What if a Creditor Filed a Lawsuit Against Me Before My Petition?

If a creditor filed a suit against you, your company, or your estate before you petition for bankruptcy, multiple outcomes are possible. Your automatic stay may force an end to all legal proceedings pending the judgment of your bankruptcy court. Alternatively, the creditor can enjoin the court to continue to hear his case in spite of the pending bankruptcy decisions. And finally, the creditor may seek to prevent the debtor from filing for bankruptcy in the first place.

While the vast majority of personal bankruptcy settlements occur relatively peaceably, it's never a bad idea to prepare for a potential court battle. Find an attorney who is seasoned and who has a winning record for bankruptcy clients, and respond to creditor challenges efficiently and according to the rules set forth by the court and by your estate trustee. A little organization and legwork upfront can prevent a creditor from making spurious claims against your estate and otherwise impeding the flow of your bankruptcy proceedings.

One of the best aspects of American bankruptcy is the court's protection against creditor abuse. If a creditor is mandated by the court to cease legal actions but continues to do so in spite of the injunction, the debtor can actually bring a civil complaint against the creditor to the courts and force the creditor to pay fines and otherwise suffer legally. This doesn't mean that judgments of creditor discharge will necessarily go unchallenged, however.

If a creditor has a strong argument why his debt claims should not be rescinded, he may appeal the case and/or continue other methods of legal relief. There are limits to creditor remedies in these situations, fortunately for debtors.

If you anticipate an imminent filing for bankruptcy, speak with your bankruptcy attorney first -- do not go straight to your creditors and certainly do not "threaten them" with bankruptcy assisted discharge. Instead, work with your attorney and your financial management counselor to limit conflicts with creditors -- either by juggling/consolidating debts and bills, writing to ask for waivers of certain late fees or period extensions, and otherwise making yourself available to do what you can in good faith to resolve the debt situation.