Personal Injury and Bankruptcy

Bankruptcy law may be more relevant to your personal injury case than you realize. As with any specialized area of law, you should consult with a bankruptcy attorney if you have any questions or concerns about how a bankruptcy filing affects your personal injury case. This article briefly examines the interaction of bankruptcy law and personal injury judgments from the perspective of the judgment debtor and the personal injury plaintiff debtor.

If you have been awarded a personal injury judgment, the defendant may decide to file bankruptcy in an attempt to discharge liability for the judgment. In other words, an individual or corporate defendant might opt to file bankruptcy instead of satisfying your judgment if the balance tips in favor of bankruptcy. This may occur if the defendant was uninsured or underinsured for the judgment (like an uninsured driver in a car accident case), and the defendant has so few assets that they can be completely protected in a bankruptcy. While there are other potentially negative implications to filing a bankruptcy, avoiding your personal injury judgment may be incentive enough for a bankruptcy filing.

There are some exceptions to discharge of personal injury judgments, however. For example, a personal injury defendant cannot discharge a debt which arose from injuries he or she caused when operating a motor vehicle while intoxicated. 11 U.S.C. 523(a)(9) If you receive notice that a defendant in your personal injury case has filed bankruptcy, you should check with a bankruptcy lawyer in your jurisdiction to see if there are any other exceptions to discharge which may apply.

A personal injury plaintiff may also decide to file bankruptcy due to the economic stressors which normally arise during lengthy personal injury litigation, such as big medical bills and prolonged periods of unemployment. Personal injury lawsuits can take years to resolve, and it is possible that your creditors may make bankruptcy unavoidable in the meantime. You must exercise great care in this area, and be sure to ask your bankruptcy attorney whether filing bankruptcy could adversely affect your personal injury award.

In a Chapter 7 bankruptcy, the Trustee reviews your property to determine whether there are any non-exempt assets which could be seized and liquidated for the benefit of your creditors. Some jurisdictions protect personal injury settlements from seizure in a Chapter 7 bankruptcy, but others do not. Similarly, in some jurisdictions, personal injury awards are a form of disposable income you must submit to the Trustee in a Chapter 13 bankruptcy. If there is even a chance you could receive a personal injury award, it is imperative that you notify your bankruptcy lawyer of this possibility so he or she can assess whether bankruptcy is truly appropriate for you. Otherwise, you risk seizure of the judgment which will relieve the pressure of your medical and other bills.

Bankruptcy law is more complicated than most personal injury suits, so it would generally be inadvisable to use the same attorney for both purposes. Your bankruptcy and personal injury lawyers should be able to work together to maximize your financial gain.