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.

Bankruptcy & Litigation Series: #8 Personal Injury & Torts - Plaintiff Bankruptcy

If you are the Plaintiff in a personal injury case and you file bankruptcy, it is generally a good idea to file a suggestion of bankruptcy to alert the court to the bankruptcy filing.  Most courts will temporary delay the hearing of the case, however 11 U.S.C. s. 362 is not designed for this application.  

Ultimately, the suit itself is an asset of the bankruptcy estate.  Like any other asset, it may be exempt depending on the value of the potential claim.  In the event that it is not exempt (and at all times before being abandoned by the trustee), the Trustee steps into the plaintiff's shoes during the administration of the bankruptcy estate.  The Chapter 7 trustee may then offer to settle, or compel the debtor to pursue the suit (although the Trustee will bear the cost of compensating counsel for any post-petition legal fees).  Any proceeds obtained during the suit (less any exempt portions of any receipts) will be turned over to the trustee as property of the bankruptcy estate and distributed to creditors.   Note that there are additional exemptions for personal injury cases in bankruptcy:  

1. $22,975 for personal injury damages, but not any recovery for pain and suffering or pecuniary loss

2. 100% of any award for loss of future earnings needed for support

3. 100% of any recovery for wrongful death of person you were a dependent of needed for support, and

4. 100% of any award of compensation received for being a crime victim.

5. Pain and suffering and pecuniary loss damages may be exempted under the wildcard exemption and/or unused home equity exemptions 11 U.S.C. 522 (d)(5). 

Therefore, if you are a personal injury plaintiff and file for bankruptcy during the pendency of your case or the possibility of bankruptcy is on the horizon at the conclusion of your case, it is important to work with your personal injury attorney to structure the settlement of your case in a way that maximizes the potential exemptions. 

Practice Tips:

1. If you are close to a personal injury settlement, make sure you consult with a bankruptcy attorney first.
2. Try to settle out the PI case before filing. A right to sue is an asset, and can be taken by the trustee if not exempt, and the trustee then decides how to settle the case.
3. Make sure your PI attorney considers how to structure your settlement in a way that protects as much of the judgment as possible: there are limits to the amount of personal injury damages that can be exempted ($21,625.00), but awards for future medical payments, lost earnings, disability payments, wrongful death and crime victims reparations are exempt 100%.

Your Bankruptcy Could Complicate Your Personal Injury Settlement

Filing for bankruptcy as a California personal injury victim can greatly complicate your situation. Even worse, a number of injury victims neglect to tell their personal injury attorney that they are filing for bankruptcy. When going through the bankruptcy process it is important to make sure your bankruptcy attorney and personal injury lawyer are in good communication with one another. This can help to avoid any confusion later.

Your personal injury settlement is viewed as an asset. Payment you receive from your settlement could be distributed to your creditors. To receive an optimal recovery you need to strategically put yourself in the best position. Working with your attorneys can help to protect your assets and receive a maximum settlement for your injuries.

No matter what your situation, it is important to be ethical when making your decisions. Do not make any harsh decisions which you will regret later. If you have any questions or concerns it is advised to consult with your attorney.

Finding A Skilled Personal Injury Lawyer

If you or a loved one has suffered from a personal injury accident please contact an experienced lawyer. The best personal injury lawyers will offer free consultations to all injured accident victims. Some personal injury attorneys work as no win no fee lawyers. This means that if they don't win your case you don't pay.

- Guest Blog - posted by Bisnar Chase, Los Angeles personal injury lawyers.