What If I Have a Personal Injury Claim While Filing for Bankruptcy?

Jeff Roberts & Associates, PLLC

Personal injury claims are never convenient. Not only does the injured person incur significant medical expenses, making a full recovery is difficult if they are out of work and unable to earn a living. But if the injured person is going through bankruptcy, it can only make matters worse. So what are your rights under these circumstances?

Bankruptcy is considered a last resort for someone who cannot get out of insurmountable debt. It is often filed because of credit card debt and medical bills that cannot be paid, or just plain misfortune, such as job loss.

There are two chapters of bankruptcy that a regular citizen usually files: Chapter 7 and Chapter 13. When it comes to Chapter 7, the bankruptcy judge ultimately finds that the person’s debt cannot ever be paid and the creditors get very little or nothing from the bankrupt estate, resulting in all of the debts being discharged (i.e. the debtor doesn’t have to pay anything back).

However, potential debtors must pass a means test to determine if they are eligible for Chapter 7. If they do not qualify, they can file for Chapter 13 bankruptcy.

In Chapter 13, the court examines the gross debt and then places the debtor onto a plan whereby the accumulated debts are paid down at a fixed amount per month over a set period of time. A trustee is appointed to ensure the debtor adheres to the payback plan until the total debt reaches $0.00. When a debtor files for bankruptcy protection an immediate “stay” is put in place that prohibits the debtor from being sued by anyone. Similarly the debtor does not have standing to file suit.

When a personal injury occurs when bankruptcy is pending, the situation becomes more complex. A bankrupt person’s financial status is considered non-existent. In fact, the debtor’s financial holdings are known as the “bankrupt estate.” So, in the event of a personal injury the debtor has no legal standing to file suit on his own behalf. The debtor must seek and then receive permission from the bankruptcy court to lift the stay that would permit him to file suit for his personal injury claim.

If the debtor is successful with either settling his claim with the at-fault person or receiving a judgment, the debtor may not be entitled to the amount awarded for the personal injury claim. Often, the majority of the money proceeds from the personal injury claim must be paid to the trustee or to the bankruptcy court.

If you have any questions about how a bankruptcy may affect a personal injury claim, contact our Nashville personal injury attorney at Jeff Roberts & Associates, PLLC. At our office EVERY CLIENT MATTERS.

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