Facts

• Regardless of the type of bankruptcy you file, an automatic stay immediately goes into effect. The automatic stay puts a halt on all forms of collection activity, providing you with much-needed breathing room. Because lawsuits are a form of collection activity, a creditor can't file a lawsuit against you once the automatic stay is in place. The automatic stay also prevents creditors from proceeding with lawsuits that are already pending.
  
  

Time Frame

• In Chapter 7 cases, the automatic stay lasts until your bankruptcy is discharged. If you filed bankruptcy under Chapter 13, the automatic stay lasts until the court confirms your payment plan. Exceptions do apply, however, in certain situations. If you filed bankruptcy in the past year but your case was dismissed, your automatic stay only lasts for 30 days. If you filed more than one bankruptcy that was dismissed in the past year, you don't receive protection via the automatic stay, and your creditor can proceed with its lawsuit.
  
  

Considerations

• If your creditor continues collection activity after being notified that you filed for bankruptcy, you may sue the creditor for violating the U.S. Bankruptcy Code's automatic stay provision. Most creditors, however, don't violate the automatic stay to file a lawsuit. A lawsuit costs your creditor money, and any ground it gains toward collecting the debt --- in this case, a court judgment --- is voided by the automatic stay. Thus, breaking the law to pursue your debt would be a waste of both time and money for your creditor.
  
  

Effects

• If you adhere to all of the provisions set forth by the bankruptcy court, it successfully discharges your case. With Chapter 7 cases, a discharge can take as few as 90 days, while Chapter 13 cases can last up to five years before being discharged. Once the court discharges your bankruptcy, the automatic stay becomes permanent, and your creditor can't sue you. If you don't adhere to the provisions of the court, however, it may dismiss your case. If your bankruptcy is dismissed, each of your creditors may immediately resume collection activity; this includes filing lawsuits against you.
  
  

Warning

• While the consequences of a credit lawsuit are severe, the consequences of filing bankruptcy can't be ignored. If you file under Chapter 7, you lose your disposable income and possibly some of your assets. Filing under Chapter 13 requires that you put all of your disposable income toward paying off your debts for several years --- a task many debtors find daunting. In addition, bankruptcy tarnishes your credit for up to 10 years, while a court judgment stemming from a creditor lawsuit only remains a part of your credit history for seven years.