Creditor lawsuits can be a catalyst for considering bankruptcy. Many of our clients fear potential wage garnishments, bank levies, and property liens that result from a creditor lawsuit and judgment. Some of our clients seem to be caught by surprise when they receive a notice of wage garnishment or bank levy as they don’t recall ever being “served” lawsuit paperwork. Others only vaguely recall the lawsuit, and still others say that they never received a lawsuit summons and complaint.
A creditor lawsuit may be filed against an individual or a business. The creditor initiates the lawsuit by filing the summons and complaint with the court and then “serving” the individual or business. A summons and complaint are documents that, typically, contain several paragraphs of explanation of the nature of the lawsuit , a description of the dispute, and the relief that the creditor is seeking.
When you file for bankruptcy, creditor lawsuits can become “automatic” bankruptcy adversary proceedings. The filing of a bankruptcy petition (the first step of bankruptcy) triggers an automatic stay which means that a creditor must stop the lawsuit and collection activities immediately. The automatic stay also prohibits a third-party collection activity from occurring in the same 90-day period after you file your bankruptcy petition.
During this time, the bankruptcy court will assign the creditor lawsuit to a bankruptcy court judge who will decide whether the stay should be lifted (terminated). The bankruptcy court judge will receive the creditor’s lawsuit along with your bankruptcy petition. The bankruptcy court judge cannot conduct a court hearing or otherwise act on the creditor’s lawsuit until the bankruptcy court judge reviews your bankruptcy petition. Once your bankruptcy case is completed and any remaining debts have been discharged, your creditor lawsuit will vanish and you will no longer be indebted to your creditor(s).
Contact our Dallas bankruptcy law office for more information.