How Bankruptcy Stops Lawsuits: Understanding the Automatic Stay

Introduction

When you’re behind on bills, creditors may do more than just call or send letters—they can sue you. Lawsuits for unpaid credit cards, medical bills, repossessions, or even deficiency balances after foreclosure can quickly spiral into judgments, wage garnishments, and liens on your property. The good news is that bankruptcy can put an immediate stop to lawsuits through a powerful tool called the automatic stay.

What is the Automatic Stay?

The automatic stay is a legal protection that goes into effect the moment you file for bankruptcy. It prohibits creditors from:

• Filing new lawsuits

• Continuing existing lawsuits

• Enforcing judgments

• Placing or perfecting liens

This gives you breathing room and a chance to resolve debts in an organized way.

Lawsuits Stopped by Bankruptcy

Bankruptcy can stop a wide range of lawsuits, including:

• Credit card or medical debt lawsuits

• Eviction lawsuits (in certain circumstances)

• Repossession or foreclosure lawsuits

• Deficiency balance lawsuits after repossession or foreclosure

• Debt buyer lawsuits from collection agencies

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What Happens to Pending Lawsuits?

• Paused Immediately: Once bankruptcy is filed, ongoing cases are frozen.

• Dismissed or Discharged: If the debt is wiped out in bankruptcy (such as credit cards or medical bills), the lawsuit usually gets dismissed.

• Certain Exceptions: Bankruptcy does not stop criminal cases, child support actions, or some government enforcement proceedings.

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Chapter 7 vs. Chapter 13 Protection

• Chapter 7 Bankruptcy: Lawsuits based on unsecured debts (credit cards, medical bills) are usually wiped out. The lawsuit cannot continue.

• Chapter 13 Bankruptcy: You repay debts through a structured plan, but lawsuits stop immediately. This can even halt foreclosure cases and allow you to catch up on your mortgage.

  
  

Special Note: Eviction Lawsuits

Bankruptcy may temporarily stop an eviction lawsuit, but it won’t let you live rent-free. If your landlord already has a judgment of possession, protections are more limited. Timing is critical in these cases.

Real-World Example

A Maryland client was being sued by a debt buyer for $8,000 in old credit card debt. She filed Chapter 7 bankruptcy before her court date. The automatic stay stopped the lawsuit, and the underlying debt was discharged—meaning she never had to face the lawsuit again.

Conclusion

If you’ve been served with a lawsuit or see one coming, filing bankruptcy can be the most effective way to stop it in its tracks. The automatic stay gives you immediate relief and long-term protection.

Next Step: If you’ve received a summons or are worried about being sued, contact Middleton Bankruptcy right away. Acting quickly can mean the difference between losing your paycheck to garnishment—or keeping it.