In certain situations, the Automatic Stay might not prevent other court proceedings from continuing, at least in part. For example, in any family law case involving child support and custody, issues involving visitation or current child support are not subject to the Automatic Stay, but issues involving past due child support will be continued until the Automatic Stay is lifted at the end of bankruptcy proceedings.
The Automatic Stay is designed to provide some breathing room for the debtor in bankruptcy and provide the time and logistical ability to reorganize debts (as in a Chapter 11 or Chapter 13), or obtain a discharge (as in a Chapter 7 case). While the long-term resolution of a lawsuit will depend on the type of case, the Automatic Stay will provide some immediate protection for the debtor.
Ultimately, the debtor’s primary concern will be whether the debt or obligation on which the lawsuit is based will be discharged in bankruptcy. Absent fraud or certain other factors, most lawsuits arising out of consumer debts (e.g., lawsuits on unpaid credit cards or mortgage deficiencies following a foreclosure) are dischargeable under Chapter 7, and can be discharged following the successful completion of a Chapter 13 plan. However, the following debts arising under some suits cannot be discharged:
- Lawsuits for unpaid taxes, custom duties, or debts to pay taxes or custom duties.
- Lawsuits collecting student loan debt.
- Lawsuits to collect unpaid spousal or child support.
- Lawsuits filed by a spouse, former spouse, or child to enforce a Court Order obtained in a domestic relations proceeding.
- Lawsuits where the debt was included in a previous bankruptcy wherein discharge of that particular debt was waived, such as reaffirmed debts.
- Lawsuits for debts owed for money, property, services, or refinancing of credit, if obtained by false pretenses, or false representations, or actual fraud.
- Lawsuits involving consumer debts for luxury goods obtained within ninety (90) days of the date of filing of the bankruptcy petition.
- Lawsuits involving cash advances obtained within seventy (70) days of the date of the filing of the bankruptcy petition.
- Lawsuits involving debts owed for fraud or defalcation while acting in a fiduciary capacity, or embezzlement or larceny.
- Debts owed for fines, penalties, or forfeitures payable to and for the benefit of governmental entity.
- Lawsuits and debts owed for death or personal injury arising from the operation of a motor vehicle, boat, or aircraft while intoxicated by drugs or alcohol.
It is important to understand that the filing of a case will temporarily stop the lawsuit for many of the above claims, even though the actual debt is nondischargable. However, once the protections of the Automatic Stay expire, or the opposing party obtains permission from the Bankruptcy Court to move ahead, the case may proceed, and you may be required to pay any debt arising out of the above types of lawsuits, even after bankruptcy.