What happens if one of the parties to a lawsuit files a bankruptcy petition?
The filing of a bankruptcy petition operates as an automatic stay, which is the equivalent of an order of the bankruptcy court that parties stop collection efforts against the debtor. Parties must stop prosecuting all pending lawsuits against the debtor until the bankruptcy court grants permission to proceed (permission to continue actions against the debtor is called “relief from stay”). The bankruptcy of one defendant does not stop the lawsuit from continuing against defendants who are not in bankruptcy. Particularly where a lawsuit involves multiple parties, a bankruptcy court may be inclined to allow the lawsuit to go forward. A judgment taken against the debtor in such a case becomes a claim in the bankruptcy.
Can the debtor’s assets be immediately frozen? »