Can Bankruptcy Stop Garnishments & Lawsuits?

Can Bankruptcy Stop Garnishments & Lawsuits?

The short answer is generally yes. However, like any other issue in bankruptcy, there are situations where the general rule does not apply and garnishments and lawsuits are no exception.

The Automatic Stay

Once a bankruptcy case is filed, the "Automatic Stay" provision of bankruptcy law comes into effect. The purpose of the "Stay" is to stop all creditor collection activities, such as garnishments, lawsuits, phone calls, letters, etc. Violating the stay is a federal offense and allows the debtor to sue the creditor and obtain a judgment for damages from the creditor. The stay applies to all creditor collection activity, no matter how insignificant it may appear. Creditors can no longer even send a letter that appears to be a collection activity without possibly violating the stay. Once the stay is in place, a creditor must obtain permission from the court in order to continue any collection activity. Creditors wanting to continue foreclosure actions against debtors in Chapter 7 are one of the more frequent situations where creditors requesting such permission from the court are routinely granted by the court.

Stopping Garnishments

The "Automatic Stay" that arises as a matter of law when the bankruptcy case is filed immediately halts all garnishments. This means that all garnishments must stop immediately, no matter what the reason for the garnishment or who is doing the garnishing. If the person or company that issued the garnishment wants to continue the garnishment, they must apply for and obtain court permission to do so.

Stopping Lawsuits

Just like the garnishments, all lawsuits against the debtor must stop immediately upon the filing of the bankruptcy case. Also like garnishments, the person or company suing must obtain permission from the court to continue the case against the debtor. Most creditor lawsuits will not continue unless the creditor can prove to the court that the debtor engaged in some fraud to obtain the credit from the creditor. Other types of lawsuits may be allowed to continue if the person suing the debtor can show that the judgment is not dischargeable by bankruptcy. This would be the case in lawsuits over car crashes where the debtor was under the influence of alcohol or drugs at the time of the car crash.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

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