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%.

Why Bring an Attorney to the 341 Meeting?

Each petition under Chapter 7 and Chapter 13 of the United States Bankruptcy Code will have a meeting of creditors, commonly referred to as the "341 Meeting". If you are represented by an attorney at your 341 Meeting, your attorney will sit next to you when your case is called by the trustee. Usually, your attorney will not be required to speak much, as the trustee will ask you questions directly. Although the lion's share of the work that your attorney will put into your case will be prior to your 341 Meeting, there are certainly advantages of your attorney being with you.

Having your attorney there gives you certain advantages over going alone. First and foremost, you are benefiting from the attorney's experience and knowledge as to the intricacies of a complex field of law. Your attorney will know how to treat each of your assets and debts, and what the trustee is looking for, as well as how to fill out your schedules.

Second, an attorney will know how to explain areas where your case might be interpreted against your interests if not properly and carefully explained to the trustee.

Third, your attorney is another set of eyes that can refresh your memory if you forget anything on your schedules. The trustee has the ability to ask about anything that you have filed, and having another person familiar with your case sitting next to you can help if your memory fails you.

To speak with Attorney Matthew Trask about bankruptcy call 508.655.5980 or email us.