Can You Sue a Person When You Are in a Chapter 13?
A Chapter 13 bankruptcy is a legal action that gives you the ability to restructure and pay off your debts over time. Through the bankruptcy court--specifically the bankruptcy trustee--a Chapter 13 plan will be developed that will oblige you to pay a certain amount of money to the court each month. These funds will then be distributed by the bankruptcy trustee to your individual creditors.
The bankruptcy plan (and by extension the bankruptcy case itself) will remain open until the end date established by the court. During this time period there will be developments of different types within your life. These can include you facing the prospect of having to file suit against another individual or a business for one reason or another.
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Automatic Stay in Bankruptcy
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In considering the issue of suing a person while in bankruptcy, there oftentimes is confusion concerning the application of what is known as an automatic stay in bankruptcy. Pursuant to the U.S. Bankruptcy Code, the automatic stay applies to creditors and any other individual or business that is suing or intends to file suit against you. The automatic stay order in a bankruptcy case does not apply to your desire to sue another person while you are in bankruptcy.
Once you file a bankruptcy petition, any lawsuit that is pending against you needs to be put on hold. Similarly, no new lawsuit can proceed against you once you have filed for bankruptcy pursuant to automatic stay law. In order for an individual or business to sue you or to carry forth with an existing lawsuit, that individual or business must seek permission from the bankruptcy court to proceed.
Permission to Sue Bankruptcy Creditor
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If the person (or business) that you desire or need to sue happens to also be a creditor in your bankruptcy, you will need to obtain specific permission from the bankruptcy court to proceed against that person or company. Additionally, in some cases, a lawsuit that you might desire to bring against one of your creditors would be undertaken within the overall confines of the bankruptcy case itself.
This type of lawsuit undertaken against a creditor while a bankruptcy is pending is called an adversarial proceeding. This type of proceeding has all of the trappings of any lawsuit except for the fact that it is conducted in the bankruptcy court itself. An adversarial proceeding is appropriate if the subject matter of your lawsuit is directly related to the bankruptcy case itself. On the other hand, if there is no such clear connection, after obtaining permission from the bankruptcy court to sue, the case is then filed either in an appropriate state or federal court beyond the bankruptcy system.
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Permission to Sue Another Person
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If you desire to sue a person who is not a creditor or party to your bankruptcy case while your case is pending, you also need to obtain permission from the court to proceed in this manner. Once that permission is obtained, you can proceed to file a lawsuit in an appropriate state or federal court, independent of the bankruptcy court.
Settlement of Lawsuit
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Most lawsuits end up being settled between the parties as opposed as going to trial. If you reach a juncture at which you will be settling your lawsuit, the bankruptcy court will need to review the proposed settlement of the lawsuit before you sign on the bottom line. Because the money paid through a settlement will become an asset of the bankruptcy case the bankruptcy trustee and court will need to ensure that the amount of the settlement is reasonable under the circumstances of the case you have filed.
Proceeds from Lawsuit
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If you settle a lawsuit or win a judgment after a trial in a case while your bankruptcy is pending, the proceeds from the case need to be paid to the bankruptcy trustee and not to you directly. It will be within the province of the bankruptcy trustee and the bankruptcy court to determine how the proceeds from a lawsuit are distributed. You need to understand that the proceeds from a lawsuit normally will be utilized initially to satisfy claims from creditors in your bankruptcy case.
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