Can Bankruptcy Stop a Credit Card Debt Lawsuit?

Filing for bankruptcy can stop a lawsuit brought by any creditor, and release the debtor of liability to repay credit card debt.

By , Attorney

If you're being sued for an unpaid credit card balance, filing for bankruptcy relief can stop the lawsuit and eliminate (discharge) your obligation to pay back the debt. Read on to learn more about how bankruptcy can stop a credit card company's lawsuit.

Stopping a Creditor Lawsuit With the Automatic Stay

The moment you file for bankruptcy, an order called the automatic stay goes into effect. Once in place, the automatic stay prohibits most creditors from initiating or continuing to collect against you, including through collection lawsuits. A credit card company that has already filed a debt collection lawsuit against you cannot proceed further while the stay is in effect without permission from the bankruptcy court. Although creditors are free to ask the court to lift the stay, a credit card company usually doesn't have legal grounds to win the motion.

Find out more about how the automatic stay protects you from creditors.

Eliminating Credit Card Debt in Bankruptcy

If you successfully receive a bankruptcy discharge, your liability for the unpaid credit card debt will be wiped out. As a result, the state court will typically dismiss the lawsuit after you receive your bankruptcy discharge. But keep in mind that if the court dismisses your case without a discharge, the suit will continue where it left off. Also, if the credit card company has obtained a judgment and placed a lien on your property, your discharge will not automatically get rid of that lien.

Learn more in Are Lawsuit Judgments Discharged by Bankruptcy?

Creditors Can Object to a Discharge

Sometimes the credit card company has grounds to object to the discharge of the debt. The most common creditor objections are based on fraud. A creditor would likely raise one of two types of fraud objections in an adversary proceeding (trial)—presumptive fraud or general fraud.

The bankruptcy court presumes that certain transactions are fraudulent. For instance, purchasing luxury goods 90 days before filing for bankruptcy on credit, or taking a cash advance 70 days before your bankruptcy raises the presumption. You'll have to prove that the transaction wasn't fraudulent. Find out about the dollar amounts currently presumed fraudulent.

A creditor could also make a general fraud allegation. For instance, the holder of a credit card debt might claim a misrepresentation of income on the credit application or a purchasing of goods with no intention of repaying the debt.

In bankruptcy, a debtor can successfully dispute a fraud allegation by proving that the charges were for necessary items. Necessary items include purchases for living expenses such as utilities, food, or needed clothing.

Talk With a Bankruptcy Lawyer

If you're involved in a lawsuit, in or outside of bankruptcy, it's a good idea to seek the counsel of a local bankruptcy attorney. The attorney can help you determine the best timing of your bankruptcy case.

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