Effect of Chapter 7 Bankruptcy on Other Legal Proceedings

August 1, 2019 | By Steffens Law Office
Effect of Chapter 7 Bankruptcy on Other Legal Proceedings

If you're being sued in court over unpaid debts, it's important to understand how filing for Chapter 7 bankruptcy grants relief from many types of collection actions.

Granting an Automatic Stay

The filing of a Chapter 7 case by a person automatically suspends virtually all collection and other legal proceedings pending against that person. A few days after a Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the person. This court-ordered suspension of creditor activity against the person filing is called the automatic stay. 

If necessary, notice of the automatic stay may be served on a creditor earlier by the person or the person’s attorney. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable in damages to the person filing. 

Exemptions

Unfortunately, an automatic stay won't stop all forms of legal action.

  • Criminal proceedings and actions to collect domestic support obligations from exempt property or property acquired by the person after the Chapter 7 case was filed are not affected by the automatic stay. 
  • Cosigners and guarantors of the person filing are not protected. A creditor may continue to collect debts from those persons after the case is filed. 
  • Persons who have had a prior bankruptcy case dismissed within the past year may be denied the protection of the automatic stay.

We Can Help

If you have questions about how a Chapter 7 bankruptcy filing would affect a pending legal action, we can help. Contact Steffens Law Office today to schedule a case review.