Fox & Farley, Attorneys at Law

How Can Bankruptcy Affect My Personal Injury Lawsuit?

If you have been seriously injured in a car accident, you understandably want to hold the negligent parties responsible. But a personal injury lawsuit can be complicated by the defendant’s financial situation. A defendant with little or no assets may attempt to use bankruptcy to avoid paying any judgment.

Bankruptcy Discharges Most Judgments

Unlike personal injury lawsuits, which are usually governed by state law, bankruptcy is purely a creation of federal law. When a debtor files for bankruptcy protection, a trustee takes possession of the debtor’s assets, pays off certain creditors based on an order of priority established by law, and returns whatever assets remain (or are automatically exempt) to the debtor. In a Chapter 7 bankruptcy case, most of the remaining debts are then discharged outright, meaning the debtor is no longer under any legal obligation to pay them.

A personal injury judgment is generally classified as an unsecured debt. This means it is among the lowest priority of debts to be paid by the bankruptcy trustee. So let’s say you are in a car accident and win a $100,000 judgment against the defendant. If the defendant then files for Chapter 7 bankruptcy protection, the bankruptcy court will likely discharge that unsecured debt, meaning you will not be able to collect anything.

Drunk Driving, Willful Injury Exceptions

However, there are two important exceptions to this general rule. First, if the defendant’s actions were “willful and malicious,” and not simply negligent, the judgment cannot be discharged through bankruptcy. In other words, if the defendant intentionally hits you with his car, he could not then file for bankruptcy to avoid paying a judgment that you obtain against him.

Second, a drunk driver who injures or kills someone cannot discharge a personal injury or wrongful death judgment against them in bankruptcy. Federal law expressly states that bankruptcy cannot discharge any debt “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.” So even if the drunk driver obtains a discharge of her other debts in bankruptcy, the personal injury judgment remains in effect.

What If the Plaintiff Declares Bankruptcy?

On the flip side, there may be cases where a victim in a personal injury case may be facing bankruptcy. Keep in mind, when a person files for bankruptcy, he or she must disclose all assets to the bankruptcy court. This includes any pending personal injury lawsuit. In effect, a bankruptcy petition transfers your right to sue the defendant to the trustee appointed by the bankruptcy court. Under no circumstances should you try to hide a personal injury claim from the bankruptcy court: It may result in the dismissal of both your bankruptcy petition and the personal injury lawsuit.

If you have questions or concerns about how bankruptcy may affect your ability to bring or collect on a personal injury claim, a Knoxville car accident attorney can offer assistance. Contact the offices of Fox & Farley, Attorneys at Law, if you need help with any legal matter related to a motor vehicle accident or other personal injury.

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