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Does a Bankruptcy Stop a Lawsuit?

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When a Debtor files for Bankruptcy the Automatic Stay described in Title 11 U.S.C. §362 goes into effect instantaneously without further action of the Court. The Automatic Stay is an injunction that is automatically entered by the Court upon the commencement of a Bankruptcy Proceeding. The Automatic Stay disallows any further collection attempts against you that do not go through the Bankruptcy Court first. This means that all collection actions must stop including the continuation of a pending lawsuit without further order of the Bankruptcy Court.

Most of the time when a Bankruptcy is filed a Debt Collection Lawsuit is non-suited. This means essentially that the case has been dismissed because the Bankruptcy prohibits any further proceedings.

When a Bankruptcy is completed the Court will enter a Discharge. The Discharge means that your legal liability to pay any pre-petition debt has been extinguished. In the context of a pending lawsuit, the underlying debt has been extinguished leaving nothing to renew/ or continue proceedings against. Further, the Discharge order is a permanent injunction of the Bankruptcy Court that prohibits collection of pre-petition debt. If a pre-petition Creditor were to continue its collection efforts, including the filing or continuation of a lawsuit, you would have additional remedies against the creditor in Bankruptcy Court for violating the Discharge Order.

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