What Happens To Lawsuits During An Austin Bankruptcy?

Key Points:

Filing for bankruptcy can pause most lawsuits through the automatic stay, which stops creditors from pursuing judgments, wage garnishments, or property seizures. Debt collection lawsuits usually end up being discharged in Chapter 7 or included in repayment plans under Chapter 13. However, not every lawsuit goes away; criminal cases, child support, and certain other legal matters continue. Sometimes, a pending lawsuit (like a personal injury claim) becomes part of your bankruptcy estate.

Filing for bankruptcy in Austin, Texas, changes more than just your debt situation, it also impacts lawsuits you’re facing. For many people, this comes as both a surprise and a relief.

Whether the lawsuit involves unpaid debts, a landlord dispute, or even a pending injury claim, bankruptcy law shapes what happens next. Some cases stop immediately, while others continue despite the filing.

The Role Of The Automatic Stay In Lawsuits

One of the most powerful features of bankruptcy is the automatic stay. It immediately changes how lawsuits against you are handled.

What The Automatic Stay Does

The moment you file for bankruptcy, the automatic stay goes into effect. This court order requires creditors to stop pursuing lawsuits, wage garnishments, repossessions, or foreclosure actions. For many in Austin, this provides immediate relief from overwhelming legal pressure.

Types Of Lawsuits That Stop

Most civil lawsuits involving money come to a halt once the automatic stay is in place. These include credit card collections, medical debt claims, foreclosure cases, and eviction proceedings (in certain circumstances).

Creditors can no longer call, sue, or enforce judgments without court permission.

Exceptions To The Rule

Not every lawsuit is stopped by the automatic stay. Criminal cases, child support actions, and certain family court matters continue regardless of bankruptcy. These are considered obligations outside the scope of debt relief.

How Long Does The Stay Last?

In most cases, the automatic stay lasts throughout your bankruptcy case. However, creditors can ask the court to lift the stay if they believe their interests are at risk, for example, if you fall behind on payments for secured debts.

The automatic stay gives you breathing room to regroup and address your debts through bankruptcy instead of scrambling to defend multiple lawsuits at once. It’s often the first sign that relief is finally real.

Lawsuits That Bankruptcy Can Discharge

Not every lawsuit survives bankruptcy. Many cases filed against you for money-related claims can either be wiped out in Chapter 7 or managed through repayment in Chapter 13.

Debt Collection Lawsuits

One of the most common lawsuits people face is from creditors seeking unpaid debts. These include lawsuits from credit card companies, medical providers, or personal loan lenders.
Filing for bankruptcy often eliminates these claims under Chapter 7 or rolls them into a manageable repayment plan under Chapter 13.

Foreclosure Cases

If your mortgage lender has filed a foreclosure lawsuit, bankruptcy can pause the process immediately through the automatic stay. In Chapter 13, you may be able to catch up on missed payments through your repayment plan, potentially saving your home.

Eviction Proceedings

Eviction lawsuits may also be temporarily stopped by bankruptcy, depending on where the case is in the process. If your landlord has not yet obtained a judgment of possession, you may have time to resolve back rent through Chapter 13.

Wage Garnishment & Judgment Enforcement

If a creditor has already won a lawsuit and is garnishing your wages or seizing property, bankruptcy can stop these actions and discharge the underlying debt. This turns the tables, giving you relief even after judgment.

Lawsuits can feel like they’re closing in from every direction, but bankruptcy offers a shield. For many in Austin, these protections mean the difference between losing income and property or finding space to breathe.

Lawsuits That Bankruptcy Cannot Stop Or Erase

While bankruptcy is powerful, it doesn’t protect against every type of lawsuit. Certain legal obligations are considered too important to be wiped away.

Criminal Cases

If you’re facing criminal charges, bankruptcy will not stop the process. Restitution, fines, or penalties tied to criminal activity remain fully enforceable, regardless of whether you file Chapter 7 or Chapter 13.

Child Support & Alimony

Family law obligations such as child support or spousal support are not dischargeable in bankruptcy. Lawsuits to collect past-due support continue even after filing, and these debts must be paid in full.

Certain Tax Debts

Some tax-related lawsuits may also continue. While older tax debts may be dischargeable under specific rules, most recent income taxes, penalties, and fraud-related claims survive bankruptcy.
Lawsuits from the IRS or state taxing authorities often proceed.

