Personal Injury and Bankruptcy
Brien Roche
Personal-Injury-Bankruptcy: Two terms that most people think have nothing to do with each other. In fact they do. An injured party who has filed bankruptcy may not own that injury claim. That injured party must report that injury claim on the bankruptcy filing. Failing to do so is a problem.
Filing bankruptcy while you have a personal injury claim pending can impact your personal injury claim. That is true whether you are in the state of Virginia or elsewhere.
When you file a bankruptcy petition under Chapter 7 of the U. S. Bankruptcy Code you transfer all of your assets to the Trustee in bankruptcy. Your personal injury claim is an asset. The Trustee may decide to give up that claim. You may then pursue it. In all cases you must disclose the claim.
In general personal injury claims are exempt under Va.Code 34-28.1. This means that the debtor retains ownership of the asset if it is properly designated as exempt on the schedules. If it is not designated, there is a problem. If it is designated, there may still be a 730-day residency requirement in Virginia that may be applied and there are certain exceptions to the exemption. Those exceptions are things that would then not be exempt such as some healthcare liens, an attorney’s lien and some child support obligations.
Personal Injury-Bankruptcy Discharges
In addition, the treatment bills for your injury claim may be discharged. If in fact all of those bills are discharged, meaning that they are in effect wiped out, and you do not have to pay them, that means you cannot seek money for them in your injury case.
Under the case law in Virginia you can claim the bills to prove how severe the injury is. Although the bills would not be a basis for a money award to you in light of the discharge.
So the jury will hear about the bills and the amount of the bills. However the jury will not hear that they should consider the bills in terms of awarding you that amount. Call, or contact us for a free consultation.
Personal-Injury-Bankruptcy: Failure To Disclose
In the case of a Chapter 13 filing, claims that arise after the filing are also part of the estate. As such Chapter 13 filings are dangerous for an injury claimant.
The injured party’s oversight in not reporting the claim is not an excuse. In fact it may be a bar to that party even pursuing the claim.
In the case of Kimberlin v. Dollar General Corp., 520 Fed. Appx. 312 (6th Cir. 2013) a debtor was fired shortly before making her final payment to the Chapter 13 trustee. She did not amend her schedule so as to reflect a lurking claim for unlawful termination. After she received her discharge she filed suit against the former employer. She alleged wrongful firing. The court held that the debtor was barred from making that claim because if she had given notice to the Court of the claim prior to the discharge then the Court could have changed her plan in order to increase the payout to the parties owed money.
Bankruptcy Standing
In regards to bankruptcy matters there is also the issue of standing. That is, the client may not have standing to file a suit because that claim was not listed and therefore it had not passed back to the debtor. Only the Chapter 7 trustee has standing to pursue a claim. If the claim was not listed and therefore the trustee is not aware of it, then no proper lawsuit was filed within the statute of limitations. Therefore whatever claim was filed by the debtor may not stop the statute of limitations from running.
In contrast with a Chapter 7 case, there is no risk for Plaintiff’s counsel filing suit for a Chapter 13 debtor. Chapter 13 debtors retain standing to pursue their own claims.
Personal-Injury-Bankruptcy: Chapter 13
As soon as a Chapter 13 debtor does file a suit in pursuit of a claim you then must decide what are the proper exemptions to assert. To do that the debtor should disclose the claim, correctly value it and then exempt the highest allowed value. If you do not do that the trustee may retain a part of the claim. In addition there may be medical providers who have a secured claim in the form of a lien.
There are further personal injury-bankruptcy factors to be kept in mind in regards to plaintiffs that are also Chapter 13 debtors. The rule to keep in mind is that clients that either are now or have been in bankruptcy need to be counseled as to what their rights are in regards to an injury claim.
Personal-Injury-Bankruptcy: Bankruptcy of the Defendant
So you have a big claim. Liability is clear. The other party appears to be solvent. Then the worst happens. The other party files bankruptcy. This is a nightmare for the plaintiff and for the plaintiff’s injury attorney.
If the other party is insured then your case may be safe. You can request relief from the bankruptcy stay with the claim going forward only against the coverage.
If the coverage however is in doubt because of the number of claimants or the amount of coverage, then you need to look at other factors. Call, or contact us for a free consultation.
Categories of Claims
Your claim is going to be called an unsecured claim. This means that it has no special backup to make sure your claim is paid. If that is the case, then you need to look at when did your claim arise. A tort claim arises when there is injury. If your claim arose before the other party filed bankruptcy, then it is as a pre-petition claim. If the claim arose after the filing date but before the confirmation of a plan in Chapter 11 or before entry of an Order that is final then it is an administrative claim. There are other factors that must also be looked at.
Pre-petiton claims are mostly paid out on a pro rata basis from funds on hand after the secured claims or other senior claims are paid out. In dealing with these first class claims you should file your proof of claim. Include within the claim every type of damage and request a jury trial for personal injury or wrongful death claims. The filing of a claim for a jury trial delays the final outcome of the entire bankruptcy case and gives the trustee or debtor reason to settle with the claimant making the jury demand.
Chapter 11
If a Chapter 11 case involves the sale of the debtor’s assets as a going concern, then you may make a claim against any successor entity on the grounds that the business is ongoing. This theory is especially likely where the new outfit uses the seller’s name, employees, office and has owners and managers in common.
Where your claim is under the second class of arising after the bankruptcy filing but before the plan is approved or the entry of some final Order in the case, then your claim may be an administrative claim. In such a case you should receive complete payment. If there are not enough assets to pay the administrative claims, then these claims are paid on a pro rata basis. In this latter category you compete with the lawyer for the debtor. Being tough at this stage improves your chance of payment. The lawyer wants to reduce overall expenses to insure he is paid.
Claims arising after confirmation or sale of assets are not bankruptcy claims at all. That is, there has been no due process given to these claimants. What that means is that notice and a chance to be heard has not been given. You may pursue these claims against the reorganized debtor or its successor under the successor theory discussed above.
A fourth type of claim is called a future claim. This is a claim such as the claim of an unborn child. Such a claim is not discharged because notice was not given.
Some Debts Do Not Go Away
In looking at bankruptcy cases you must think about discharges. A debt dealing with an injury caused by the other party’s driving a car under the influence is not likely to be discharged. Likewise a debt that arises from willful or malicious conduct may not be discharged.
If your claim involves a trucking company, then you need to obtain a copy of the MCS-90 Form. This is required by U.S. law. Insurance for trucking firms have a clause to insure that injured parties are paid for judgments based on fault of the firm or driver. If the insurance company is bankrupt its reinsurer may still remain obliged under the insolvency clause that exists. Your client may or may not be able to make a direct claim against the reinsurer.
Contact an Experienced Personal Injury Lawyer in the DMV Area
For more information on bankruptcy from our knowledgable personal injury lawyer, see the pages on Wikipedia also see the pages on this site dealing with personal injury. Call, or contact us for a free consultation.