What Happens to my Personal Injury Claim when I file Bankruptcy?
When someone files bankruptcy, ALL of their assets wherever located, become part of the Debtor’s bankruptcy estate pursuant to the Bankruptcy Code.
ALL assets means everything – house, car, furniture, jewelry, clothes, pets, everything. Some things debtors don’t realize are included are stocks and bonds (not part of an IRA or 401k), inheritance, ownership interests in a business, and lawsuits or the right to sue someone.
Many times, someone will get into a car accident and become injured and, while they may ultimately recover significant damages, how do they pay their bills in the interim?
What happens when you have a pending lawsuit, or the right to sue someone and you have to file bankruptcy?
If the lawsuit is merely possible, and not yet filed, and you fail to include it in your schedules, the defendant will be able to dismiss the case once it is filed. First, the bankruptcy petition is signed under oath, so if you don’t include a potential lawsuit, then you are admitting under oath that you don’t believe you have the right to sue. Second, any asset that is left off of the petition continues to belong to the bankruptcy trustee, so the defendant can properly claim that you lack standing to bring your own lawsuit!
If the lawsuit is filed prior to the bankruptcy, then the treatment of the lawsuit depends on the type of bankruptcy that is filed.
If the debtor files a Chapter 7 liquidation, then the bankruptcy trustee owns the case and can either: (1) hire his/her own attorney to complete the case, or (2) hire your existing attorney to finish the case. Note that any recovery first goes to pay unsecured creditors and any remaining balance goes to the debtor. The settlement of the case and the issue of attorney fees, whether the debtor’s attorney or trustee’s attorney, is approved by the Court.
If the debtor files a Chapter 13 reorganization, the bankruptcy trustee still owns the case, but will likely allow the debtor’s attorney to complete the case (the Chapter 13 trustee is interested in the monthly payments, rather than turning an asset into cash). Similar to a Chapter 7, any settlement will have to be approved by the Court, including payment of attorney fees and costs. Anything left over will then be retained by the debtor.
If you have been involved in a car accident, or are entitled to sue someone for any reason, but feel like you need to file bankruptcy to protect yourself from creditors, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at email@example.com. You can also order Crushing Debt: 9 Strategies to Eliminate Financial Bullies on Amazon.com. Please also subscribe to the Crushing Debt Podcast, on Apple Podcasts, Spotify, and other podcast players, including Amazon Echo (“Alexa”) for more free information about these topics.
Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay Area.