Personal-Injury-Bankruptcy: Two terms that most people think have nothing to do with each other. In fact they do. An injured party who has filed bankruptcy may not own that injury claim. That injured party must report that injury claim on the bankruptcy filing. Failing to do so is a problem.
Filing bankruptcy while you have a personal injury claim pending can impact your personal injury claim. That is true whether you are in the state of Virginia or elsewhere.
When you file a bankruptcy petition, you must disclose your assets. Your personal injury claim is an asset. The Trustee may decide what to do with that claim. You may then pursue it. In all cases, you must disclose your claim.
In general, personal injury claims are exempt under Va. Code § 34-28.1. This means that the debtor retains ownership of the asset if it is properly designated as exempt on the schedules. If it is not designated, there is a problem. If it is designated, there may still be a 730-day residency requirement that must be met. There are certain exceptions to the exemption. Those exceptions are things that would not be exempt such as some healthcare liens, an attorney’s lien and some child support obligations.
Core Proceedings
The jurisdiction of the bankruptcy court is governed by whether the matter is a core proceeding. Matters that are not at the core of the federal bankruptcy power cannot be decided by a bankruptcy court. Northern Pipeline v. Marathon, 458 U.S. 50 (1982) As a non-core matter, a bankruptcy judge may only issue proposed findings of fact and conclusions of law. Those matters are then reviewed by a district judge. Non-core proceedings consist of those claims arising under traditional state law that must be determined by state law. They are proceedings that could have been brought in a district court or a state court. Bankruptcy judges do not have jurisdiction over such things as personal injury and wrongful death cases. 28 U.S.C. § 157(b)(5)
Chapter 7
Chapter 7 proceedings are available to individuals and with certain limitations to partnerships and corporations. Corporations and partnerships are not eligible for a discharge under Chapter 7. Typically what they do is they simply choose not to operate after the filing of the Bankruptcy Petition.
For a person to qualify under Chapter 7, they have to meet the so-called “means test”. Chapter 7 is really designed for those people who have no means to pay. Those people who do have available income who have filed a Chapter 7, typically are going to be pushed into a Chapter 13.
Within Chapter 7 there is also the issue of standing. That is, the client may not have standing to file a suit because that claim was not listed and therefore it has not passed back to the debtor. If the claim was not listed and therefore the trustee is not aware of it, then no proper lawsuit was filed within the statute of limitations. Therefore whatever claim was filed by the debtor may not stop the statute of limitations from running.
Value of Claim
In a Chapter 7 case, the plaintiff is required to list the value of the asset i.e., the claim. That valuation could potentially be used against the plaintiff in the injury case.
Chapter 11
The goal of a Chapter 11 proceeding is to allow the individuals and viable businesses to reorganize. They must submit a plan of reorganization. Typically under Chapter 11, the debtor continues in possession of their property. That means that they continue to control it but they operate in a fishbowl. That is, several people are overseeing what they’re doing. The debtor will receive a judicial release or discharge of most of its debts.
Personal Injury-Bankruptcy: Chapter 13
In contrast with a Chapter 7 case, there is no risk for plaintiff’s counsel filing suit for a Chapter 13 debtor. Chapter 13 debtors retain standing to pursue their own claims. They still must be disclosed.
A Chapter 13 debtor must decide what are the proper exemptions to assert. To do that, the debtor must disclose the claim, correctly value it and then exempt the highest allowed value. If you do not do that, then the Trustee may retain part of the claim. In addition, there may be medical providers who have a secured claim in the form of a lien.
Personal Injury-Bankruptcy: Discharges
Treatment bills for your injury claim may be discharged. In fact all of those bills are discharged, meaning that they are in effect wiped out, and you do not have to pay them. That means you cannot seek money for them in your injury case.
Under the case law in Virginia, you can claim the bills to prove how severe the injury is. Although the bills would not be a basis for a money award to you in light of the discharge. Barkley v. Wallace, 267 Va. 369 (2004)
Examples
So the jury will hear about the bills and the amount of the bills. However the jury will not hear that they should consider the bills in terms of awarding you that amount. Call or contact us for a free consultation.
However if the plaintiff has entered into an assignment to pay medical bills out of the proceeds of the personal injury case, then the bills may be admissible as both special damages and as general damages. Dodd v. Lang, 71 Va. Cir. 235 (2006)
If a debtor receives a discharge in bankruptcy, that typically releases any requirement to repay the debt. Objections however may be raised to that discharge. There are time limitations for raising that objection. The party making the objection has the burden of proof. There are 12 different grounds for denying a discharge in Chapter 7. One of them is simply that the debtor is not an individual. That entity however may then file under Chapter 11 and obtain the equivalent of a discharge.
Debts due to criminal or tortious conduct by the debtor that cause death or serious injury to another during the preceding 5 years are not dischargeable.
In Chapter 11, a discharge is typically granted upon confirmation of the plan for any debt that arose before the confirmation. A Chapter 11 discharge is generally not granted in a Chapter 11 liquidation case.
