What You Need to Know About Injury Cases and Bankruptcy

Injury cases and bankruptcyIf you are injured in an accident, the option of bankruptcy may seem tempting. Unfortunately, many accident victims go this route without understanding how it will affect their personal injury claims. Filing for bankruptcy can have a serious—and sometimes devastating—effect on a personal injury claim, which can take you by surprise if you do not understand the interplay between the two.

Bankruptcy and Injury Claims

In the most general sense, bankruptcy is an opportunity for people and sometimes companies, to strip off or reduce their debts significantly. Bankruptcy is considered a “fresh start,” allowing people to begin their financial history anew, and companies to reorganize their debts in order to attempt to stay in business.

It may be common for injury victims to consider bankruptcy. If you are injured, you may be out of work, bills may be mounting, and it may seem like bankruptcy is your best option.

But in fact, bankruptcy may be the worst option, if you have a pending personal injury case. This is because in order to pay off or wipe out your debts, a bankruptcy court will generally take anything that you have of value (there are exemptions that you are allowed to keep—bankruptcy filers do not lose everything that they own).

Many debtors believe that they do not own anything of any real value for a bankruptcy court to take, and in fact, they may not. The problem is that a personal injury case is an asset and an item of value, even if there is no settlement yet, no definite value of your injuries established, and in some cases, even if the lawsuit is not even filed yet.

Losing Claims in Bankruptcy

The bankruptcy court will ask you if you have any pending lawsuits or settlements or the right to sue anybody. For personal injury victims, the answer would be yes. If so, a bankruptcy court can “take” your injury claim as an asset that you own, litigate the case on your behalf, and collect whatever is paid by the negligent party, leaving you unable to ever recover for your injuries. By filing bankruptcy, you would have given your claim to the bankruptcy court.

This rarely makes financial sense. If you have $20,000 worth of debts, but an injury claim that may be worth $100,000, “trading” your injury claim for the bankruptcy discharge is a bad deal.

What makes the situation more unfortunate is that many injury victims file bankruptcy because of their medical bills, even though many medical providers will wait until you receive a settlement for payment.

The bankruptcy code does allow for certain exemptions—that is, property that you can protect from the bankruptcy court and keep for yourself. The amount of exemptions available to you may vary depending on your specific situation. Depending on your exemptions, you may be able to file bankruptcy and still protect and keep a personal injury claim that is of smaller value. But an exemption analysis is complex, and should be analyzed by an experienced bankruptcy attorney, who works closely with your personal injury attorneys.

Bankruptcy Strategies

Another reason why bankruptcy should be avoided by injury victims, is that you get one bankruptcy every seven years. If you are injured and are continuing to undergo treatments, or may need future procedures or care, and you file bankruptcy now, you could incur additional medical expenses after your bankruptcy case is over. Those will be new debts that you owe, that were not discharged in your bankruptcy.

It is often a better strategy to wait until you have completed as much of your medical treatment as possible, so that if you do need to file bankruptcy, you have included as many bills as possible.

You should not even think about concealing the fact that you have a lawsuit during a bankruptcy. Aside from the fact it is against the law to conceal an asset from a bankruptcy court, there are many cases which have prohibited personal injury victims from pursuing their claims if those claims were not disclosed to a bankruptcy court during the bankruptcy. 

When the Negligent Party Goes Bankrupt

Most personal injury victims will see the other side of bankruptcy—that is, the negligent party that you may be suing, files for bankruptcy. This can cause significant problems.

The minute anybody files for bankruptcy, an automatic stay is placed on the debtor. This means that no creditor can make any claims for the debtor’s assets from the minute the case is filed. Practically, this means that any lawsuit that you have against a negligent party, is immediately stalled or paused, when the bankruptcy is filed.

If you are suing an individual, all of your claims against that person could be completely wiped out by the bankruptcy court. If you are suing a company that goes bankrupt, there may still be some hope.

In some cases, a person suing a large company can go to the bankruptcy court and ask for permission to continue the injury claims in the original suit. Even if that does not happen, in many cases injury victims can make claims on the assets of the company in the bankruptcy court, asking the court permission to have the claims paid by the company.

Unfortunately, even when this kind of permission is granted, it often is granted at pennies on the dollar. An injury victim is often one in a long line of creditors that a business has when it files bankruptcy. There may not be enough assets to satisfy all the creditor claims, so the bankruptcy court will often allow each creditor to be paid a very small portion of their actual claims.

Personal injury cases can often interplay with other areas of the law. You need attorneys who understand how the decisions you may make in life, affect your case. Contact the personal injury attorneys of Brill & Rinaldi today for a free consultation about your case.