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Will Filing for Bankruptcy Impact My Personal Injury Case?

Many times accidents can take a financial toll on injured victims who are unable to work and have mounting medical bills. In these situations, often bankruptcy appears to be a fresh start which will help put the accident behind them so they can get back to their normal routine. However, filing for bankruptcy when you have a pending personal injury claim can often have negative implications for your potential for recovery on your claim.

It is widely reported that the #1 reason for filing of personal bankruptcy is due to outstanding medical bills. If your medical bills are accident-related and you have collections agents seeking judgments on the debts, your personal injury attorney may be able to work with the medical providers in delaying collection of the payments until the conclusion of your lawsuit. At that point, you may be able to pay off the medical bills with the settlement proceeds instead of relying upon your own assets. This often is a more cost-effective way of addressing the outstanding bills, instead of having to go through the bankruptcy process, which is often prolonged and sometimes embarrassing.

Another consideration is that when filing for bankruptcy, you are required to hand over the decision-making regarding your personal injury claim to the bankruptcy Trustee. This individual is typically an attorney appointed by the Court that may have little or no experience with valuing personal injury claims. They would then become the person responsible for determining if any offers made on your claim were “fair.” If the trustee puts too low a value on your claim, it may resolve for less than it is worth. If the trustee puts too high a value on your claim, you may be forced to go through protracted litigation on a claim which could be resolved much sooner.

When filing your bankruptcy petition, you are required to disclose all assets to the Court. While you may not yet have realized a penny from your personal injury lawsuit, it is still generally considered an asset which must be declared to the Court and your creditors. While there may be no set “value” to the claim, your bankruptcy counsel can work with your personal injury attorney to put the Court and creditors on proper notice of the potential recovery.

By properly reporting your pending personal injury case, you may be in a much better situation to actually keep some of the recovery. Failure to disclose the pending claim as an asset may actually invalidate the bankruptcy and allow creditors a second chance at your assets. This often requires hiring a second bankruptcy attorney, as your original bankruptcy counsel may not be interested in representing you on the claim. If you properly disclose the claim, the Court will likely allow you to keep up to a certain amount of the recovery pursuant to statute, regardless of how much you owe to your creditors.

If you have a pending personal injury claim and you or your spouse are considering bankruptcy, it’s important to advise your various attorneys of your financial situation. Keeping both your personal injury attorney and bankruptcy counsel on the same page will ensure that you have the maximum recovery from any pending lawsuit. If your attorneys are not aware of what one another are doing for your benefit, it may actually be detrimental to you once your case or petition is concluded.


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