How Does Chapter 13 Debt Consolidation Affect My Injury Claim?

It’s not uncommon for me to consult with a person who, while experiencing financial problems, has a personal injury claim as well. Maybe it’s an injury from an auto collision, an on-the-job injury, or injuries from the use of a defective product or drug. Sometimes, I learn that an existing client for whom I have already filed a Chapter 13 case has been injured due to the negligence of another. A pending or impending Chapter 13 debt consolidation case can have a profound effect on your personal injury claim. This situation can become quite complex rather quickly. A thorough examination of this topic is well beyond the scope of this post; but, let’s look at some basics.

It is very important to determine when the personal injury claim arose in relation to the date the Chapter 13 bankruptcy case is to be, or was, filed. Let’s say, for example, that you were involved in an auto collision when another driver’s vehicle collided with the rear of your vehicle. As a result of this collision, you suffered personal injuries. In such an instance, you would likely have a claim for money damages against the driver of the vehicle that collided with your vehicle. It may be that the medical bills stemming from this collision are the very cause of your current financial troubles. You may be experiencing harassing debt collection calls concerning the unpaid medical bills. But, since the driver who collided with you might deny liability for your injuries, it may become necessary to file a lawsuit against that driver to recover compensation for your injuries.

A reputable and competent lawyer will quickly tell you that you must disclose your potential personal injury lawsuit in the papers you will file in your Chapter 13 case. If you fail to do so, it is very likely that you will lose your right to sue the driver who caused your injuries. In such situations, many courts apply a legal doctrine known as “judicial estoppel” to prevent you from pursuing your personal injury claim because you did not disclose it in your bankruptcy case. As you can imagine, this can be a very harsh and unexpected trap for you. Usually, when “judicial estoppel” is applied, you lose permanently and completely no matter how bad your injuries. Certainly, this is not a situation in which you want to find yourself.

But what if you had already filed your Chapter 13 case when you were injured? You might reason that since you had not even been injured when you filed your Chapter 13 case, you had nothing to disclose when you filed your case. Therefore, you need not tell the bankruptcy court about it now, right? Very wrong! Your duty to disclose your injuries continues even after your case is filed or you could end up losing your rights due to “judicial estoppel”. Again, this is not a situation in which you want to find yourself.

Now let’s assume that you have properly disclosed your personal injury claim and you are not facing a “judicial estoppel” situation. How does a Chapter 13 case affect your personal injury claim? The exact answer depends upon how your Chapter 13 plan is structured. And how your Chapter 13 plan is structured depends upon your unique financial situation. In some circumstances, your Chapter 13 plan may be structured as a “100% plan”. In such instances, your Chapter 13 case is likely to have very little, if any, effect on your personal injury claim. In other circumstances, your Chapter 13 plan may be structured as a “0% plan”. In that case, you will likely be required to pay a substantial portion of your financial recovery, if not all of it, into your Chapter 13 case so that these funds can be distributed to your creditors. In some instances, a portion of your financial recovery may be considered as exempt property that you can lawfully keep. Or, if you have a very skilled lawyer, he or she may be able to negotiate a portion of the financial recovery that you can keep. The exact impact that a Chapter 13 case will have on any financial recovery for your injuries will depend to some extent on the law and practice in your state.

If you are confronted with this situation, you must get personalized advice from a competent and reputable attorney before you proceed. If you are in an existing Chapter 13 case when you are injured, you should promptly call your bankruptcy attorney first and before you attempt any recovery for money damages. If you’ve not already filed a Chapter 13 case, you would do well to consult with an attorney who is experienced in both bankruptcy and personal injury matters before you do anything. Our attorneys represent clients in both bankruptcy cases and personal injury claims. If you have been injured by the negligence of another or by a product or drug, we can investigate these claims for you while helping you address your financial difficulties.