Dealing with Business Litigation against You through Bankruptcy

If you are running a business and are being sued, filing for bankruptcy can help you whether you are closing the business or want to keep it operating. If you are closing the business, most of the time filing a Chapter 7 “straight bankruptcy” will stop the lawsuit and will discharge (write off) any related debt permanently. If instead you want to keep the business operating, most of the time filing a Chapter 13 “adjustment of debts” will stop the lawsuit and deal appropriately with any related debt.

Business Litigation “Stayed” by Either Chapter 7 or 13

A lawsuit against your business can be tremendously disruptive and expensive. You may have been driven to consider bankruptcy because either the lawsuit is not going well for you or you have simply run out of resources to fight it. You may well also be confronted by a looming deadline or event in the litigation that could seriously harm you and/or your business.

The moment you file a bankruptcy case — either Chapter 7 or 13 — the “automatic stay” immediately stops virtually all your creditors and claimants’ efforts against you. That includes stopping any kinds of continued collection action against you, such as an ongoing lawsuit, and stopping any new collection action, such as the filing of a new lawsuit. This “automatic stay” is imposed immediately, without your creditors or claimants having the ability to prevent it. As a result, your adversary must at least temporarily halt the litigation process. Although he or she can then file a motion with the bankruptcy court for permission to resume a lawsuit, often there are no legitimate grounds to do so and the lawsuit completely goes away.

Discharge of Debt

Most debts or claims against you that you want to discharge when you file for bankruptcy will in fact be discharged. (See the previous blog post for information on the three broad categories of debts that may not be.) There is no point for a creditor who has sued you, or is threatening to do so, to ask the bankruptcy court for permission to continue or start a lawsuit if the underlying debt or claim is going to be discharged. The court would simply deny the motion.

Even with a Risk of No Discharge, Litigation Often Permanently Ends

There are very limited circumstances in which a debt or claim that is the object of a lawsuit might not necessarily be discharged. A creditor could object to the discharge of debts incurred through fraud, embezzlement, driving while intoxicated or other similar bad behavior on the part of the debtor. In these limited circumstances, the bankruptcy court could give permission either for the lawsuit to continue in the court in which it started or in bankruptcy court itself. See a bankruptcy attorney — one familiar with business litigation — as quickly as possible to determine if the debt or claim at issue fits within the limited circumstances that mean it would potentially not be discharged.

Let me show you how Chapter 7 and Chapter 13 bankruptcy can help you solve your financial problems, with your vehicle loan(s) and with everything else. If you are in the Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse or Rowlett, Texas, contact the Law Office of Carrie Weir. The initial consultation is free. Please call 972-772-3083 or use this form .

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