Willful and malicious injury by the debtor to another may not be dischargeable. This requires a deliberate or intentional injury, not merely a deliberate or intentional act.
The award of punitive damages does not of itself establish that the debtor acted willfully and maliciously. The court must look closely to examine the findings of the state court to determine the debtor’s level of culpability. Beckett v. Bundick, 303 B.R. 90, 116 (E.D. Va. 2003 )
Likewise death or personal injury caused by the debtor’s driving while under the influence of alcohol is not dischargeable. Also liabilities arising from the debtor’s reprehensible conduct such as fraud may not be dischargeable.
Although a discharge of the debt may have been granted, that doesn’t necessarily mean that the underlying lien has been released. Leasing Service Corp. v. Justice, 243 Va. 441, 443 (1992)
Personal Injury-Bankruptcy: Failure to Disclose
In Chapter 13, discharge is not granted until all of the payments have been made under the proposed plan. Likewise under Chapter 13, there is no discharge for debts for restitution or damages awarded in a civil action against the debtor for willful or malicious injury that resulted in personal injury or death of another.
In the case of a Chapter 13 filing, claims that arise after the filing are also part of the estate. As such Chapter 13 filings are dangerous for an injury claimant.
The injured party’s oversight in not reporting the claim is not an excuse. In fact it may be a bar to that party even pursuing the claim.
In the case of Kimberlin v. Dollar General Corp., 520 Fed. Appx. 312 (6th Cir. 2013) a debtor was fired shortly before making her final payment to the Chapter 13 trustee. She did not amend her schedule so as to reflect a lurking claim for unlawful termination. After she received her discharge she filed suit against the former employer. She alleged wrongful firing. The court held that the debtor was barred from making that claim because if she had given notice to the Court of the claim prior to the discharge then the Court could have changed her plan in order to increase the payout to the parties owed money.
Personal Injury-Bankruptcy: Bankruptcy of the Defendant
So you have a big claim. Liability is clear. The other party appears to be solvent. Then the worst happens. The other party files bankruptcy. This is a nightmare for the plaintiff and for the plaintiff’s injury attorney.
If the other party is insured then your case may be safe. You can request relief from the bankruptcy stay with the claim going forward only against the coverage.
If the coverage however is in doubt because of the number of claimants or the amount of coverage, then you need to look at other factors. Call or contact us for a Free Phone Consultation.
Categories of Claims
Your claim is going to be called an unsecured claim. This means that it has no special backup to make sure your claim is paid. If that is the case, then you need to look at when did your claim arise. A tort claim arises when there is injury. If your claim arose before the other party filed bankruptcy, then it is a pre-petition claim. If the claim arose after the filing date but before the confirmation of a plan in Chapter 11 or before entry of an Order that is final then it is an administrative claim. There are other factors that must also be looked at.
Pre-petiton claims are mostly paid out on a pro rata basis from funds on hand after the secured claims or other senior claims are paid out. In dealing with these first class claims you should file your proof of claim. Include within the claim every type of damage and request a jury trial for personal injury or wrongful death claims. The filing of a claim for a jury trial delays the final outcome of the entire bankruptcy case and gives the trustee or debtor reason to settle with the claimant making the jury demand.
Chapter 11
If a Chapter 11 case involves the sale of the debtor’s assets as a going concern, then you may make a claim against any successor entity on the grounds that the business is ongoing. This theory is especially likely where the new outfit uses the seller’s name, employees, office and has owners and managers in common.
Where your claim is under the second class of arising after the bankruptcy filing but before the plan is approved or the entry of some final Order in the case, then your claim may be an administrative claim. In such a case you should receive complete payment. If there are not enough assets to pay the administrative claims, then these claims are paid on a pro rata basis. In this latter category you compete with the lawyer for the debtor. Being tough at this stage improves your chance of payment. The lawyer wants to reduce overall expenses to insure he is paid.
Claims arising after confirmation or sale of assets are not bankruptcy claims at all. That is, there has been no due process given to these claimants. What that means is that notice and a chance to be heard has not been given. You may pursue these claims against the reorganized debtor or its successor under the successor theory discussed above.
A fourth type of claim is called a future claim. This is a claim such as the claim of an unborn child. Such a claim is not discharged because notice was not given.
Some Debts Do Not Go Away
In looking at bankruptcy cases you must think about discharges. A debt dealing with an injury caused by the other party’s driving a car under the influence is not likely to be discharged. Likewise a debt that arises from willful or malicious conduct may not be discharged.
If your claim involves a trucking company, then you need to obtain a copy of the MCS-90 Form. This is required by U.S. law. Insurance for trucking firms have a clause to insure that injured parties are paid for judgments based on fault of the firm or driver. If the insurance company is bankrupt its reinsurer may still remain obliged under the insolvency clause that exists. Your client may or may not be able to make a direct claim against the reinsurer.
For more information on bankruptcy, see the pages on Wikipedia also see the pages on this site dealing with personal injury. Call or contact us for a Free Phone Consultation.