Wednesday, December 11, 2013

Bankruptcy & Litigation Series: #9 Personal Injury & Torts - Defendant Bankruptcy

Personal injury proceedings where the debtor is the defendant are automatically stayed pursuant to 11 U.S.C. s. 362.  The debtor or debtor's counsel should file a Suggestion of Bankruptcy in the civil suit, but NOT filing a suggestion of bankruptcy does not have any prejudicial effect.  The Plaintiff should file a proof of claim if the case is filed under Chapter 11 or Chapter 13, or in a Chapter 7 where there are assets to distribute. The underlying debt will be included in the debtor's discharge, and should the Plaintiff pursue the case, will be in contempt of either the Order of Discharge or the Order of Automatic Stay, and face civil contempt penalties, including being forced to compensate the debtor for actual damages, attorney's fees and punitive damages.

Note that depending on the case, certain damages claimed in a civil or personal injury suit are not dischargable:

1 Debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
2. for willful and malicious injury by the debtor to another entity or to the property of another entity;
3. for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance

See complete list at 11 U.S.C. s. 523.

What if there are multiple defendants?

In cases where there are multiple defendants, the case will be stayed as to the debtor, but the case WILL proceed as to the remaining defendants.  See 11 U.S.C. s. 362.

If you are a defendant and file for bankruptcy, the case will be stayed with respect to you while you are in bankruptcy, but may proceed against other named defendants.

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