What Happens If You File for Bankruptcy?

If you have a car accident case and file for bankruptcy, there are some important factors that you should consider.

When you file for Chapter 7 bankruptcy, everything you own, including your car accident case, becomes property of the bankruptcy estate. This means that you must disclose the personal injury case to your bankruptcy attorney who will include it in your bankruptcy petition. In addition, the United States Trustee must decide whether to abandon its interest in the case or to keep the case to pay your creditors.

If the money received as a result of a car accident case is below a certain amount and protected by the bankruptcy exemptions, the Trustee will abandon the case. This means that you will keep the money received at the end of the car accident case. The Trustee may require that your car accident attorney hold the money in escrow only if it exceeds a certain dollar amount not covered under the exemptions.

However, if the Trustee believes that the value of the case is greater than the exemptions that are available to you, the Trustee will keep the case and will retain an attorney (which may be your existing car accident attorney). The Trustee will make decisions, including whether or not to accept settlement offers, in the accident case. At the end of the case, the monies will go to the Trustee who will divide the money between you and your creditors.

If your car accident case is pending in court when you file for bankruptcy, you must inform your car accident attorney as the case will be suspended because of the bankruptcy filing.  The Trustee will then decide whether to retain an attorney, which may be your current car accident attorney, to represent the bankruptcy estate in the car accident case.

What happens if the defendant files for bankruptcy?

If you have a car accident case pending in court and the defendant you are suing files for bankruptcy, the car accident case will be suspended until the bankruptcy court permits the case to continue. Your car accident attorney may file a motion in the bankruptcy case requesting permission to continue the car accident case if the monies will be paid by the defendant's car accident insurance company and not out of the defendant's pocket. However, if the defendant did not have car accident insurance in effect at the time of the accident, your claim may be discharged (meaning erased) in bankruptcy.

For these reasons, it is important for your car accident attorney to have an understanding of how bankruptcy laws impact car accident cases.  Cohn Lifland has personal injury and bankruptcy practices that can work together to achieve the best results for our clients in both areas of law. If you have any questions relating to car accidents and/or bankruptcy, please do not hesitate to contact our office for a consultation.