Submitted by New Jersey Bankruptcy Lawyer, Lee M. Perlman.
You might be saying “that is all well and good, but what happens when the defendant in a personal injury action files for bankruptcy?” What do you do? The simple answer is STOP everything. When a debtor files for bankruptcy they gain the protection of the automatic stay. The automatic stay prevents the induction of, the continuation of, or the conclusion of what can generally be described as collection activities. There are few exceptions to this, but most consumer matters will be covered by the automatic stay. Violating the automatic stay can lead to huge consequences including sanctions and money judgments. Your safest bet is to stop all activities related to the lawsuit. Violating the automatic stay is most commonly looked at through a lens of strict liability. Your intentions or misunderstanding mean very little when it comes to the automatic stay; unless you deliberately violated the stay. It gets much worse if it is determined that your actions in violation of the stay were deliberate.
You may be able to obtain relief from the automatic stay and continue those activities but that requires the intervention of the court. If the defendant in your case files bankruptcy you may have another course of action in an adversary proceeding. The best thing to do is to speak with someone familiar with the automatic stay and get their opinion. Just because a bankruptcy was filed doesn’t necessarily mean that your client is out of luck.
· If the defendant in your case files bankruptcy you should immediately cease all collection activities, this includes any action in state court, as well as arbitration.
· Talk with a bankruptcy practitioner, just because there was a bankruptcy filed does not mean there is no recourse.