Think Twice Before Filing For Bankruptcy If You Have A Personal Injury Claim

Bankruptcy is unpleasant in many ways.  It becomes very unpleasant in personal injury situations.

We always ask our clients if they have recently filed for bankruptcy, or if they are planning to.  We need that information because if there is a personal injury case that occurred prior to the bankruptcy filing period, it becomes an asset of the Bankruptcy Estate.  Once the case becomes an asset of the Estate, the Trustee in Bankruptcy owns the claim, and any money received from the claim goes to the creditors first, and the client last.  Oftentimes that means the case is not worth pursuing, as paying back creditors discharged in Bankruptcy from the proceeds of an injury case does not benefit the injured person in any way.

Most clients don’t understand that a personal injury claim is an asset, and either don’t list the claim as an asset, or don’t tell the personal injury lawyer of the bankruptcy filing.  This can cause disastrous consequences.  If you have a personal injury claim pending, and if you are going to file for Bankruptcy, your personal injury lawyer needs to know about your filing.  If you filed for Bankruptcy and did not include the personal injury case as an asset, your petition in Bankruptcy has to be amended to include the case as an asset that the creditors can recover from.

We always caution the clients that if Bankruptcy is being considered, to hold off filing if they can until the personal injury case is concluded.  Sometimes that is not an option.  Once filed, the Superior Court loses jurisdiction to the Bankruptcy Court, and the case can’t be settled without permission from the Trustee, and notice given to the creditors.

If the injury occurs after the Bankruptcy filing, the case belongs to the injured person, not the Trustee as any asset acquired after filing belongs to the injured person, not the Trustee.  However, if the injury occurs at any time prior to filing, and is not concluded at the time of filing, the case belongs to the Trustee.

Medical bills usually form the foundation for the value of any personal injury case.  Once discharged in Bankruptcy, the bills can no longer be claimed as damages in the personal injury case.  But, upon recovery, the bills have to be paid back.  Harsh, to be sure, but the law is often harsh.

Even if your Bankruptcy is concluded, if you pursue a personal injury case after conclusion that was left out of the asset list, the Bankruptcy must be re-opened, and the Trustee must notify the creditors that there is an additional asset, and give the creditors the option of asserting a new claim against the Bankruptcy estate.

The conclusion:  Stay away from Bankruptcy if you sustained a personal injury prior to filing for Bankruptcy.  If you have no choice but to file, make sure to inform your personal injury lawyer of the filing before the filing so he or she can consult with the Bankruptcy lawyer to plan a course of action best for you.  When in doubt, ASK FOR ADVICE!  That is what we are here for.

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