An issue that may affect your personal injury lawsuit is bankruptcy. Depending on who files for bankruptcy the impact on a personal injury claim will be different. One very important thing to do is make sure your Joplin personal injury law firm is aware of the bankruptcy filing immediately. More importantly, if you have filed a personal injury claim and you are considering filing bankruptcy, speak to your attorney before you file. Bankruptcy will have a very significant effect on your claim, so be sure to consult with your attorney first.
Types of bankruptcy for individuals
For individuals, there are two types of bankruptcy that can be filed, based on the two chapters of the Federal Bankruptcy Code: Chapter 7 and Chapter 13. These two types of bankruptcy have several major differences.
What is the difference between Chapter 7 and Chapter 13?
The primary difference between Chapter 7 and Chapter 13 bankruptcy is the filer’s income level. Basically, you must fall below a certain income level in order to be eligible for Chapter 7, which is considered the “liquidation” bankruptcy. With Chapter 7, most of the debtor’s assets are liquidated, which means sold for cash in order to pay creditors.
Chapter 13, on the other hand, involves establishing a repayment plan for individuals with a regular source of income. With Chapter 13, debtors are allowed to retain certain valuable assets, like their home and vehicle. Instead of liquidating assets, the debtor agrees to a specific plan for paying back their debts over a period of time, typically 3 to 5 years. The debtor remains protected from legal action during the period of repayment.
How does Chapter 7 affect a personal injury lawsuit?
With regard to Chapter 7 bankruptcy, there are certain causes of action that are exempt, such as Worker’s Compensation claims. Other claims, on the other hand, become the property of the bankruptcy trustee who represents the creditors in the bankruptcy proceeding. In fact, the trustee becomes the plaintiff instead of the injured party. The trustee has the authority to continue the litigation of the debtor’s personal injury claims, including settling those claims. However, any settlement must be approved by the bankruptcy judge.
Advice for plaintiff’s considering filing Chapter 7 bankruptcy
Our Joplin personal injury law firm strongly recommends that if you have a personal injury claim, you should not file Chapter 7 bankruptcy unless you are willing to relinquish that claim completely. That means giving up any entitlement you may have to payment of future medical expenses. More importantly, if you fail to disclose your pending personal injury claim in your bankruptcy proceeding, that is bankruptcy fraud, which is a criminal offense.
Chapter 13 is the preferable bankruptcy for personal injury victims
In situations where a client has a viable personal injury claim, our Joplin personal injury law firm agrees that Chapter 13 bankruptcy is the best solution if they are in collections of being sued by creditors. Chapter 13 protects debtors with an “automatic stay” of all collection actions. Still, the bankruptcy trustee will be placed in control of the personal injury claim and will represent the debtor’s interests.
What happens if the person you sue files for bankruptcy?
This is typically not good news for a personal injury lawyer. In most cases, a civil lawsuit is subject to an automatic stay when bankruptcy is filed. That means as soon as the bankruptcy case is filed, you cannot continue the lawsuit. The only way to do so is to ask the bankruptcy court for permission, which doesn’t come easy.
Once the bankruptcy case is over, the personal injury lawsuit against you will pick up where it ceased. The only real difference is that, if the defendant has insurance coverage for the personal injury claim, it will pay on the claim as applicable, but there is no other source of compensation for the claim.
Be sure to disclose the lawsuit to your lawyer
Regardless of which party you may be to a personal injury lawsuit, you need to disclose the lawsuit to your lawyers. That includes both your personal injury lawyer and your bankruptcy lawyer. One thing that many people don’t realize is that you also need to disclose your right to sue anyone. So, if you believe you may have a claim for personal injury or some other civil claim, then let your bankruptcy lawyer know. If you don’t, and that claim is not disclosed in bankruptcy, you could lose your right to pursue your claim altogether.
If you have questions regarding the effects of bankruptcy or any other personal injury matters in Arkansas or Missouri, please contact the Cottrell Law Office for a free consultation. You can contact us either online or by calling us toll-free at (888) 616-6356.
He is licensed to practice law in the United States District Court for the District of Kansas, eastern Arkansas, western Arkansas, and western Missouri. He was Deputy Prosecuting Attorney in Crawford County, Kansas from 1987-1989.
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