Defending intellectual property ("IP") litigation can be expensive and, if unsuccessful, often crippling for the defendant’s business. Sometimes an accused infringer facing IP litigation will seek bankruptcy protection to invoke the automatic stay. Unless lifted by the bankruptcy court, the automatic stay will prevent further litigation against the debtor, outside of the bankruptcy claims process, for
Usually, businesses have claims against other businesses. Still, you may occasionally have a claim against an individual and it’s good to know what can happen in that situation.
The "no asset" case. Unfortunately, most individuals who file bankruptcy, especially those who file the more common Chapter 7 liquidation case, do not have any significant assets that can be sold to pay creditors. What’s more, the assets they do have — such as IRAs, 401(k) accounts, etc. — are usually exempt from creditors’ claims. Cases in which no non-exempt assets are available to pay creditors are known as "no asset" cases. (Bankruptcy lawyers love imaginative names.) In a no asset case, the bankruptcy court’s notice will actually instruct you not to file a proof of claim unless later notified to do so.
The "asset" case. Sometimes there are enough non-exempt assets to produce at least some distribution to unsecured creditors. While not very common in Chapter 7 cases, it could be that the individual has filed a Chapter 13 "wage-earner" case or a Chapter 11 personal reorganization case and expects to pay creditors some amount over time. If so, a claims filing deadline known as a "bar date" will be set. If you file a proof of claim form by the bar date, you may eventually receive a check, although typically this will be months or even years after the bankruptcy was filed. In most cases involving individuals, the distribution to unsecured creditors is painfully small.
The bankruptcy discharge. In general, when individuals file bankruptcy, they will get discharged, or excused, from their pre-filing debts. This is especially true in Chapter 7 and 11 cases and also in Chapter 13 cases if the individual debtor makes all of the payments required under his or her plan. The discharge is part of what is often referred to as the "fresh start" that bankruptcy offers.
Nondischargeable debts. Although recent changes to the bankruptcy laws have made it harder for individuals to file bankruptcy and get a discharge, many people are still able to do so. That said, the law does call out certain kinds of debts and makes them "nondischargeable," meaning that they can be excluded from the scope of the bankruptcy discharge. These include debts arising from the debtor’s fraud or other intentional bad acts, including when he or she obtained credit, and also to obligations for alimony, child support, student loans, and many taxes. (So it’s clear, the concept of a debt being nondischargeable applies only to individuals, not to corporations or other business entities.)