How a Bankruptcy Filing Affects a Personal Injury Claim

Filing for bankruptcy can have a major impact on a personal injury claim, whether you are the plaintiff or the defendant. Bankruptcy laws can determine who controls a claim, whether a settlement is exempt from creditors, and how compensation is distributed. If either party in a personal injury case files for bankruptcy, the legal process can become more complex, potentially delaying or even limiting financial recovery.

Understanding how bankruptcy interacts with personal injury claims is essential for protecting your rights and securing the compensation you deserve. If you need assistance with your claim, especially due to complications related to bankruptcy, we at Knowles Law Firm can help you get the fair compensation you deserve.

Understanding Bankruptcy and Personal Injury Claims

Navigating the intersection of bankruptcy and personal injury claims can be complex, but understanding the basics can help clarify the process. When a person files for bankruptcy, it can significantly impact their personal injury claim, and vice versa. Bankruptcy is a legal process designed to help individuals or businesses eliminate or repay their debts under the protection of the bankruptcy court. There are different types of bankruptcy, including Chapter 7, Chapter 13, and Chapter 11, each with its own procedures and implications.

Chapter 7 bankruptcy involves liquidating non-exempt assets to pay off creditors, while Chapter 13 allows individuals to keep their property and repay debts over time. Chapter 11 is typically used by businesses to reorganize and pay off debts. When it comes to personal injury claims, the type of bankruptcy filed can determine how the claim is handled. For instance, in a Chapter 7 bankruptcy, a personal injury claim may become part of the bankruptcy estate, meaning the trustee could control the claim instead of the victim who’s been hurt. Understanding these nuances is crucial for anyone involved in a personal injury lawsuit while dealing with bankruptcy.

Every personal injury claim is unique. Some encounter complications, such as one party filing for bankruptcy. It is important to list a pending personal injury claim within bankruptcy filings, specifically mentioning its inclusion on Schedule B as an asset and its treatment on Schedule C regarding exemptions. A bankruptcy filing can affect a personal injury claim in many ways – including the possibility of taking away an injured person’s ability to seek financial compensation from a defendant. If you believe your personal injury claim will involve a bankruptcy filing, learn more about what this may entail with help from an attorney.

If the Defendant Files for Bankruptcy

The defendant is the party allegedly at fault for causing the victim’s injury and losses. A defendant will be financially responsible for an accident if he or she caused the accident by failing to uphold the accepted standards of care. But what happens when the defendant does not have enough money or assets to pay for a victim’s losses? The answer depends, but it may involve a bankruptcy proceeding.

Some defendants file for bankruptcy if they cannot afford to pay a settlement or jury verdict awarded to a plaintiff. Upon filing, the defendant will be granted an automatic stay. An automatic stay is an injunction that effectively prevents debt collectors from seizing the defendant’s property or taking legal action to do so, such as filing liens against the defendant. The point of an automatic stay is to protect the debtor’s assets against all creditor actions.

In this scenario, a creditor cannot proceed with any litigation, trial or enforcement of judgments won against the defendant. However, an automatic stay is not without its limits. As a plaintiff in a personal injury case, you may be able to continue with your claim despite an automatic stay if your situation meets the requirements of the Bankruptcy Code. You will need to seek relief from an automatic stay from the Bankruptcy Court by filing a motion.

In your motion, you will explain the legal basis on which you are seeking relief from an automatic stay, along with related documentation to support your claim. You will also need to pay a filing fee. If the Bankruptcy Court rules in your favor, the defendant may have to pay for your losses. If the court discharges all debts the defendant owes, you may no longer be able to pursue compensation. You may have to end your claim there, or else have your attorney search for other defendants to hold responsible for your losses.

