How bankruptcy could affect your personal injury case
If you’re dealing with a personal injury claim in Virginia and considering filing for bankruptcy—or if you’ve already filed—you might be wondering how these two legal situations intersect. At Allen & Allen, we understand that navigating both personal injury law and bankruptcy law can be overwhelming. This guide aims to clarify how bankruptcy could impact your personal injury claim, helping you make informed decisions during this challenging time.
However, it’s always best to talk to a personal injury attorney about a pending personal injury claim instead of trying to navigate the situation on your own.
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Since our founding in 1910, we’ve upheld a steadfast commitment to our clients, our team, and the communities we serve. Our century-long legacy is rooted in the fundamental values of honesty, dignity, empathy, and reliability—principles that have been our compass for over 100 years.
At Allen & Allen, we believe our role extends beyond mere legal advocacy. We pledge to champion your cause as if it were our own, striving to ensure equitable treatment from insurers and relentlessly pursuing justice on your behalf. This unwavering dedication embodies the essence of our motto, “I am an Allen.” Don’t delay in protecting your rights—contact an experienced personal injury lawyer at Allen & Allen today to have a trusted ally in your corner.
The basics: personal injury claims and bankruptcy
Before diving into the specifics, let’s clarify what personal injury claims and bankruptcy entail:
Personal injury
Personal injury claims are legal actions that seek compensation for injuries caused by another party’s negligence. These can include a wide range of incidents such as car accidents, slip and falls, and medical malpractice, among others. In Virginia, it’s important to note that there’s generally a two-year time limit from the date of injury to file a lawsuit. This deadline, known as the statute of limitations, is crucial for preserving your right to seek compensation.
Bankruptcy
On the other hand, bankruptcy is a legal process designed for individuals or businesses who are unable to repay their debts. It comes in different forms, with Chapter 7 (liquidation) and Chapter 13 (reorganization) being the most common types for individuals. We’ll talk more about that later in this post.
The primary purpose of bankruptcy is to provide a fresh financial start by either discharging debts entirely or restructuring them into a more manageable repayment plan. Understanding these two legal concepts and how they interact is essential when navigating personal injury claims in the context of financial difficulties.
The Crucial Link: Your Personal Injury Claim as an Asset
Here’s a key point many people overlook: Your personal injury claim is considered an asset in bankruptcy proceedings. This means:
- You must disclose your claim when filing for bankruptcy.
- The bankruptcy trustee gains control over your claim.
- Failing to disclose can have serious legal consequences.
The Kocher v. Campbell Case: A Cautionary Tale
A 2012 decision by the Virginia Supreme Court, Kocher v. Campbell, 282 Va 113 (2011), has significant implications for personal injury claims. The case highlights the potential pitfalls of mishandling a personal injury claim during bankruptcy and demonstrates how bankruptcy can significantly impact a personal injury claim.
In that case, the plaintiff was injured in a car accident. filed for bankruptcy about 18 months later, without mentioning their potential injury claim. After their bankruptcy was settled, they filed a lawsuit for their injury just before the two-year deadline, later dropping and refiling it.
The defendant argued that due to the bankruptcy, the injured person no longer had the right to file the lawsuit as the claim belonged to the bankruptcy trustee. Although the injured person tried to rectify this by asking the bankruptcy court to exempt the injury claim, this occurred about 5 years after the accident.
The Virginia Supreme Court ruled that from the time of the bankruptcy filing until the exemption, the injury claim belonged to the bankruptcy trustee. Consequently, because the injured person lacked the right to file the lawsuit during this period and the two-year deadline had passed, the court dismissed the case. This resulted in the injured person losing their opportunity to seek compensation for their injuries.
The key takeaway is the critical importance of immediately informing both your personal injury lawyer and bankruptcy attorney if you have a potential injury claim and are considering filing bankruptcy. With proper planning and communication, it’s often possible to avoid losing the right to pursue an injury claim, highlighting how bankruptcy can unexpectedly affect other legal matters and the necessity of disclosing all potential assets, including possible lawsuits, when filing for bankruptcy.
The concept of “standing”
The concept of “standing” was pivotal in the Kocher case, referring to the legal right to file a lawsuit. Without standing, a case can be dismissed regardless of its merits. In bankruptcy situations, the trustee gains standing for personal injury claims and filing a personal injury lawsuit without standing can be considered a “legal nullity.”
This interacts with Virginia’s statute of limitations for personal injury claims, which generally allows two years from the date of injury to file. This time limit ensures timely filing while evidence is fresh, but importantly, the clock continues to tick even if one lacks standing due to bankruptcy. Missing this deadline can permanently bar a claim.
However, exemptions in bankruptcy offer a potential solution to this complex situation, allowing attorneys to protect their client’s personal injury claim and maintain their right to pursue compensation.
Role of the bankruptcy trustee
The role of the bankruptcy trustee is crucial in managing your bankruptcy estate. Appointed by bankruptcy courts, the trustee gains control over non-exempt assets, including personal injury claims. They may investigate your claim’s value, negotiate with defendants, and decide whether to pursue or abandon the claim. Your responsibility is to cooperate and provide the necessary information about your claim.
Types of bankruptcy filings and how they impact a personal injury suit
The type of bankruptcy you file can significantly impact your personal injury claim. In Chapter 7 bankruptcy, which typically lasts 3-6 months, the trustee may liquidate non-exempt assets and potentially pursue or settle your claim.
Chapter 13 bankruptcy, on the other hand, involves debt reorganization over 3-5 years. While you may retain more control over your claim, its value could affect your repayment plan, and you might need court approval for certain actions.
Your personal injury claim could have several outcomes in bankruptcy:
- It may be exempted and retained by you.
