic stay unless there is good reason to do so. Generally, a credit card company will not file such Motion, and even if they did, said Motion would probably not be granted.
An additional benefit of the automatic stay is that creditors are prevented from filing a lawsuit against the Debtor while the automatic stay is in effect. Even if a lawsuit was filed before the bankruptcy, the filing of the bankruptcy puts a stop to any lawsuit. Attempts by the creditor to resume the lawsuit in the fact of the automatic stay could result in sanctions imposed against the creditor for violation of the automatic stay.
It is important to notify the individual who filed the lawsuit (or his/her attorney) of the bankruptcy, once it is filed. Such notice should be given in writing, with proof that the notice was timely given.
Should Los Angeles Residents Always File a Bankruptcy When Served With a Lawsuit?
The short answer is “no.” Bankruptcy is not always needed, and individuals who are not drowning in debt, or have debt that they can afford to repay should not file a bankruptcy (they may also not be eligible to file a bankruptcy in Los Angeles. Additionally, some debts resulting in lawsuits may not be “dischargeable” (or wiped out) so it is important to know what each lawsuit is for. If the reason for the bankruptcy is the lawsuit, and the debt happens to be non-dischargeable, then there would not be much of a benefit to file a bankruptcy to fend of the lawsuit. It is best to discuss your situation with a qualified Los Angeles bankruptcy attorney who will asses your financial situation and determine if bankruptcy is right for you.
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If you or your loved one is considering bankruptcy, give us a call now. We would be happy to talk to you and provide a free confidential consultation.
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