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Bankruptcy and Personal Injury Claims – What Happens when they Co-Exist

Summary: Two areas of the law that can cross paths are bankruptcy and personal injury. In bankruptcy ALL assets, even potential future assets must be disclosed.  This article applies to personal injuries that occurred prior to the client filing a chapter 7 bankruptcy. If you had an injury after your chapter 13 plan was approved and while you are still under the chapter 13, you should discuss the details with your bankruptcy attorney.

Does a debtor have to include a personal injury claim as an asset? Yes. We often have clients that have been in an accident or suffered an injury prior to filing bankruptcy, but their claim has not been sorted out.  In order to secure our clients interest in that claim, we list the claim as an asset in their bankruptcy petition and state that the value is “unknown”.  We then properly apply the correct exemption on Schedule C of the petition to protect as much of that claim as possible. That way, if the client ends up settling the claim later they can keep some or potentially all of the recovery.

How Much can I keep?  In Oregon the exemption for personal injury claims is $10,000.  If a debtor/injured party files bankruptcy with a pending personal injury claim the debtor can keep $10,000. That amount is the net amount to the client, after attorney fees, costs, and reimbursement of medical expenses.

Who represents the Client? The trustee will either find an attorney to take on the claim or will allow an attorney who has already been working on the injury claim to continue. In our experience if you’ve retained a competent personal injury attorney, the trustee will more often than not allow that attorney to continue representing you.

Should the Bankruptcy Attorney handle the Personal Injury Claim? While there is no rule against that, normally the client will have separate attorneys for the bankruptcy and the personal injury. Having two attorneys shouldn’t cost you anything extra. Just make sure the two attorneys are fully informed of what each other is doing.  We’ve worked together on behalf of many clients who have personal injury claims and are considering bankruptcy.

What if the settlement of the injury claim takes a long time? A chapter 7 can remain open for an indefinite amount of time to allow an injury claim to come to fruition, but this luckily will not hold up the debtor’s ability to get a discharge. A discharge will be entered about 90 days from the time the case is filed even if the case is open for other issues such as a personal injury claim. IN a chapter 7, the trustee must approve any eventual settlement.

What if I’m in a chapter 13? If a debtor is in a chapter 13 in Oregon the Trustee will allow the debtor to pursue the injury claim on their own. They will require the debtor to report any eventual settlement to the Trustee.  If the Debtor receives more than the allowed exemption the Trustee may require that the excess be paid into the Debtor’s plan to be distributed to all creditors.

Under either Chapter 7 or Chapter 13 it is critical to disclose any potential injury claim no matter how minor. Failure to disclose all assets, including pending claims may put your discharge at risk and also could be a potential defense against the accident claim – meaning that you may not be able to pursue the claim if it was pending at the time you filed a bankruptcy and not disclosed.

If you are contemplating bankruptcy remember to tell your bankruptcy attorney about any possible personal injury claims that you may have. And if you’re perusing an injury claim and have to file bankruptcy, make sure your injury attorney is aware of that. The attorneys should be working together the recover the maximum compensation for you, and preserving your right to claim your losses from your injury.

Article Contributed by Robert Harris and Ryan Hackett

Bankruptcy and Personal Injury Claims – What Happens when they Co ExistRobert Harris is a Partner of Hackett & Harris, LLC and has represented businesses and individuals in real estate, business, personal injury and estate planning. In addition to assisting consumers Rob also helps businesses cope with bankruptcy and debt management issues, including reorganizations, debt relief and restructuring. He is a member of both the Oregon and Washington State Bar Association and is admitted to practice in their respective Federal Courts as well.

Bankruptcy and Personal Injury Claims – What Happens when they Co ExistRyan Hackett is a Partner of Hackett & Harris, LLC and is a member of the Oregon and Washington State Bar Association. He is also a member of the National Association of Consumer Bankruptcy Attorneys. Ryan devotes 100% of his practice to consumer bankruptcy and you can find him at PacificBankruptcy.com.

 

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