If the Plaintiff Files for Bankruptcy

Another possibility is the plaintiff in a personal injury claim filing for bankruptcy. If you file for bankruptcy during a personal injury lawsuit in Nebraska, this can impact your ability to recover compensation from a defendant. Once you file for bankruptcy, the defendant can file a motion for summary judgment. This means the defendant will no longer be the real party in interest in the lawsuit. Instead, your case will be handed over to the Bankruptcy Court and your trustee – a person appointed by the federal court to take possession of your bankruptcy estate. Medical bills are integral to the process of settling a personal injury case in relation to bankruptcy, and these bills must be addressed from any settlement funds.

If you file for bankruptcy in the middle of a personal injury claim, your trustee will take control of how to proceed with the lawsuit. You will lose your autonomy in deciding whether to settle with an insurance company or take your case to trial. These will be decisions made by your trustee instead, with the approval of the bankruptcy court. Personal injury claim proceeds, if nonexempt, must be utilized to pay creditors within the bankruptcy process. This is why it is extremely important to consult with an attorney before you file for bankruptcy prior to the resolution of your personal injury claim.

The Automatic Stay and Personal Injury Claims

One of the most critical provisions in bankruptcy law is the automatic stay. When a person files for bankruptcy, the automatic stay immediately goes into effect, halting most collection activities by creditors. This includes actions related to personal injury claims. The automatic stay is designed to give the debtor a breathing space by preventing creditors from pursuing lawsuits, garnishing wages, or seizing assets.

For personal injury claims, this means that if the defendant files for bankruptcy, the plaintiff’s ability to pursue the claim is temporarily halted. However, there are exceptions and ways to seek relief from the automatic stay. For instance, a plaintiff can file a motion in bankruptcy court to lift the stay, allowing the personal injury claim to proceed. Understanding the automatic stay and its implications is essential for both plaintiffs and defendants in personal injury cases, as it can significantly impact the timeline and outcome of the claim.

Exempting Personal Injury Settlements

In the context of bankruptcy, certain assets may be exempt from being used to pay off creditors, and this can include personal injury settlements. An exemption means that the debtor can keep the asset, even after filing for bankruptcy. The specifics of what can be exempted vary by state and the type of bankruptcy filed. For personal injury settlements, there are often specific provisions that allow a portion or the entirety of the settlement to be exempt from the bankruptcy estate.

For example, in some cases, compensation for pain and suffering or future medical expenses may be exempt. However, this is not always straightforward and can depend on the details of the bankruptcy case and state laws. Consulting with a bankruptcy attorney is crucial to understand what parts of a personal injury settlement can be protected. This knowledge can help individuals make informed decisions about filing for bankruptcy while pursuing a personal injury claim.

You Should Get Help From a Legal Professional During Your Personal Injury Claim

How bankruptcy will affect your personal injury claim depends on many factors, including the type of bankruptcy filed and who files. A personal injury attorney can guide clients through the complexities of bankruptcy cases involving personal injury claims. The most common types are Chapter 7, Chapter 13 and Chapter 11 Bankruptcy.

Filing for bankruptcy while involved in a pending personal injury case can have significant implications, making it crucial to consult with a bankruptcy attorney. A personal injury lawyer in Omaha can help you navigate a complicated claim where you or the defendant files for bankruptcy. State laws may allow individuals to exempt some or all portions of their personal injury awards from bankruptcy claims. Before you go any further with your case or a bankruptcy filing, contact an attorney for legal guidance.

Get Help With Your Personal Injury Claim in Omaha: Contact Knowles Law Firm Today

Filing for bankruptcy while pursuing a personal injury claim can complicate your case, but you don’t have to navigate it alone. At Knowles Law Firm, we understand the intersection of personal injury and bankruptcy law and can help protect your right to fair compensation. Whether you are the plaintiff or the defendant in a case impacted by bankruptcy, our team will work to maximize your recovery and ensure you understand your legal options.

We have secured multi-million dollar settlements for injury victims in Nebraska, and we are prepared to fight for the best possible outcome in your case. Before making any decisions that could affect your financial future, speak with an experienced attorney. Call us at (402) 431-9000 or fill out our contact form.