When you file for bankruptcy can be as important as what type of bankruptcy you file. When you file will not only determine what you get to keep in some circumstances, but if the other suit can continue.
If you file for bankruptcy and one of your creditors has already filed suit against you, then that creditor will be affected by the automatic stay. The automatic stay is a halt on all outstanding creditor or collection agency actions whether they’re in court or out of court. However, under the Federal Bankruptcy Code, if a creditor can convince the bankruptcy judge that their rights would be impaired by the automatic stay they can have it lifted.
While this means you could be forced to fight two cases at once, this also means that the debt will not be included in your bankruptcy estate and will not be discharged with the rest of your debts if you’ve filed for Chapter 7.
What will happen to your debt after your bankruptcy case has been dismissed and your debts discharged under a Chapter 7 or Chapter 13 bankruptcy case depends on whether you included that debt in your bankruptcy estate.
If you included the debt in your bankruptcy estate, then it will be discharged and you cannot be sued for it. If you did not, then your creditor can sue you approximately 30 days after the automatic stay is lifted at the conclusion of the bankruptcy case.
Some debts will not be discharged by bankruptcy. Debts like liens (including mortgages except under certain circumstances under Chapter 7), Student loans, tax debt, alimony, or child support will not be discharged by bankruptcy and are not subject to an automatic stay. Whether or not a mortgage or car loan will be discharged during Chapter 7 depends on whether you include the house or car in your bankruptcy estate. If you do not then the debt will remain and you can be sued in foreclosure or have your car repossessed if you do not keep up with your payments during your bankruptcy. This also means that any collection lien placed on your property before you file for bankruptcy will not be discharged in bankruptcy.
Making sure you’re not sued for a debt after your bankruptcy case has concluded requires a little work. You need to make sure that you include all of your debts in your bankruptcy estate. If you discover any debts after your petition has been filed make sure to alter your petition, and in the case of Chapter 13, your payment plan as well.
Of course, the best way to avoid worrying about a collection or foreclosure suit is to take measures to avoid them. Debt settlement, debt consolidation, and debt management are all alternatives to bankruptcy that will help you get out of debt without having to worry about a lawsuit or bankruptcy.
Written by Caroline Palmer
Associate Attorney, Oak View Law Group
