Declaring bankruptcy is usually associated with individuals who have unpaid credit card bills or medical debt. However, bankruptcy can also affect personal injury lawsuits in ways that can catch those injured off guard.
There are two situations where a party declaring bankruptcy can impact a personal injury case. The first situation is when the plaintiff, or the injured party, declares bankruptcy. The second is when the defendant, or the at-fault party, declares bankruptcy. Both scenarios can have a resounding impact on a personal injury case.
If You, the Injured Party, File for Bankruptcy
An injured party can potentially lose the ability to file a personal injury lawsuit if they file for bankruptcy without properly disclosing their personal injury claim. When you file for bankruptcy, the law requires you to list all of your assets. This doesn’t just mean bank accounts or property — it also includes pending or potential lawsuits. Your personal injury claim is considered part of your bankruptcy estate, and failing to disclose it can put your case and your bankruptcy at risk. Disclosure is critical.
In a Chapter 7 bankruptcy, a trustee is assigned to administer the estate of the bankrupt party. This means that the trustee is the only individual who has the ability to file your personal injury case during bankruptcy proceedings. Failure to disclose your personal injury claim will cause that claim to be controlled by the trustee. If the bankrupt party discloses their personal injury claim, they can have the personal injury claim exempted from their bankruptcy estate, which would then put the control of the personal injury claim back in the injured party’s hands.
The scenario where this can extinguish a personal injury claim is as follows:
- John is injured in a motor vehicle collision.
- John files for bankruptcy and does not disclose his personal injury claim.
- John files a personal injury lawsuit
- Personal injury lawsuit is dismissed because John filed the lawsuit instead of the trustee, and the personal injury claim has not been exempted from the bankruptcy estate.
- The two-year statute of limitations in the personal injury case expires, and the personal injury case is time-barred.
As you can see, bankruptcy can be detrimental to your personal injury case, so it is vital that you consult with an experienced Virginia personal injury attorney to ensure that your personal injury claim is not irreparably harmed by your declaration of bankruptcy.
If you are in the middle of litigation of a personal injury claim, the defendant will routinely still ask whether the plaintiff has ever filed for bankruptcy. While the bankruptcy claim would not be detrimental in this situation, it can still be important. In a personal injury case in Virginia, the defendant, or at-fault party, is liable for the full amount of the medical bills that the injured person incurs. However, if the injured party has had a medical bill discharged due to claiming bankruptcy, the defendant may not be liable for that medical bill.
In short, bankruptcy doesn’t mean losing everything. However, you must be upfront about your case and rely on an experienced attorney to safeguard your recovery.
When a Defendant, or the At-Fault Party, Files for Bankruptcy
Sometimes, the person or business you’re suing files for bankruptcy before your personal injury case is resolved. This can be frustrating, but here’s what you need to know:
- The automatic stay pauses your case. Bankruptcy law puts all lawsuits on hold once a petition is filed. That means your personal injury case cannot move forward until the bankruptcy court gives permission.
- Insurance coverage can still protect you. If the defendant has liability insurance, you may be able to ask the bankruptcy court to lift the stay for the limited purpose of pursuing funds from the insurance carrier. Often, bankruptcy judges will allow this since the money comes from the insurance carrier, as opposed to the defendant’s assets.
- Without insurance, recovery is harder. If there’s no insurance policy, your claim could be discharged along with the defendant’s other debts. A personal injury claim is considered an unsecured debt and would have the same priority as the bankrupt party’s other unsecured debts. There are some exceptions, though. For example, if the personal injury claim arose from the defendant’s drunk driving or intentional misconduct, the claim may not be dischargeable in bankruptcy.
Why These Cases Require Careful Guidance
Bankruptcy and personal injury law are complicated enough on their own. When they overlap, the rules change quickly. Bankruptcy can dramatically change the course of a personal injury case, but it doesn’t automatically mean you’ll walk away with nothing.
At Curcio Law, we guide injury victims through these exact challenges. We’ll explain your options if bankruptcy threatens your recovery. In addition, we’ll make sure personal injury claims are properly disclosed in bankruptcy proceedings and can work with trustees to protect as much of your settlement as possible. We understand that behind every case is a person whose health, financial stability, and future are at stake. Our goal is to make sure bankruptcy laws don’t rob you of the justice and compensation you deserve.
If you or someone you know needs clarity on how bankruptcy could impact a potential personal injury claim in Virginia or D.C., call or text Curcio Law at 703-836-3366 or contact us online for guidance.
