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Bankruptcy Protection from a Civil Suit

When a person files for bankruptcy and the filing is accepted by the court, the person who now becomes a debtor receives immediate protection from any and all forms of collection and litigation due to financial liability.   Assuming that a civil suit was being initiated due to past due monies being owed a creditor, that civil suit is stopped in its proceedings.  It cannot go forward until after the bankruptcy discharge and will only be a worthwhile civil suit if the debt the debtor owes that particular creditor somehow survives the discharge.  If the debt is wiped out, the civil suit goes with it.  The creditor and his or her civil suit are bound by the automatic stay as soon as the court clerk stamps or time punches the filing that now becomes a petition.  No one has to necessarily notify the creditor of the filing.  However, once known the creditor must cease collection efforts or face contempt charges.  The debtor’s petition has to undergo scrutiny by the court and an assigned bankruptcy trustee, and survive this scrutiny.  This is the typical situation.  But, that does not make the wiping out of the debt a guarantee.

The creditor is not simply brushed aside in bankruptcy cases.  The creditor has the right to be present during the “341” hearing, the interview session by the trustee of the debtor as required by Section 341 of the Federal Bankruptcy Law (FBL).  The debtor is under oath and bound by this regardless of who is asking the questions.  One of the underlying purposes of this hearing is clarify any information filed with the petition that needs clarification, and to determine that what the debtor filed under oath holds up under scrutiny.  Creditors are often allowed to also ask questions of the debtor.  The reason a creditor would ask the debtor questions would be try and establish either fraud or intentional misconduct.  “Intentional misconduct” has a legal definition that can be applied.  The term “intentional misconduct” legally means “… conduct by a person with knowledge (at the time of the conduct) that the conduct is harmful to the health or well-being of another person [42 USCS § 1791 (b) (8)].”  To paraphrase the situation, if the debtor’s lack of payment to the creditor willfully put someone else into harm’s way, the trustee and or the bankruptcy court judge could exclude that liability from discharge, keeping the debt in existence, keeping the civil suit in a viable state.  Also, if the debtor came by the debt in a fraudulent manner, say by lying to the creditor to obtain a credit line, then running out the credit, refusing to pay the creditor and using the bankruptcy Chapter 7 to wipe it out, again, the trustee and or the judge could exclude the debt from discharge.  A creditor who wishes to challenge the discharge must do so within sixty days after the discharge is issued.  The challenge will be showing that the debtor obtained the credit by lying, not lying about things after receiving the credit.  It is an essential point in the drive to retain the debt.

Disclaimer

This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

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