Life events rarely happen in a vacuum. If the defendant in your personal injury lawsuit is having money troubles, he or she may file bankruptcy as a way of dealing with the problem. Unfortunately, this can have a chilling effect on your personal injury case. Here's information about what happens when the bankruptcy court gets involved, and what you can do to protect your interests.
The Automatic Stay Halts All Civil Lawsuits
With very few exceptions, a bankruptcy filing automatically stops all collection activity by creditors and suspends all pending and ongoing civil lawsuits against the petitioner. This means that until the bankruptcy case is resolved, you cannot:
- File a lawsuit against the defendant to collect damages
- Continue litigating a lawsuit already in the courts
- Make any moves to collect a judgment awarded to you by the court
Any attempts to pursue any of these courses of actions after receiving notice the person filed for bankruptcy protection could result in sanctions being levied against you by the bankruptcy court such as fines, penalties, and jail time. Additionally, violating the automatic stay could provide the defendant with enough legal leverage to file a lawsuit against you for damages.
If the defendant does not list you as a creditor on his or her bankruptcy schedules and you have not filed a lawsuit with the court, you will not receive a notice from the bankruptcy court about the automatic stay. This means, you could file the suit as planned. It may be a waste of effort, though, since the defendant can and probably will amend the bankruptcy schedules to include it.
Your Case Hangs Out in Limbo
If you haven't filed your personal injury case or your lawsuit started making its way through the civil court process, it will be placed in limbo until the bankruptcy case concludes. This may not be so bad if the person filed for chapter 7 bankruptcy. The petitioner typically receives a discharge within 3 to 6 months after filing the petition, after which you can continuing suing for damages.
However, chapter 13 bankruptcy can take 3 to 5 years to conclude, which can be devastating if you incurred medical debts and other losses that the money from the lawsuit is supposed to clear out. Additionally, some plaintiffs may find themselves in a difficult situation if they didn't file the lawsuit before the person filed for bankruptcy and want to wait until the case ends.
As noted previously, filing the suit will only motivate the person to include it on the bankruptcy papers, thus stopping the action before it had a chance to go anywhere. At the same time, attempting to run out the clock may result in them hitting the statute of limitations for filing a personal injury lawsuit and eliminating their chance to collect.
If you were awarded a judgment by the civil court, the debt will likely be discharged by the bankruptcy court. The only car accident judgments that are safe from a bankruptcy discharge are those caused by the defendant driving a vehicle while intoxicated. All others are typically wiped out.
Some Recourse for Relief
All is not lost when it comes to pursing a personal injury lawsuit in the face of a bankruptcy filing. One option is to take a gamble and wait out the bankruptcy. As previously discussed, there are certain risks associated with this particular tactic.
Another option is to petition the court to lift the automatic stay so you can proceed with your lawsuit. Though challenging to do, the bankruptcy court has been known to grant these requests in certain situations:
- You're able to prove the person filed bankruptcy specifically to escape liability for the lawsuit. This is a type of fraud that the bankruptcy court frowns upon and the judge will grant the motion if you can furnish proof the person is acting in bad faith.
- You can show the person's insurance company will carry the burden of paying the personal injury judgment. If the money you're asking for falls within the person's policy limits and won't have any negative impact on the petitioner's bankruptcy estate, the court may lift the stay so you can pursue payment from the insurance provider.
- You can prove that having to wait an inordinately long time to pursue your personal injury claim (as is the case with chapter 13 bankruptcy) will cause you to lose the opportunity to make a claim for damages. For instance, the statue of limitations will run out before the bankruptcy case ends.
If the motion is granted, you will be able to continue the case against the defendant and secure a judgment.
There may be other ways to get around a defendant's bankruptcy petition to resolve your personal injury claim. Click for more information or consult with a personal injury lawyer for assistance.
