Legal Actions Not Affected by a Bankruptcy Filing
January 31, 2020 By: Carrie Weir
The Impact of a Bankruptcy Filing on Other Legal Proceedings
When you file a petition under Chapter 7, Chapter 13 or any other part of American bankruptcy law, an automatic stay immediately goes into effect, preventing creditors from filing or proceeding with any legal action to collect the debt except through the bankruptcy process. The automatic stay, however, is essentially limited to debt-collection activities. It would not, for example, prevent a creditor from exercising legal rights pursuant to a lien on your property.
There are other legal proceedings that typically are not affected by a bankruptcy filing:
- Criminal prosecutions—As a general rule, you cannot use a bankruptcy petition to avoid criminal prosecution. For example, you cannot use Chapter 7 to escape prosecution if you have embezzled funds. There are exceptions, though. If you have been overpaid certain government benefits, or have a debt associated with the destruction or damage of government property, the automatic stay will apply to proceedings to recover payment from you.
- Family law proceedings—As with criminal proceedings, a bankruptcy filing generally won’t allow you to discharge family law obligations like child support or alimony. You can, however, reorganize a divorce property settlement in a Chapter 13 reorganization.
You can lose the protection of the automatic stay if a creditor successfully petitions the court to remove it. As a general rule, the creditor must demonstrate to the court that it is in the interest of justice to do so. A few examples of when this may be appropriate:
- A real estate lender may successfully argue that the value of mortgaged property will substantially decline if foreclosure is suspended.
- A landlord who initiated an eviction proceeding prior to the bankruptcy filing may be allowed to complete the process.
- A government agency may get the bankruptcy court’s approval to recover certain losses.
Contact Heath, TX Bankruptcy Attorney Carrie Weir
I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.