- The trustee might pursue the claim.
- The trustee could abandon the claim if it has little value.
- The claim might be partially exempted.
Bankruptcy can also affect personal injury settlement negotiations. In Chapter 7, the trustee may negotiate directly with the defendant. Settlements may require court approval, and funds might be distributed to creditors before reaching you. The amount you can keep depends on applicable exemptions.
Medical liens and bankruptcy claims
Medical liens add another layer of complexity to personal injury claims in bankruptcy. These liens may survive even if the underlying debt for medical bills and other expenses is discharged, requiring your attorney to negotiate with both the bankruptcy trustee and lien holders.
Other special considerations
Special considerations apply to employment discrimination claims and cases on appeal. For discrimination claims, you must list them on Schedule C of your bankruptcy petition and provide a good faith estimate of their value. If your case is on appeal when you file for bankruptcy, the automatic stay may pause the appeal, and you may need court permission to proceed.
If you’ve already received a bankruptcy discharge but need to disclose a previously undisclosed personal injury claim, you may be able to petition to reopen your bankruptcy case. However, this process may involve time limits and additional costs.
Valuation of personal injury claims in bankruptcy
The valuation of personal injury claims in bankruptcy typically occurs at the time of filing, though significant changes in the claim’s status may necessitate reassessment. The process considers numerous factors, including the severity of injuries, medical expenses (both past and future), lost wages, pain and suffering, emotional distress, liability issues, applicable insurance coverage, and the potential for punitive damages.
Several methods are employed in valuation:
- Multiplier Method: Medical expenses are multiplied by a factor based on injury severity.
- Per Diem Method: A daily rate for pain and suffering is multiplied by the number of affected days.
- Comparative Analysis: Similar settled or adjudicated cases serve as benchmarks.
The valuation process involves multiple parties. The bankruptcy trustee often makes an initial assessment, while personal injury attorneys advise on the claim’s value. In complex cases, independent appraisers may be brought in. Ultimately, if there’s a dispute, the bankruptcy court decides.
Why accurate valuation is important
Accurate valuation determines the claim’s significance as an asset in the bankruptcy estate and affects potential creditor payouts. It’s necessary for exemption planning and can impact Chapter 13 repayment plans. Trustees rely on accurate valuations to decide whether to pursue, settle, or abandon claims.
Furthermore, bankruptcy law requires full disclosure of assets, making accurate valuation essential to avoid accusations of fraud. The claim’s value can also serve as a bargaining chip in creditor negotiations and may affect future financial planning for the debtor. Inaccurate valuations may lead to objections from creditors who believe a claim is undervalued.
Challenges in valuation
Valuing personal injury claims presents several challenges. The unpredictable nature of these cases can make precise valuation difficult. Ongoing medical treatment complicates the prediction of future expenses. Liability disputes can significantly impact value, while insurance coverage limits may cap potential recovery. Additionally, quantifying subjective factors like pain and suffering or emotional distress adds another layer of complexity.
The automatic stay: A pause button in bankruptcy
When you file for bankruptcy, one of the most immediate and powerful effects is the activation of the “automatic stay.” This legal mechanism acts like a pause button on most collection activities and legal proceedings against you. The automatic stay goes into effect as soon as you file your bankruptcy petition. It’s designed to provide immediate relief from creditor harassment and give you breathing room to reorganize your finances. The stay prohibits creditors from:
- Initiating or continuing lawsuits against you
- Enforcing judgments
- Repossessing property
- Foreclosing on your home
- Making collection calls or sending demand letters
How the automatic stay affects personal injury lawsuits
If you’re the plaintiff (the injured party) in a personal injury lawsuit, if your personal injury lawsuit is already in progress when you file for bankruptcy, the automatic stay doesn’t stop your case. You can continue pursuing your claim. However, the bankruptcy trustee now has control over your claim. They may decide to continue the lawsuit, settle it, or abandon it back to you.
Any ongoing settlement negotiations may be paused temporarily until the bankruptcy court and trustee can assess the claim’s value and how it fits into your bankruptcy estate.
Impact on settlement negotiations
The automatic stay can significantly impact settlement negotiations in personal injury cases. If you’re the injured party and file for bankruptcy, any settlement offers must now be approved by the bankruptcy trustee and potentially the court. This can slow down negotiations but also provide leverage in some cases.
Duration of the automatic stay
The automatic stay typically lasts until:
- The bankruptcy case is closed
- The bankruptcy is dismissed
- A discharge is granted or denied
In Chapter 7 cases, this is usually 3-6 months. In Chapter 13 cases, the stay can last for the entire 3-5 year repayment plan period.
The intersection of personal injury claims and the automatic stay in bankruptcy can be complex. Attorneys experienced in both personal injury and bankruptcy law can help you:
- Determine the best timing for filing bankruptcy if you have a pending personal injury claim.
- Seek relief from stay when necessary to pursue or defend a lawsuit.
- Negotiate with bankruptcy trustees and insurance companies.
- Ensure your rights are protected throughout the bankruptcy process.
Contact Allen & Allen before you file bankruptcy with a personal injury case
Navigating a personal injury claim during or after bankruptcy can be challenging, but with proper planning and expert guidance, you can protect your rights and potential compensation. At Allen & Allen, we understand the intricacies of both personal injury law and how it intersects with bankruptcy in Virginia.
If you’re facing this complex situation, don’t hesitate to reach out for a consultation. Our experienced attorneys can help you understand your options and develop a strategy to maximize your claim’s value while complying with bankruptcy laws.
Remember, every case is unique, and this guide provides general information, not legal advice. For personalized assistance with your specific situation, contact Allen & Allen today. Call our firm at 866-388-1307 or contact us online to schedule a consultation.
