What Happens If a Company I'm Suing Files for Bankruptcy?

In the Northern District of Indiana, there were 206 business bankruptcy filings in 2013 according to the U.S. Bankruptcy Courts. Filing for bankruptcy can have a dramatic effect on pending civil litigation, so take notice if you’re currently suing a business that filed for bankruptcy.

At the start of the process of bankruptcy, the court sends a proof of claim form to all creditors listed in the business’s petition, according to The Glannon Guide to Bankruptcy by Nathalie Martin. Filing immediately stays any pending civil litigation against the company.

Can I Continue My Lawsuit If the Company Filed for Bankruptcy?

If you are yet to file the lawsuit, you will be unable to do so while this stay is in effect. If you already filed the lawsuit, your lawsuit will be subject to this automatic stay. While you might not think of yourself as such, you are essentially a creditor in this case, and you must follow the rules that apply to all other creditors.

If you hope to continue the lawsuit while the company is in bankruptcy, you’ll have to request relief from the automatic stay with the bankruptcy court by filing a motion to lift it. The bankruptcy court may or may not grant this motion.

In many cases, the judge won’t lift the stay. Usually the only way it will be lifted is if you can demonstrate the business filed for bankruptcy fraudulently, such as solely to avoid your litigation. Be sure to speak with your attorney before filing any motions so you can discuss whether the judge may grant the motion and it will ultimately be worth your time.

If I Can’t Get the Stay Lifted, What Options Do I Have?

Plaintiffs can also file a proof of claim with the bankruptcy court as an unsecured creditor, informing the court that the company in bankruptcy owes you money. This may be applicable if your lawsuit has settled or you received a judgment and haven’t yet received money from the lawsuit. You may collect compensation when the bankruptcy estate is liquidated though unsecured debt is often discharged.

Keep in mind that your lawsuit may be discharged along with many of the business’s other debts. If this is the case, you’re essentially out of luck and may be unable to pursue further litigation against the company. Make sure you discuss your legal options with an attorney for more specific advice.

Set up an Appointment with a Lawyer

If you are in the middle of a personal injury, product liability, or other case against a company and the company filed for bankruptcy, discuss your options with your attorney. How to proceed after the filing is a complex legal decision and you should include your lawyer in the decision-making process.

Hensley Legal Group is committed to helping clients make the best decision in complicated legal situations such as these. Contact our office at (317) 472-3333 to schedule a free consultation where you will be able to review the specifics of your case.