The simple and emphatic answer to this is Yes! At the time that you file your bankruptcy petition, either Chapter 7 or Chapter 13, you must list any pending lawsuits or potential claims that you may have stemming from any incident existing at that time, even if you have not yet retained a lawyer to handle it yet. It is also very important to notify your personal injury attorney that you have filed a bankruptcy as there are several motions that will need to be filed in your bankruptcy case in order for you to continue to pursue your personal injury claim. The Bankruptcy Trustee will also work closely with this attorney to administer this asset through your chapter 13 or chapter 7 bankruptcy. Failure to disclose a personal injury claim or any other type of claim that you may have will most likely result in you NOT being able to pursue your claim under the legal concept called collateral estoppel.
What if something happens after your bankruptcy case is filed that were to give you a cause of action for a personal injury suit against someone or some entity? You must contact your bankruptcy attorney and provide the information so that your bankruptcy petition and schedules can be amended to disclose the action. If you do not disclose any potential claim that arises either pre-bankruptcy filing or post-bankruptcy filing you will lose the right to pursue that claim or, in plainer terms, you will lose the right to any recovery from that suit for your benefit. This again is the collateral estoppel doctrine
What happens with the proceeds from the personal injury or lawsuit claim? First of all, these proceeds will be distributed through your bankruptcy estate for the benefit of your unsecured creditors. Once all creditors, fees and costs of the bankruptcy estate have been paid in full, the debtor will receive any remaining proceeds from the claim.
If you are experiencing problems with multiple creditors, there can actually be some benefit to filing a bankruptcy while you are awaiting resolution of a personal injury claim. The filing of the bankruptcy can stop creditor harassment while you focus on your pending litigation. You may also be able to pay less to your creditors through the administration of a bankruptcy estate that if you received the proceeds of a lawsuit and tried to navigate paying all of your creditors directly, on your own.
If you have any debt issues that you would like to discuss please contact our office nearest you to schedule a free consultation with one of our attorneys. Our lawyers have experience with these types of complicated matters as they relate to the bankruptcy process.
Amy K Tanner is a shareholder in several of the Bond & Botes Law Offices. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Thomas Goode Jones School of Law. She focuses primarily on consumer bankruptcy law in the Huntsville and Decatur offices.Read her full bio here.