Personal Injury and Bankruptcy

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 What Is Personal Injury Law?

In a claim for personal injury, a plaintiff claims that they have sustained an injury due to an act or failure to act by the defendant. A court may award the plaintiff money damages for personal injury.

However, in some cases, the events forming the basis of a personal injury claim may also form the basis of criminal charges. An example of this would be how a defendant may face a civil lawsuit for assault, as well as a criminal assault and battery charge.

A personal injury damages a plaintiff’s emotional health, physical health, or both. Examples of mental health injuries include emotional pain and anguish sustained by an accident. Physical injuries include injuries to organs, limbs, or other parts of the anatomy. Additionally, the injury sustained by a personal injury plaintiff does not need to manifest itself instantly, as it may develop over time.

There are several types of events or accidents which may form the basis of a personal injury claim, including:

A personal injury may occur intentionally, such as when the defendant deliberately injures a victim, or intends to commit an act that they know will result in injury to another person. However, a personal injury may also occur unintentionally. If an unintentional injury is the result of someone’s negligence, the plaintiff may file a lawsuit based on the negligent behavior. Automobile accidents, slip and fall accidents, and injuries sustained from medical malpractice are some of the most common examples of personal injuries caused by negligent behavior.

What Is Consumer Bankruptcy?

Bankruptcy is the legal proceeding that is initiated when a person or business cannot meet their financial obligations. There are different types of bankruptcy, all of which are defined and governed under federal law. Consumer bankruptcy specifically is filed when an individual cannot pay back the debts that they have incurred for their personal needs.

Once the bankruptcy proceeding is completed, the person is no longer liable for the debts that they incurred. The bankruptcy court will enter a discharge order which releases the debtor from the debts; the debtor then has a clean financial slate, but the bankruptcy will remain on their credit report for up to ten years. Bankruptcy can have other lasting consequences, and as such it should only be used as a last resort during times of extreme financial hardship. There are many considerations to review prior to filing for bankruptcy.

Chapter 7 Bankruptcy, also known as “liquidation bankruptcy,” allows a person to discharge all of their debts that can be legally discharged. However, there are specific rules in terms of who qualifies, how to file for Chapter 7 bankruptcy, and what type of debts can be discharged.

In order to be eligible for a Chapter 7 bankruptcy filing, the debtor’s income must be equal to or below the median income in their state. However, each state has different income requirements. If the debtor’s income is above the requirement, the court will apply a “means test” based on the previous six months of income. If the debtor has the means to repay debts, they are not considered to be eligible to file for Chapter 7 bankruptcy.

Once a person files for Chapter 7 bankruptcy, the court will issue an automatic stay, which prevents creditors from attempting to collect debts. It also prevents any:

  • Pending lawsuits;
  • Wage garnishments;
  • Filing of liens; or
  • Seizure of property.

Chapter 13 Bankruptcy, known as wage earner’s bankruptcy, is a way for a borrower to restructure their debt and still be able to afford payments. This option is generally reserved for those who have higher incomes, and wish to keep their property. Some debts may be eligible for discharge, while others may require payment in full through a payment plan, which is generally set for between three and five years.

A person is eligible for a Chapter 13 bankruptcy filing if they meet the following requirements:

  • They are an individual or married couple, including if they own an unincorporated business or are self-employed;
  • Their total secured debts are equal to or less than $1,184,200.00;
  • Their total secured debts are equal to or below $ 394,725;
  • They have not had a bankruptcy petition dismissed within the last 180 days due to failure to appear or comply with the court; and
  • They receive credit counseling through an approved counselor within 180 days of filing their petition.

Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that the borrower keeps or attempts to keep most of their property, and is still required to make payments. It is important to consider the pros and cons of filing bankruptcy. Similar to Chapter 7, Chapter 13 bankruptcy can affect your credit for up to ten years after filing.

Additionally, during the Chapter 13 bankruptcy payment plan process, the borrower must adhere to a strict budget without lines of credit. As such, many borrowers drop out of the payment plan.

How Does Bankruptcy Affect Personal Injury Claims?

Bankruptcy can halt a personal injury claim in that when a person or a corporation files for bankruptcy, all claims against the debtor are frozen in place until the bankruptcy is over. To reiterate, this is known as an automatic stay in bankruptcy.

Also, bankruptcy may relieve the debtor of all legal responsibility for payment. Bankruptcy does not mean that the debtor is not legally liable for causing injury to others; rather, it means that the debtor might not be legally obligated to pay for the injuries that they caused.

What happens when the other side filed for bankruptcy depends on whether the court can be convinced to lift the automatic stay. If you have 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 could be stuck in limbo until the bankruptcy is over.

What happens to a personal injury claim at the end of the bankruptcy largely depends on what type of bankruptcy the debtor filed. If the debtor filed for Chapter 7 or 13, your claim could be discharged. What this means is that the debtor does not have to pay for the injury, even if they were liable for the injury.

This is a greater risk in Chapter 7 as Chapter 7 moves considerably faster than other types of bankruptcy. If the debtor filed for Chapter 13, there is greater security, although 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. However, in other cases, corporations could restructure their company as such that all of their assets are beyond the reach of creditors. The most famous example of this would be the General Motors bankruptcy.

Some types of debts are non-dischargeable; meaning, the bankruptcy will not relieve the debtor of the obligation to pay certain types of debts. The most common example of this would be student loans. There is only one type of personal injury that is considered to be non-dischargeable. If the debtor committed a willful and malicious injury, the debtor cannot discharge that injury.

Do I Need A Lawyer For Help With Personal Injury And Bankruptcy?

If a personal injury defendant files for bankruptcy, an unfamiliar area of law could hinder or stop your case. You should consult with a personal injury attorney who can help you understand your legal rights and options according to your state’s specific laws.

Additionally, an experienced personal injury will also be able to represent you in court, as needed, and may be able to help you collect what you are owed.

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