Can You File Bankruptcy on a Civil Lawsuit?
Dealing with a civil lawsuit can be an overwhelming and stressful experience. If you find yourself in such a situation and are also facing financial difficulties, you might be wondering if you can file for bankruptcy to alleviate some of your burdens. The answer is yes, you can file bankruptcy on a civil lawsuit, but there are certain conditions and limitations to consider.
Understanding the Basics of Bankruptcy
Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure their debts under the protection of the federal bankruptcy laws. There are two main types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of non-exempt assets to pay off creditors, while Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows you to keep your assets and create a repayment plan over a period of three to five years.
Can You File Bankruptcy on a Civil Lawsuit?
Yes, you can file bankruptcy on a civil lawsuit, but there are some important factors to consider:
1.
Exemptions: In bankruptcy, certain assets are exempt from liquidation, meaning you can keep them even if you have to sell other assets to pay off creditors. It is crucial to understand the exemptions available in your state, as they can vary significantly. If the assets at issue in the civil lawsuit are exempt, you may be able to keep them and still file for bankruptcy.
2.
Priority of the Lawsuit: In some cases, the civil lawsuit may have priority over other debts. For example, if the lawsuit is related to child support or alimony, it may be treated as a priority debt. In such situations, you may not be able to discharge the debt through bankruptcy, and you may still be responsible for paying it.
3.
Timing: The timing of filing for bankruptcy can be crucial. If you file for bankruptcy before the lawsuit is resolved, the court may stay (suspend) the lawsuit to allow the bankruptcy process to proceed. However, if you file for bankruptcy after the lawsuit is resolved, the judgment may still be enforceable against you.
4.
Settlements and Dismissals: If you reach a settlement or have the lawsuit dismissed before filing for bankruptcy, the debt may still be dischargeable. However, if the lawsuit results in a judgment against you, the debt may become non-dischargeable, depending on the circumstances.
Seek Professional Advice
Given the complexities of bankruptcy and civil lawsuits, it is essential to consult with a bankruptcy attorney or a financial advisor before making any decisions. They can help you understand your options, assess your financial situation, and guide you through the bankruptcy process to ensure the best possible outcome.
In conclusion, while you can file bankruptcy on a civil lawsuit, it is important to consider the specific circumstances of your case and seek professional advice to determine the best course of action.
