When you’re in the midst of making any big life change, such as filing for bankruptcy, you should be aware of the ramifications and scope of the legal proceedings that are going on throughout the process. Comprehending the difference between different types of legal actions, however, can be confusing and stressful for those who haven’t studied the law.
The stress that comes from the unknown is especially prevalent when you’re in the midst of legal proceedings that are bound to have an effect on both the financial and personal aspects of your day-to-day life. For those struggling with overwhelming debt, bankruptcy is one of those life-changing procedures.
The process of filing for bankruptcy can consist of a number of overwhelming and confusing steps. These steps, naturally, may involve going to the courthouse. This doesn’t necessarily mean that your bankruptcy case is like any other civil case, however, and it will be treated differently as a result.
Today, we’re breaking down the difference between bankruptcy and civil litigation to ensure you understand each process and what you should be thinking about. We will also briefly address the intersections between the two procedures.
Understanding What Litigation Really Is
Before we dive into difference between civil litigation and bankruptcy, you must first understand what litigation is on its own.
As broadly defined, civil litigation is the process of taking legal action. Specifically, litigation involves bringing a claim into the court of law with the intention of enforcing a particular legal right. For example, a legal right may include monetary damages for another party’s breach of contract agreement, compensatory damages for injuries a party has sustained as a result of another’s negligence, and more. Civil litigation is not synonymous with a criminal action or a divorce proceeding.
Litigation involves several steps and depending on the nature of each party, those steps can change. Typically, in a case of civil litigation between two parties, a complaint is filed with the court by the plaintiff, an answer is filed by the defendant, discovery is carried out to collect evidence, and a trail may begin if the parties don’t come to a settlement on the issues along the way.
Civil Litigation in the Process of Filing for Bankruptcy
When a creditor takes legal action to collect debts from debtors, it is filing a civil lawsuit against the debtor. This is an example of a creditor asserting its legal right to the debtor’s end of the contract- the payments that the debtor has promised to make- in return for a loan or tangible property. In other words, it is not terribly uncommon to be facing some civil litigation (or threats thereof) before you decide to file for bankruptcy.
Civil Lawsuits from Creditors are Halted During Bankruptcy
That’s right. If you are worried about or currently facing a civil lawsuit filed against you by one of your creditors, filing for bankruptcy may be an appropriate option in order to avoid incurring further legal fees.
But how does civil litigation stop when you file? When you file for bankruptcy, an automatic stay goes into effect. An automatic stay prohibits creditors from pursuing you through the duration of your bankruptcy case. The person or company that is suing you will likely have the burden of informing the court of the automatic stay, but if you are represented by counsel it is likely that they will take care of any notifications that need to be sent.
There are a few exceptions to the cases that are halted during an automatic stay. Federal law, 11 U.S. Code § 362, outlines the types of civil litigation cases that may not be stayed during an automatic stay, including (but certainly not limited to) cases that involve the issue of the withholding of a driver’s license or certain types of family law cases.
Just because we have been primed to be afraid of words such as “litigation” and “trail,” they do not always necessarily mean that something has gone terribly wrong. Remember: bankruptcy is meant to be a streamlined process granted by federal law to debtors who are struggling to meet payments on overwhelming debts. If you are currently facing or are concerned about civil litigation and how it relates to your bankruptcy, contact our Colorado bankruptcy specialists today.
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