Filing Bankruptcy After a Lawsuit: Your Options Explained

You can file for bankruptcy after being served with a lawsuit. You can also file after a judgment enters against you. Bankruptcy offers a way to manage overwhelming debt and protect yourself from legal action. Once you file, most lawsuits pause through an automatic stay. The process provides the relief and fresh financial start you need.

Can You File Bankruptcy After Being Sued for a Debt?

Yes, many people successfully file bankruptcy after being sued. As soon as you file your case, you get protection through the automatic stay. The stay stops almost all collection activity. Debt lawsuits, wage garnishment, and bank levies all halt immediately.

Without bankruptcy, your options are limited. You can fight the lawsuit in court. You can pay off the debt in full. You can try to negotiate a settlement with the creditor. But none of these options offer the comprehensive protection bankruptcy provides.

Does Filing Bankruptcy Stop All Civil Lawsuits?

No, bankruptcy stops debt lawsuits but not all legal proceedings. Some types of lawsuits continue, including:

• Proceedings to establish paternity

• Proceedings to establish or modify child support or alimony

• Child custody and visitation matters

Filing bankruptcy also doesn’t stop criminal cases from moving forward.

How Bankruptcy Affects Foreclosure and Eviction Lawsuits

Facing foreclosure or eviction? Filing bankruptcy provides some immediate relief. But you need to understand what it can and can’t do.

The automatic stay temporarily stops most collection actions. Foreclosure and eviction proceedings pause. The breathing room gives you time to figure out your next steps. But the stay isn’t a long-term fix.

In a foreclosure, the lender may resume the process after your case resolves. You’ll need to catch up on missed payments or work out a deal. In eviction cases, landlords can often ask the court to lift the stay. Evictions due to non-payment or lease violations move forward faster.

To learn more, check out these resources:

• Can Bankruptcy Stop Foreclosure?

• Can Bankruptcy Stop Eviction?

Should You Fight the Debt Collection Lawsuit or File Bankruptcy?

Fighting a debt collection lawsuit works in some cases. You might not owe the debt. The debt collector might not be able to prove you do. Read the court summons and complaint paperwork carefully. If you respond to the lawsuit and show up in court, you might win.

If you’re worried about responding on your own but can’t afford a lawyer, our partner Solo can help you draft an answer for a small fee.

But winning one lawsuit only helps with that one debt. If you’re juggling other unpaid bills, lawsuits, or collection calls, bankruptcy might be your best option. Bankruptcy doesn’t just stop one lawsuit. It puts an immediate stop to all collection actions, including calls, wage garnishments, and new lawsuits.

Bankruptcy also wipes out most unsecured debts. Credit cards and medical bills disappear. You get a clean slate. While defending a single lawsuit works for some, bankruptcy offers stronger protection. Choose bankruptcy if you’re dealing with multiple debts or need relief from constant financial stress.

Can You File Bankruptcy After Losing a Lawsuit?

Yes, you can file bankruptcy even after losing a debt lawsuit. The automatic stay stops any collection actions associated with the case. If you lose in court, the creditor gets a judgment. They can garnish your wages or bank account. They can put a lien on your property.

You may be able to reverse these actions by filing Chapter 7 or Chapter 13 bankruptcy. The process also works if a default judgment has been entered. Default judgments happen when you don’t show up to fight the case.

Does Bankruptcy Stop Wage Garnishment?

Yes, bankruptcy stops wage garnishment immediately. If a creditor or debt collector wins a lawsuit, they’ll quickly ask the court for permission to garnish your wages. You can stop garnishment before it starts by filing bankruptcy.

If the garnishment already started, bankruptcy law stops it. Your future wages are protected.

Can Bankruptcy Clear Lawsuit Debt?

Generally speaking, yes. As long as the underlying debt is dischargeable, the lawsuit debt is dischargeable as well. For example, you were sued for an unpaid credit card bill. The creditor won a judgment against you. Filing bankruptcy typically wipes out that debt, including the judgment.

That said, not all debts are dischargeable. If the debt you were sued over is not dischargeable, bankruptcy won’t change that. Recent tax debt and court-ordered child support remain. The nature of the debt stays the same.

What’s a Judgment Lien and Why Should You Care?

A judgment is a court order saying you owe money. Judgments can lead to a judgment lien. A judgment lien lets the creditor claim part of your property’s value. Your home is the most common target. The creditor gets paid when you sell it.

State laws decide how and when liens happen. Liens matter because they make it harder to sell or refinance your home. More importantly, liens change the nature of your debt. Unsecured debt like credit card bills becomes secured debt. The debt ties to your property.

The good news? In many bankruptcy cases, the court can remove liens. If the only property you own is protected by exemptions, you get relief. If the property isn’t fully covered by exemptions, the lien stays. The creditor could still claim part of the property’s value if it’s sold.

Want to speak with a bankruptcy attorney for free about judgment liens?

Learn more in our article Does Bankruptcy Clear Judgments?

What Happens if You Sue Someone Before Filing Bankruptcy?

If you have a lawsuit pending against someone else, the lawsuit is considered an asset. The asset becomes part of your bankruptcy estate. If you’re suing someone and could win money or property, that potential payout becomes part of your case. The bankruptcy court can use it to pay your debts.

Personal injury cases are the most common example. If you’re involved in a personal injury lawsuit, the bankruptcy trustee handling your Chapter 7 bankruptcy takes it over.

The federal bankruptcy exemptions protect personal injury claims up to a certain amount. Some state exemptions do too.

What Happens if You Sue Someone and They File Bankruptcy?

If you sue someone and they file bankruptcy, your lawsuit typically stops. Their automatic stay freezes most collection actions, including lawsuits. The stay takes effect as soon as the bankruptcy is filed. Ignoring the stay and continuing your lawsuit can lead to penalties. The bankruptcy court takes violations seriously.

There are some exceptions to the automatic stay. Lawsuits related to child support aren’t affected. Other family court matters also move forward. If your case doesn’t fall into these exceptions, you’ll need to wait. The bankruptcy process must play out. You can also seek permission from the bankruptcy court to continue your case.