How Does Bankruptcy Affect Your Personal Injury Case?

chapter 7 bankruptcy

Sometimes, people find themselves in several difficult positions at the same time. This is the case when they have already fallen on financial hardship and are involved in an accident. When this is the case, accident victims often wonder what will happen to their settlement if they are successful in their personal injury case. The answer to this depends on when your accident happened, and what type of bankruptcy you are filing. A bankruptcy attorney can help those hurt determine the best course of action to take before they file.

Continuing Duty to Disclose

No matter what type of bankruptcy you are filing, if you are involved in an accident and filing a personal injury claim, you have a continuing duty to disclose that information. This means it doesn’t matter if your injury happened before you filed for bankruptcy, or once you already filed. You must always make the bankruptcy court aware of the separate action. This continuing duty is in place until your bankruptcy case is dismissed by the court, you drop the bankruptcy case, or your debts are discharged.

If you fail to inform the bankruptcy courts of a personal injury claim, you face real consequences. Your personal injury case could be dismissed, possibly barring you from compensation you would have otherwise received, or you could even face criminal charges. You must always disclose accident claims, no matter when they occur during your bankruptcy case.

Chapter 7 Bankruptcy and Personal Injury

Unfortunately, if your personal injury case is still going through the courts and the insurance companies, you will lose your settlement if you file for Chapter 7 bankruptcy. The settlement becomes the property of the bankruptcy estate. This includes any compensation for future medical expenses, even though you will incur them after the time your bankruptcy is filed.

The trustee of the bankruptcy estate will settle the personal injury claim and distribute any damages to the appropriate creditors. A judge will determine the settlement amount of the personal injury claim. As the injured party, you will have no right to object to the amount the judge orders. The only exception to this is if you or your attorney can convince the judge that the settlement amount is enough to repay your creditors, and still have enough surplus to distribute to you.

Not all injury claims are entitled to be deemed part of the estate. For example, if your accident happened at work and you are going through workers’ compensation to claim compensation, you are entitled to keep the whole settlement.

It’s also important to understand that once you file a bankruptcy petition, the medical expenses from your accident cannot be discharged. This means you are not released from personal liability, and you must continue to make payments for those costs. The trustee will pay a portion of the medical expenses as part of your bankruptcy estate.

Additionally, if you are filing a personal injury claim and filing for bankruptcy and the two cases overlap, you may have two different attorneys. You may have one that is handling your bankruptcy, while the other is working on your personal injury claim. It’s extremely important you tell both attorneys about each case.

Insurance companies are often involved in personal injury claims. Typically the defendant, or the person accused of wrongdoing, has insurance to cover them in case of an accident, such as auto insurance. Insurance companies don’t want to pay out on claims, so they’ll check recent bankruptcy filings. They will also check to determine if you properly disclosed the claim in the bankruptcy proceedings.

If you did not, the insurance company will likely move to have your case dismissed on the day of trial. They will argue that the bankruptcy estate is now the plaintiff, not you, and so the case should be dismissed. If compensation is to be recovered from the accident, the bankruptcy estate will have to sue in order to claim it. If the statute of limitations has run out on the claim, barring them from filing a lawsuit against the at-fault party or insurance company, they could file a lawsuit directly against you to claim compensation. Your bankruptcy discharge could be revoked, and you may even face criminal fraud charges.

It’s important your personal injury lawyer knows about your bankruptcy case. They must be selected by the trustee of the estate, and appointed by the court in order to continue representing your case.

Chapter 13 Bankruptcy and Personal Injury

If your personal injury claim is still pending when you file for Chapter 13 bankruptcy, you must disclose this information to the bankruptcy court. You can choose and retain your own attorney, but the court must approve your legal representation. In these instances, the personal injury attorney will represent you and the bankruptcy estate.

If a settlement is reached in your personal injury case, the bankruptcy court must approve it. A judge must also approve counsel’s motion for attorney’s fees and costs. The court will then determine how much of the personal injury settlement is distributed to the bankruptcy estate, ultimately going to creditors, and how much you can keep.

Personal Injury Claims After Bankruptcy

It’s true that you likely won’t receive much, if any, of the compensation awarded in a personal injury claim if you are in the middle of filing for bankruptcy. However, when liquidating your assets to repay creditors, bankruptcy courts only consider the assets you already have when filing. As such, if you are in a personal injury accident after a judge has already issued a final order discharging your debts, any personal injury settlement you receive is yours.

Need Help Filing for Bankruptcy? Call Our Florida Bankruptcy Lawyers

If you’re in serious financial trouble and think bankruptcy is the right option for you, call our Fort Lauderdale bankruptcy attorneys for help. At Loan Lawyers, we know the many details that go into filing for either Chapter 7 or Chapter 13 bankruptcy, and the multitude of things that can happen along the way. We also understand how to deal with every obstacle that presents itself, to give you the best chance of having your debt discharged. Call us today at (954) 523-HELP (4357) to schedule your free consultation with one of our attorneys.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.