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  • Writer's pictureRobert Schuerger II

The Impact of Bankruptcy on a Personal Injury Claim | What Can Claimants Do?

Filing a personal injury lawsuit is already complicated for everyone involved. These cases tend to leave physical, emotional, and mental harm to people. Unfortunately, it's not uncommon for one of the parties to file for bankruptcy during these claims.


A bankruptcy filing can seriously hurt a person's personal injury award. There are a few factors that people must keep in mind before filing "bankruptcy" in Indiana. The plaintiff may still be able to recover a portion of their settlement, depending on the case.


Understanding a Bankruptcy Petition

Understanding a Bankruptcy Petition


Bankruptcy is a legal status where the person seeks protection during court proceedings. Bankruptcy courts are responsible for controlling the person's assets to get relief from their debt.

There are three main types of bankruptcy that can come up:


Chapter 7 Bankruptcy


All of the person's assets are subject to liquidation or sale. In other words, the bankruptcy estate will include everything the person owns and everything they owe. Bankruptcy estate refers to all legal interests of the debtor in property.


Chapter 13 Bankruptcy


Here, the person pays their debt based on their income. It's also known as an "Individual Reorganization." All disposable income that comes from the personal injury settlement must go to the bankruptcy case.


Chapter 11 Bankruptcy


It's known as "Corporate Reorganization." The person will repay their debt based on their business income.


What Happens If a Plaintiff Files for Bankruptcy in Their Personal Injury Lawsuit?


Whether the plaintiff will keep their settlement money or not will depend on when the personal injury case got filed. The type of bankruptcy case will also play a part.


It's important to note that each state has a different bankruptcy code. Victims must talk to a professional injury law firm in Indianapolis to understand all the potential outcomes of their personal injury case.


Filing for Bankruptcy After the Personal Injury Claim


Victims must list their personal injury claim in their bankruptcy paperwork if they got injured during the proceedings. When someone files for bankruptcy, they must list all their assets, which include lawsuits or any pending personal injury claim. can the bankruptcy trustee take money i win in a personal injury lawsuit


If the victim has the legal right to recover any kind of money from their personal injury case, that's considered an asset they have to include. Schuerger Shunnarah Trial Attorneys can answer common questions like can the bankruptcy trustee take money I win in a personal injury lawsuit?


Here's when things get a bit complex. If the plaintiff settles the case, they must list all their awards in their bank account for the bankruptcy case. On the other hand, if they're waiting for the settlement money to get deposited, they must list their right to collect these assets.


However, if the case went to trial and the plaintiff got awarded damages, they have two options:

  • List the uncollected judgment money (if they haven't collected it).

  • List the judgment proceeds in the bank account (if they have collected it).


Will the Plaintiff Lose Their Right to Collect Their Personal Injury Money?


It's possible. Still, some states have bankruptcy exemptions that may allow the person to keep all or part of their personal injury awards.


Most of the time, the state will let the person keep a portion of the money they got from their personal injury claims. It most probably will be the money the person needs to survive. The best way to know what options are available is to talk to a personal injury attorney.


Filing for Bankruptcy Before the Personal Injury Claim


The process is slightly different if the person got involved in a personal injury case after filing for bankruptcy.


If the person filed for Chapter 13 bankruptcy, they must disclose their personal injury claims to the bankruptcy court. The person's trustee will use any non-protected proceeds from the case to pay the creditors.


On the contrary, if the person filed for Chapter 7 bankruptcy, they don't have to include their personal injury case in their bankruptcy paperwork. It's important to note that if the person got hurt before filing for bankruptcy, they must disclose the claim.


What Happens If the Plaintiff Fails to Disclose the PI Case in Their Bankruptcy Case?


Failing to disclose a personal injury claim while going through bankruptcy proceedings will cause problems for the debtor, their bankruptcy attorney, and even the personal injury lawyer. In most cases, the plaintiff could lose their right to recover any damages that they were entitled to.


Can a Bankruptcy Court Sell the Plaintiff's Assets?