Fraud Or Willful Misconduct Claims

If you’re being sued for fraud, embezzlement, or intentional injury, bankruptcy won’t necessarily erase these claims. Courts often rule that debts arising from fraudulent behavior are non-dischargeable and must be repaid.

Divorce-Related Property Settlements

While Chapter 13 sometimes discharges certain divorce-related debts, many property settlement obligations remain. A lawsuit over these matters may continue even during bankruptcy.

Bankruptcy is designed to give honest debtors relief, not a way to avoid responsibilities like child support or penalties for intentional wrongdoing. Knowing which lawsuits survive helps you prepare for what bankruptcy can, and cannot, accomplish.

Knowing these limits makes bankruptcy less intimidating because it sets clear expectations about which battles will end and which will continue.

What Happens To Lawsuits You File During Bankruptcy

Bankruptcy doesn’t just affect lawsuits filed against you. If you’re the one suing someone else, that claim may also be impacted once your case begins.

Your Lawsuit Becomes Part Of The Estate

When you file for bankruptcy, nearly all of your property and legal rights become part of the bankruptcy estate. That includes lawsuits you’ve filed or claims you have a right to pursue, such as personal injury cases, breach of contract disputes, or employment claims.

The Trustee Takes Control

In Chapter 7, the trustee often takes control of your lawsuit. If the case results in a settlement or award, the trustee may use the proceeds to pay creditors. You may keep part of the recovery if exemptions apply, but not all of it.

In Chapter 13, you typically maintain more control, but the trustee may still require that lawsuit proceeds be factored into your repayment plan.

Disclosure Is Critical

Failing to disclose a pending lawsuit in your bankruptcy paperwork is a serious mistake. If the court finds out later, your case may be dismissed, and you could lose the right to pursue your claim. Transparency ensures both your bankruptcy and your lawsuit remain valid.

For many in Austin, a pending lawsuit feels like a potential lifeline. Bankruptcy doesn’t take away that right, but it does determine how any recovery is handled. With the right legal strategy, you may still benefit from your lawsuit while completing bankruptcy.

Steps To Take If You’re Facing A Lawsuit

If you’re already in the middle of a lawsuit or worried one may be filed soon, bankruptcy could offer protection. But timing and preparation are key.

1. Talk To A Bankruptcy Attorney Quickly

An Austin bankruptcy attorney can explain how your specific lawsuit will be affected by filing. Acting quickly ensures you know whether bankruptcy will pause the case or leave it untouched.

2. Gather All Court Documents

Collect copies of the lawsuit, complaints, judgments, or settlement negotiations. Your attorney and trustee need this paperwork to evaluate how the case fits into your bankruptcy estate.

3. Evaluate Whether The Debt Is Dischargeable

Not all lawsuits involve debts that bankruptcy can erase. If the case involves credit cards or medical bills, discharge is likely. But lawsuits involving fraud, taxes, or support payments may survive.

4. Consider Timing Before Filing

If a judgment hasn’t been entered yet, filing bankruptcy quickly could stop wage garnishment or liens. Waiting too long may make the process harder and limit your options.

5. Disclose Everything Honestly

Always list pending or potential lawsuits in your bankruptcy paperwork. Failing to disclose a claim can backfire, leading to case dismissal or loss of the right to pursue damages.

6. Plan For The Future

Even if bankruptcy pauses the lawsuit, think ahead. Work with your attorney to understand whether the debt will be wiped out, restructured, or remain after your case ends.

Bankruptcy and lawsuits intersect in complicated ways. By taking these steps, you protect yourself, keep your options open, and make sure the bankruptcy process truly gives you a fresh start.

Moving Forward With Confidence In Austin, Texas

Bankruptcy can feel overwhelming on its own, and lawsuits only add to the stress. The good news is that filing often provides immediate relief through the automatic stay.

Whether you’re facing debt collection, foreclosure, or other financial lawsuits, bankruptcy gives you breathing room and a chance to reorganize. For many in Austin, Texas, this marks the turning point toward stability.

If you’re ready to explore how bankruptcy affects your lawsuits, reach out to Austin Bankruptcy Lawyers, a Division of Kannon Moore Law. A free consultation can provide clarity and help you move forward with confidence.