What if I am Sued in Bankruptcy?

Do not panic if you are sued in your bankruptcy case. Getty Images

Oh no! You've been served!

For most individuals that file a Chapter 7 or a Chapter 13 bankruptcy case, the process is smooth and straightforward. Although it may be emotionally difficult for you to file for bankruptcy, it is very likely that you will emerge in one piece! Unfortunately, sometimes a creditor will decide that it needs to sue the debtor (the person who files bankruptcy) in the bankruptcy court.

This is usually to ask the court to declare that the creditor's debt is not discharged by the case. This is called an "adversary proceeding." As it sounds, the proceeding is adversarial, just like any lawsuit. It will have a plaintiff and a defendant.

Although most of the time, you as the debtor will be the defendant, that is not always the case. Many debtors will file adversary proceedings to ask the court to declare a debt nondischargeable. For instance, you might ask the court to discharge your student loan. 

Most people who file bankruptcy already have a lawyer. If you do not yet have a lawyer, for instance if you filed the bankruptcy case pro se, at this point you will definitely need one. It is almost impossible to defend a disharge lawsuit in bankruptcy court on your own.  

The Complaint

If you are sued in bankruptcy court, you will have to be served with a document called the "complaint." A complaint is merely a written document that explains why the person suing you is entitled to relief from the bankruptcy court.

Under the Federal Rules of Bankruptcy Procedure, you can be served with the complaint by having it mailed to the address on your bankruptcy petition (so be sure to read your mail). You will also have to be served with a summons and sometimes other documents. The summons indicates how soon you must respond to the complaint and whether you have to make any court appearances.

Why Were You Sued?

There are a great number of reasons you may have been sued in bankruptcy court. Sometimes the lawsuit can be very complex, other times it can be straightforward. Some of the most common lawsuits are when your creditors sue you under the federal statutes 11 U.S.C. section 523 and 11 U.S.C. section 727. In common terms, these sections are called a dischargeability lawsuit and a denial of discharge lawsuit. Basically, the first lawsuit is asking the bankruptcy court to prevent the debt that you owe to a particular creditor from being discharged in bankruptcy. The other lawsuit seeks to prevent you from getting any bankruptcy discharge (this is very bad!). You could also be sued by the bankruptcy trustee for various reasons, such as a fraudulent conveyance

What to Do?

First thing you should NOT do is panic. Remember that anyone can sue anyone as long as they can pay the clerk's filing fee. Just because you have been sued does not mean you have done anything wrong. However, you must comply with the court's procedure. This involves responding to the complaint. Generally there are two ways to respond to a complaint: filing an Answer or filing a Motion to Dismiss. Most individuals without attorneys will want to file an Answer as a Motion to Dismiss can be complicated and requires an understanding of the law.

Many bankruptcy courts will have forms for debtors that represent themselves (often called "pro se" debtors) to Answer complaints. These forms will usually be check-the-box style and allow you to generally deny all of the allegations of the complaint. However, I strongly recommend that you still see an attorney.

What's Next?

Usually after filing your Answer, the next step is to appear in court for a status conference. These conferences are often brief in duration and involve the judge getting a very general understanding of the case. The judge may also set certain deadlines and future hearing dates. If you do not have an attorney at this stage, you should strongly consider getting one.

Edited and Updated February 2016 by Carron Armstrong