While they cannot continue with the current suit at this time, they have thee choices.
1. File a complaint in the bk court asking the bk court to determine that any claim they have against you is non-dischargeable. Then litigate the issues in the bk court. This complaint must be filed within 60 days of your 341 meeting. However, if the complaint is not timely filed any claim they have will be discharged.
2. File the above mentioned complaint timely and then ask the bk court to lift the stay so that they may proceed in state court for a determination of liability and damages. If they are successful then they would bring that determination back to the bk court to have the judge "rubberstamp" it and hold the claim non-dischargeable. This avenue is not frequently used. Typically it is used if the litigation in the state court has progressed to a point where it makes more economic sense to let it continue to its final outcome. Again, remember, if the complaint to determine dischargeability is not filed within 60 days after your 341 meeting, the creditor's claim will be discharged.
3. Do nothing thus allowing you to peacefully get a discharge.
Des.