Bankruptcy and Your Personal Injury Case

When a serious personal injury or death strikes a family, financial peril often follows. The death or disability of a primary wage earner can mean the rent or mortgage goes unpaid, credit card debt balloons far beyond the ability to make even minimum payments and uninsured medical and other expenses mount. Lawyers at have had many clients in this situation consider bankruptcy as a means to obtain relief from their debts.

Whether a Chapter 7 (liquidation) or Chapter 13 (wage-earner) bankruptcy, the filing of a bankruptcy petition by a victim with a personal injury claim affects both the bankruptcy and the personal injury claim. The basic outlines are these:

  1. The personal injury claim must be disclosed in the bankruptcy proceeding. A personal injury claim is considered an asset just like property, a car or a bank account. Failure to list the claim in bankruptcy filings can lead to voiding of the bankruptcy discharge, a lawsuit by the bankruptcy trustee or even criminal prosecution. If a personal injury claim is not listed on the initial bankruptcy filing, the bankruptcy filing can be amended to add it and this should be done immediately. 
  2. In general, the proceeds of a personal injury claim must be used to pay off debts before money from the claim goes to the injured victim filing for bankruptcy. If there’s money left over, it goes to the victim.

  3. The trustee in bankruptcy in Chapter 7 liquidation has control of the personal injury claim not the victim. This means that decisions, such as settlement of the claim, have to be signed off by the trustee. In Chapter 13 bankruptcy, the injured victim remains in control of the case but must have his personal injury lawyer and legal fee arrangement approved by the bankruptcy court.

For these reasons, our usual advice for personal injury victims is to do everything possible to avoid filing for bankruptcy. However, where this is not possible, close coordination between the personal injury lawyer and the bankruptcy lawyer is essential.

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