It depends. There are assets not protected by bankruptcy exemptions, so they may be used by the bankruptcy trustee to pay creditors. The process will depend on the type of bankruptcy the plaintiff filed:

  • Those who filed for Chapter 7 bankruptcy will get most of their non-protected property sold to pay creditors.

  • If the person filed for Chapter 13 bankruptcy, on the other hand, they may have to pay for the non-protected property they keep under a payment plan.


It's vital to remember that there may be a few exemptions under federal and state laws. These exemptions may allow the plaintiff to keep a portion of their settlement.


However, these exemptions vary depending on the case and the state. Plaintiffs must first talk to a personal injury attorney to understand all their options.


What If the Defendant Is the One Who Files for Bankruptcy?


Personal injury cases can get slightly complicated if the defendant is the one filing for bankruptcy. Bankruptcy law presents different outcomes depending on when the injury happened and whether the defendant has insurance.


When the Plaintiff Gets Injured After the Defendant Filed for Bankruptcy


Plaintiffs may be dealing with a post-petition debt in this case. These post-petition debt cases aren't subject to the authority of a bankruptcy attorney or court. This means that the personal injury claims and damages won't be part of the bankruptcy case.


In other words, the plaintiff would have to move on with their personal injury suit as if there weren't any bankruptcy matters involved, and the defendant would have to deal with extra debt if they lose the case.


When the Plaintiff Gets Injured Before the Defendant Filed for Bankruptcy


Here's where the defendant's insurance gets involved. If the defendant files for bankruptcy after the victim got injured, the latter could still recover damages through the defendant's insurance.


In this case, the plaintiff must seek help from a bankruptcy attorney to ask for the court's permission to recover damages. The professional will likely file a proof of claim that establishes the person's intentions to make a claim against the at-fault party.


If this petition gets approved, the court will lift the "automatic stay" from the defendant, which is an order that puts on hold any lawsuits and collection activities against them temporarily. Once that's done, the plaintiff can seek reimbursement for their damages.


What If the Insurance Isn't Enough?


If the defendant's insurance isn't enough to cover all the damages, the plaintiff may only be able to pursue the amount the insurance policy has available and nothing else.


Exemptions to Keep in Mind


There are a few particular cases that may allow some debts to be exempted from the "discharge." A discharge happens when the court cancels a portion of the person's debt. If this happens, the defendant will still be liable for paying damages.


If the defendant in a personal injury case was malicious or willful with their act, the plaintiff can request for that debt not to be discharged. The bankruptcy court will then decide if they will exempt those damages from the discharge.


On the other hand, if the defendant was driving under the influence and caused any death or injury, they can't request a discharge from these damages. This means that they will still be liable for paying for these damages.


There's a third case to evaluate: What if the plaintiff already won the personal injury case and the defendant files for bankruptcy? Typically, the plaintiff can ask the court to lift the "automatic stay" if it ordered an equitable lien or a constructive trust. The court will evaluate the request and decide whether to comply or not.


How Can a Lawyer Help?

How Can a Lawyer Help?


Personal injury settlements are essential to cover many of the damages that come from accidents or willful acts, including medical bills and lost wages.


Unfortunately, if there's a bankruptcy case involved there, the plaintiff could lose the ability to earn anything from their case.


The best option in these cases is to hire a professional lawyer that understands bankruptcy laws thoroughly. Moreover, the legal expert must also understand the specific rules and exemptions in Indiana, as that will give them a chance to recover a portion of the money the victim deserves.


If a victim ever gets involved in a personal injury case mixed with bankruptcy proceedings, they must have a lawyer by their side. They will help the victim gather all the necessary evidence and prepare enough arguments to increase their winning chances.


Bankruptcy cases get affected by many different factors, so navigating them alone can be devastating. There's nothing worse than losing the chance of earning the money needed to cover medical treatments and lost wages, so this is why getting legal assistance is so important.


Bottom Line


The team at Schuerger Shunnarah Trial Attorneys specializes in different personal injury claims, including those with bankruptcy filings. Anyone interested in creating an appropriate legal strategy to earn the money they deserve can schedule a free case evaluation today.

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