A bankruptcy action can stop, end, or simply complicate an existing lawsuit and whether it’s a step you’re considering for your business or you believe the opposing party may consider during your civil lawsuit, it’s something to discuss with your business litigation attorney. When a debtor files a bankruptcy case, an automatic stay is issued to stop creditors from collection activities, including lawsuits where the creditor is attempting to win a monetary amount. The purpose of the stay is to give the bankruptcy court a chance to sort through the situation.
Bankruptcy won’t stop cases that don’t concern a monetary judgment. This includes criminal cases, divorce, and child support cases. Bankruptcy is focused on managing assets, from property to money to securities and, once an action is filed, the bankruptcy court will have oversight on all these assets.
What Could Trigger a Bankruptcy Action
There are a number of different reasons businesses might find themselves facing a bankruptcy action unexpectedly. This could occur when a breach of contract occurs, an accident occurs that costs the business money such as a personal injury case, a negligence action, a foreclosure, or a balance collection action. Businesses are all about making money and have plenty of expenses, so there are many situations where bankruptcy becomes an issue or an option during litigation.
In some cases, the bankruptcy case will help to resolve the debt and thus resolve the lawsuit at issue. In these cases, bankruptcy can be an excellent strategy to let a business restructure their debts and responsibilities and put themselves in the position to continue their operations.
Continuing the Lawsuit During Bankruptcy
In some cases, the bankruptcy court will permit the case to continue while the business is in bankruptcy. This could be because the court wants to see what the judgment will be and whether, and what, liability will be left when the case is complete. Further, if the outcome of the litigation won’t impact the bankruptcy case, then it will also be allowed to go forward.
If the creditor or opposing party in the litigation will be hurt by the stay, for example, if there’s an on-going harm that will compound while the litigation sits, then the court will likely allow the case to go forward. This could occur even if it would otherwise be stayed by the bankruptcy litigation.
Whether the bankruptcy action stops a case, delays the case, or simply complicates the situation, working with the experienced team of litigators at the Dunn Law Firm can help you determine the right path for your business, your specific situation, and the case at hand. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 and set up a free consultation today.
