April 3, 2020
Let us discuss the effect of Bankruptcy on pending or imminent lawsuits. In this article, we will try and focus on lawsuits concerning credit card debts. As more fully explained below, a bankruptcy (no matter what chapter) will put a halt on any lawsuit. Additionally, bankruptcy may also get rid of the debt underlying the lawsuit.
A Bankruptcy 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. Like its name, the effect of the automatic stay is that all collection actions against the bankrupt Debtor must stop. 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.
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.
Credit Card Lawsuits and the Automatic Stay
Approximately 80% of our clients who contact us regarding a pending lawsuit are subject to a lawsuit by a credit card company for unpaid debt. In Chapter 7 cases, which are the most common types of bankruptcy cases, credit card debts are almost always wiped out entirely. This means that bankruptcy not only provides the benefit of stopping any lawsuit against the Debtor, but it also wipes out any debt that gave rise to the lawsuit. This is why individuals who are subject to a lawsuit for unpaid debt often find that Bankruptcy is the best option for them.
One Should File a Bankruptcy in Los Angeles When There is an Imminent Lawsuit or a Foreclosure
There are situations which require an immediate and emergency filing of a bankruptcy in Los Angeles. For example, if a creditor has filed a lawsuit against you, you may want to file a bankruptcy sooner than later. It is preferable that the bankruptcy be filed before a Judgment is entered in the case (a finding by the Court in favor of the Creditor) and liens are placed on properties.
Want to Learn More About When You Should File a Bankruptcy, Consult With a Los Angeles Bankruptcy Attorney Now!
If you or your loved one is considering bankruptcy, give us a call now. We would be happy to talk to you. Also note that in light of social-distancing, we are willing to conduct our free consultations by phone or by video. Just call us to set up an appointment.
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