Does filing for bankruptcy preclude pursuing all other legal proceedings?

Question

I have heard that if you file for bankruptcy you cannot file any other legal proceeding (in the state of Georgia, USA) until the bankruptcy filing is resolved. Is that so? If so, does the ban on other legal proceedings extend only to financial matters, or does the ban cover (non-financial) divorce/custody matters as well. Thanks.

Answer 1

What you have heard is not exactly correct (and also depends, in part, on the Chapter under which the bankruptcy is filed). I will address the simplest case, a Chapter 7 liquidation of an individual, which is simpler, because a Chapter 7 liquidation is determined as of a point of time, while Chapter 11 and Chapter 13 reorganizations are conceptually more complex and don't just transfer rights to a trustee at a single point in time.

When you file a Chapter 7, all of your property, including you rights to sue people that had accrued as of that date, are transferred to the bankruptcy trustee as an asset of the bankruptcy estate, and the right of anyone to sue you is stayed automatically until the bankruptcy court either authorizes the lawsuit, or discharges the debt associated with the lawsuit (there are actually a few cases where the automatic stay expires on its own after a certain amount of time).

Rights to bring lawsuits that arise after the bankruptcy is filed, or can be brought at any time, like a divorce/custody suit, are not barred, although property and enforcement of economic rights in those cases may be stayed until the bankruptcy court takes action. Custody issues other than child support, and termination of marital status are not affected.

For example, if you file for bankruptcy on Monday and are hit by a bus on Friday, your personal injury suit claim is probably yours and not the bankruptcy estate's and can be brought by you. But, if you are hit by a bus on Monday and then file for bankruptcy on Friday, your personal injury suit claim is probably property of the bankruptcy estate. (It is a bit more complicated than this, because your right to sue for a personal injury might be exempt property, at least in part, but this example conveys the gist of the concept.)

There is a further complication in the analysis which is that domestic relations actions and probate court actions are normally considered to be outside of the jurisdiction of the federal courts (bankruptcy court is a federal court), even when there is diversity of citizenship, which doesn't change the basic conclusions above.