What happens to my civil lawsuit when the defendant files for bankruptcy?
The defendant’s bankruptcy acts as an automatic stay of all civil proceedings against him in every court or administrative agency. Ordinarily, the defendant’s attorney will file a “Suggestion of Bankruptcy” that alerts the court and other parties to this fact.
As a plaintiff, your options are to (a) file a motion in the bankruptcy court requesting relief from the automatic stay in order to continue prosecuting your lawsuit, (b) file a notice of removal in the bankruptcy court to transfer the case there, or (c) wait for the bankruptcy case to terminate and, if your claim hasn’t been discharged, continue the case in the original court. Item (c) is rarely the right course of action. Only an experienced bankruptcy attorney can advise you which would be the better course.
Any claims or counterclaims that the defendant may have against you are not subject to the automatic stay. Therefore, you could end up having to pay a judgment on a counterclaim and not being able to recover at all on your original claim.
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