The Intersection of Bankruptcy and Civil Litigation: Know Enough to Avoid Peril!
By John D. Monte
Litigation is stressful, but when a party in the case files a petition in bankruptcy, this adds a layer of confusion to the non-bankruptcy practitioner’s angst. Many state court judges are likewise uncomfortable with the intrusion that bankruptcy imposes on cases assigned to them. Yet, every non-bankruptcy practitioner must know what he or she can and cannot do when bankruptcy impacts litigation, or at least must recognize the importance of working with a bankruptcy attorney to get the litigation back on track.
Under bankruptcy law, the automatic stay, which is effective upon the filing of the petition, is sacrosanct. (11 U.S.C. § 362.) The phrase "automatic stay" is misleading to some because it doesn’t sound ominous enough or convey the legal force behind the concept. But the automatic stay is not to be taken lightly. It is a federal injunction that prohibits the commencement or continuation of lawsuits or other proceedings against the debtor and the debtor’s property interests. The stay issues with the filing of the bankruptcy petition. No separate application for injunctive relief is required. It is, in fact, automatic.