Should You Not File Bankruptcy While You Have a Personal Injury Claim Pending?
Updated: Feb 8
When you file bankruptcy, you must list all of your assets and all of your liabilities. Even though you might have certain assets that are virtually worthless, you must list them. Even though you might have certain debts that you cannot even discharge (certain student loans, domestic support obligations, income tax debt, etc..) you must list them.
If you have a pending personal injury claim (even if you have not yet filed suit), this claim is an asset.
The debtor is allowed to exempt (i.e., keep) a certain amount of assets, so your personal injury claim might not have enough value where it would not be fully exempt from your creditors. On the other hand, it might be valuable enough to not be fully exempt, giving your creditors an interest in the outcome.
Regardless, the asset that is your pending personal injury claim must be listed.
The next consideration is which chapter you might file. If you are filing Chapter 7, all your assets, including your personal injury claim, will vest with your trustee when you file the case. Your trustee will therefore have the opportunity to proceed with the claim or abandon it back to you.
Simply put, if your claim is valuable enough, the trustee will attempt to liquidate it. If not, the trustee will abandon it back to you, for you to proceed as you wish. It is critical you understand that you do not have an automatic right to dismiss a Chapter 7 bankruptcy, so you cannot dip your toe into the water and see how the trustee reacts. You are stuck with the consequences of your decision to file Chapter 7.
It is a little more complicated with a Chapter 13. While the personal injury claim is an asset that is property of the bankruptcy estate, the debtor does have a right to dismiss a Chapter 13 and does control the settlement to a large degree. However, any settlement, will be subject to court approval, and the debtor might need to turn over a lot of the proceeds to his creditors should he wish to settle the case and remain in Chapter 13.
Finally, should the debtor fail to disclose the pending personal injury claim when he files either Chapter 7 or Chapter 13, the defendant in the personal injury case will most likely raise the issue of judicial estoppel to dismiss the personal injury claim. The defendant will argue the debtor took an inconsistent position in bankruptcy court from the court with the pending personal injury claim, and therefore should not be allowed to proceed.
So the main takeaway should be that you should not file bankruptcy with a personal injury case pending until you have discussed the situation with both your bankruptcy and personal injury attorneys. If the personal injury case has some good potential value, If the claim has good value, the debtor will have to weight the benefits of bankruptcy protection and a potential discharge against the burden of at least temporarily losing his exclusive control over the personal injury claim.
Peter Bricks is a Metro Atlanta bankruptcy and personal injury attorney. He handles cases in Cherokee, Cobb, Dekalb, Cherokee, Fulton, Gwinnett counties, among others.