Filing bankruptcy in a personal injury case in California
Here is what happens when you or the defendant file for Bankruptcy in a personal injury claim in California.
There are three types of Bankruptcy; chapter 7, 11, and 13.
- Chapter 7- liquidation of assets.
- Chapter 11- repayment of debts based on personal income
- Chapter 13- repayment of obligations based on corporate or business income.
There are two case scenarios for filing for Bankruptcy in a personal injury case.
- When the defendant files for Bankruptcy
- When the plaintiff files for Bankruptcy.
If the defendant files for Bankruptcy
If the defendant in your personal injury case files for bankruptcy, it can pause your personal injury lawsuit and affect a judgment in your favor. Your ability to recover damages may depend on the type of personal injury case, the time they filed the lawsuit, and if they have any applicable insurance.
Non-dischargeable personal injury debts
There are two types of personal injury cases that do not get discharged because of the defendant's bankruptcy.
- Personal injury cases caused by intentional or malicious acts- you can object to the discharge of this type of debt in chapter 7, 11, and 13 bankruptcy proceedings. Failure to object may cause the bankruptcy court to discharge the debt.
- Personal injury cases that involve death or injury resulting from the defendant driving while intoxicated- the bankruptcy court cannot discharge DWI debts in chapter 7, 11, and 13 bankruptcy proceedings
If the bankruptcy filing came before the lawsuit
You may be able to pursue your personal injury claim against the defendant if they filed for bankruptcy before your accident, and you may recover damages if the defendant has adequate insurance coverage to pay for the settlement.
Even if there is a court judgment in your favor, you will likely get nothing without insurance. Unless, as discussed above, your accident was caused by intentional tort or by an intoxicated driver.
If the defendant files for Bankruptcy during the lawsuit
When the defendant files for bankruptcy during your suit, the automatic stay will stop you from pursuing your personal injury lawsuit. An automatic stay is an injunction that prevents creditors from proceeding with litigation and trial.
If you seek to continue pursuing your personal injury claim, you must seek permission from the bankruptcy court by filing a motion to lift the automatic stay. You can only be granted permission if:
- The defendant has adequate insurance coverage, and the damages you seek are within the defendant's insurance policy limits.
- You can show that the defendant filed for Bankruptcy due to fraudulent reasons.
If the bankruptcy court denies your motion to lift the automatic stay, you cannot continue with your personal injury lawsuit, and your claim is gone. But, if the court agrees to lift the automatic stay, you may proceed with your case.
If the defendant files for Bankruptcy after the personal injury lawsuit
after you've won your lawsuit, the defendant files for Bankruptcy, you are not likely to collect the judgment from the defendant. You can only expect to collect anything from the defendant if they have insurance coverage.
You may need to file a motion to the bankruptcy court to lift the automatic stay, but you must be able to prove that the defendant has adequate insurance coverage to pay the judgment.
If the defendant does not have insurance, you will not be able to receive a settlement from them. Also, suppose you are trying to collect compensation exceeding the defendant's insurance coverage. In that case, it is improbable that you will collect your entire settlement, as any portion of your judgment not covered by insurance will get discharged during bankruptcy proceedings.
When the plaintiff files for Bankruptcy
If you, the plaintiff, file bankruptcy during a personal injury claim process, it could have severe repercussions on your claim. There are laws governing filing for bankruptcy when you have an ongoing personal injury lawsuit, and failure to comply will significantly impact your case outcome.
Firstly, for your personal injury attorney to continue with your lawsuit, they must be appointed special counsel. It does not change the goal of your personal injury attorney, but it means that the authority in your personal injury claim now belongs to the bankruptcy court. You, the plaintiff, no longer have the authority to consent to a settlement amount. The bankruptcy court has the power to approve a settlement amount, which may not be in your best interests. Rather than push for a more significant settlement, they would veer towards a fast settlement.
Secondly, you must disclose your personal injury claim to your bankruptcy attorney. If your personal injury lawsuit is successful, the bankruptcy court will use your compensation to settle creditors at their discretion. Under the law, in bankruptcy proceedings, your personal injury settlement will become part of your personal assets, according to chapter 7. Bankruptcy trustees will own all funds awarded from your personal injury settlement. Although, if your personal injury settlement is more than what is required to pay the creditors in your bankruptcy case, the remaining amount is yours.
What happens when the plaintiff fails to list the personal injury claim in their Bankruptcy?
If the plaintiff fails to list their personal injury claim in Bankruptcy, the bankruptcy court will confiscate all funds and sanction you and your attorney.
If you were injured as a result of the negligent or malicious actions of another, seek the help of an experienced personal injury lawyer at Bojat Law Group. Do not file for bankruptcy without getting legal advice from your personal injury attorney and bankruptcy attorney.