Personal Injury and Bankruptcy
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How Does Bankruptcy Affect Personal Injury Claims?
Bankruptcy can halt a personal injury claim. When an individual or a corporation files for bankruptcy, all claims against the debtor are frozen in place until the bankruptcy is over. This is known as an automatic stay in bankruptcy. In addition, bankruptcy may relieve the debtor of all legal responsibility for payment. Bankruptcy doesn’t mean the debtor isn’t legally liable for causing injury to others. Bankruptcy means that the debtor might not be legally obligated to pay for the injuries.
What If the Other Side Filed for Bankruptcy?
It depends on whether the court can be convinced to lift the automatic stay. If you already won your case and you have a constructive trust or equitable lien, you can simply ask the court for permission to collect your property.
If your case was still being contested prior to the bankruptcy filing, you might be stuck in limbo until the bankruptcy is over.
What Happens to My Injury Claim at the End of the Bankruptcy?
This depends on what type of bankruptcy the debtor filed. If the debtor is an individual and the debtor filed for Chapter 7 or 13, your claim could be discharged. This means that the debtor doesn’t have to pay for the injury, even if the debtor was liable for the injury. This is a greater risk in Chapter 7 because Chapter 7 moves much faster than other types of bankruptcy. If the debtor filed for Chapter 13, there is greater security, but you might not see the money for a few years.
If the debtor is a corporation which filed for Chapter 11, the answer depends on the restructure of the corporation. In some cases, personal injury victims are compensated because the corporation is not allowed to discharge debts through Chapter 11. In other cases, corporations could restructure their company such that all their assets are beyond the reach of creditors. The most famous example of this is the General Motors bankruptcy.
Is My Injury Claim Non-Dischargeable?
Some types of debts are non-dischargeable. In other words, the bankruptcy will not relieve the debtor of the obligation to pay certain types of debts. Student loans are the most famous example.
Only one type of personal injury is non-dischargeable. If the debtor committed a willful and malicious injury, the debtor cannot discharge that injury.
Do I Need a Lawyer?
Recovering for an injury can be difficult by itself. If the defendant files for bankruptcy, an unfamiliar area of law could hinder, or stop, your case. An experienced attorney could make the difference.
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Last Modified: 05-15-2014 02:48 PM PDT
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