The filing of a bankruptcy case automatically creates an injunction for debtors. 11 USC Section 362. Litigators on the verge of obtaining a judgment have been frozen when the defendant seeks bankruptcy. A bankruptcy petition immediately stops foreclosure sales, wage garnishments, and prosecution of lawsuits.
Take for example The Pacific Lumber Company with a case in United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, Case No. 07-20028-C-11. The Pacific Lumber Company is known for a September 28, 1996 Agreement with MAXXAM, Inc., the United States of America, and the State of California, where the parties agreed to use best, good faith efforts to achieve expedited development of a Sustained Yield Plan on the harvesting of lumber.
According to Environmental Protection and Information Center, et al., vs. California Department of Forestry and Fire Protection, et. al. (2008) 44 Cal. 4th 459, the California Supreme Court Case held that California Department of Forestry did not properly approve a final Sustained Yield Plan. Though several Forest Practice Rules requirements were not met in the draft Sustained Yield Plan, it may be unlikely for litigation against The Pacific Lumber Company on the matter while it is in bankruptcy.
The bankruptcy filing suspended litigation against The Pacific Lumber Company, but The Pacific Lumber Company could proceed as a plaintiff against others. This is because litigation where The Pacific Lumber Company is a plaintiff is considered an asset, whereas litigation against The Pacific Lumber Company is considered unsecured debt.
The automatic stay applies to debts or claims that arise before a bankruptcy filing. A debtor may still be sued after the commencement of bankruptcy for claims post-petition. Gonzalez v. Parks (9th Cir. 1987) 830 P.2d 1033.
Avoid foolish action when dealing with insolvency law by engaging an experienced bankruptcy attorney to ensure proper protection of rights in bankruptcy proceedings.
