I am being sued by my credit card company for non-payment. Will filing a bankruptcy stop the lawsuit?

By Gregory Nassar

Yes. Upon filing for bankruptcy (either Chapter 7 or 13), an automatic stay is placed against all your creditors' actions against you, including the filing of a lawsuit or proceeding with a lawsuit. According to the United States Bankruptcy Code (Section 362), the automatic stay begins the moment you file for bankruptcy. Thus, if you have been served with a lawsuit for breach of contract by your credit card company, the stay will temporarily halt any legal proceedings. If your credit card debt is ultimately discharged, then the lawsuit will most likely be moot and be dismissed.

There are, however, some exceptions that debtors must be aware. These exceptions have to do with previous bankruptcy filings that were dismissed. First, if the debtor had previously filed for bankruptcy within the past year of their new bankruptcy filing and the previous case was dismissed, the automatic stay will expire unless the debtor obtains a court order extending the stay. Further, if the debtor had filed for bankruptcy twice before in the previous year and those cases were dismissed, an automatic stay will not be issued and the debtor will need to file a motion with the Court in order to be granted a stay.

Also, be aware that a creditor whose debt is secured by property can always file a Motion for Relief from Stay. If the motion is granted by the Court, the creditor can then proceed with any action against you. This is most common with secured debt (such as foreclosure of a home or repossession of a car) and not with credit card debt. Further, a landlord who has obtained an eviction judgment prior to your bankruptcy filing is not enjoined (that is, stopped) from evicting you. Additionally, in some cases, a landlord may seek relief from stay by the Court after your bankruptcy filing if the landlord demonstrates that you have created a danger to the property or have used illegal substances on the property.

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