A bankruptcy filing may stop a pending arbitration.
The U.S. Bankruptcy Code establishes how a bankruptcy case affects judicial actions and other proceedings that affect your assets, debts, income or expenses. This includes an arbitration. Pursuant to bankruptcy law, the bankruptcy issues what is known as an order of automatic stay, which stops such proceedings at least temporarily.
Function
The function of the order of automatic stay in bankruptcy is to stop certain proceedings, including an arbitration, that potentially affect a debtor's finances. The purpose of the order of automatic stay is to protect the interests of the debtor in bankruptcy and her creditors alike. With the filing of a bankruptcy, the bankruptcy court obtains primary jurisdiction over many of the matters at issue in arbitration of a lawsuit.
Time Frame
Theoretically, an arbitration that potentially affects a debtor's finances is to stop completely the moment the bankruptcy petition is filed. The arbitration cannot recommence as long as the bankruptcy case is pending unless the bankruptcy court issues a specific order permitting the arbitration to continue.
Misconceptions
The most common misconception associated with bankruptcy and a pending arbitration is that the filing of a bankruptcy case does not affect an arbitration at all. The misconception is based on the faulty proposition that the automatic stay order affects only a lawsuit. In fact, there are situations in which an arbitration is stayed and suspended as well.
Benefits
The benefit of the bankruptcy automatic stay order and the cessation of an arbitration is that any risk to your assets that the arbitration proceedings presented terminates, unless the bankruptcy court determines otherwise at a future date. Bankruptcy courts do not commonly lift or eliminate stay orders.
Expert Assistance
Bankruptcy cases involving a pending arbitration are complicated matters. If you find yourself in a situation involving both bankruptcy and arbitration, seriously consider retaining an attorney. State and local bar organizations maintain directories of attorneys in different practice areas. Contact information for these bar associations is available through the American Bar Association:
American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org
