Are Lawsuit Judgments Dismissed by Bankruptcy?

Filing for bankruptcy may be able to stop a lawsuit by preventing the “plaintiff” or party suing you from ever getting a judgment against you.  One of the most powerful benefits of filing for bankruptcy is the “automatic stay”.  This stops most legal proceedings and collection actions against you.  By filing for chapter 7 bankruptcy, it offers a way out for debtors who cannot make ends meet.  A qualified debtor will obtain a “discharge” which bars creditors from taking any or all action to collect the debt.  In most Chapter 7 cases, the debtor keeps what little they have and walks away with a fresh start as all unsecured debts are wiped out.

Debts That Cannot Be Discharged

As a general rule, certain debts cannot be discharged.  These include taxes (in some cases), alimony, child support, student loans, criminal fines, debts related to drunk driving, debts not listed in the bankruptcy petition, and certain debts incurred within 60 days of filing the petition.

Will Bankruptcy Remove a Lien?

Once the bankruptcy proceedings have begun, a special motion can be filed to remove certain types of liens.  It will take a bankruptcy court order to remove them which can be a complicated process.  There are certain guidelines for removing tax liens which tend to be the most common.  You may be able to wipe out debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:

1. The IRS has not recorded a tax lien against your property
2. You didn’t file a fraudulent return or try to evade paying taxes
3. The liability is for a tax return actually filed at least two years before you filed bankruptcy
4. The tax return was due at least three years ago
5. The taxes were assessed at least eight month before you filed for bankruptcy

If you have been sued, it is important to respond to the lawsuit within the statutory time limit, otherwise, a default judgment may be entered against you.  Depending on the facts of the case, your best option may be to file for bankruptcy and prevent the plaintiff from obtaining a judgment against you.  It always best to consult with an experienced attorney who can help to explain the legal options available to you.