What Happens If the Person or Company I’m Suing Files for Bankruptcy?
If you’re filing a personal injury lawsuit against another party, it’s natural to feel uncertain and a little worried upon learning that they have declared bankruptcy. How could their bankruptcy affect your lawsuit? Will you still be able to demand the compensation you are owed?
The most important factor in these cases is whether your injury occurred before or after the bankruptcy filing. If the injury happened before the bankruptcy, the court could discharge the defendant’s debt, which might include their obligation to pay your claim. However, if the defendant has insurance, you could still recover compensation by filing a claim. If the injury happened after the bankruptcy filing, the bankruptcy will likely not affect your ability to pursue the claim.
The Automatic Stay and Its Effect on Your Claim
An automatic stay is a court order that immediately halts any lawsuits or collection efforts against someone who files for bankruptcy. This can stop your case from moving forward until the court lifts the stay or the bankruptcy case ends. You must ask the court to lift the stay if you want to continue your case. The court may allow this if the defendant’s insurance will cover your claim or if pursuing the case won’t affect the defendant’s other creditors.
Recovering Compensation When the Other Party Has Insurance
If the defendant has insurance, you stand a good chance of recovering compensation. The court might lift the automatic stay so you can pursue compensation through the defendant’s insurance policy since your claim won’t impact their assets. However, if the defendant is uninsured or doesn’t have enough insurance, it could limit your ability to collect. The court will likely discharge any uninsured portions of your claim, and you might not receive the full amount you’re owed.
Exceptions to the Discharge of Personal Injury Debts in Bankruptcy
Certain personal injury debts cannot be discharged in bankruptcy. For example, if the defendant caused your injury while driving under the influence, the court cannot discharge related debts. You can continue to pursue your claim even if the defendant files for bankruptcy. Additionally, if the defendant intentionally or maliciously caused your injury, you can object to the discharge of that debt.
What Happens to a Personal Injury Judgment After the Other Party Files for Bankruptcy?
If you’ve already won a judgment against a defendant who later files for bankruptcy, your judgment could be at risk. The court may reduce your judgment lien if it impairs the defendant’s ability to claim certain exemptions, such as a homestead exemption. In this case, the court will calculate how much your lien exceeds the value of the defendant’s exempt property. If the court finds that the lien impairs the exemption, it will reduce the amount you can collect. However, you could still recover the full amount if insurance covers your judgment.
Mass Tort Bankruptcies: What You Need to Know
If a defendant files for bankruptcy in a mass tort case, you might have a better chance of receiving compensation from them. Defendants in mass tort bankruptcies are often large companies with significant assets. These companies might file for bankruptcy to reduce the amount they must pay, but courts sometimes reject these filings. In many cases, plaintiffs in mass tort bankruptcies still receive compensation through settlement funds.
Contact a Personal Injury Lawyer Now
If someone you’re suing for personal injury has filed for bankruptcy, the team at Ainsman Levine, LLC, can help you with your next steps. Contact us today for a free consultation to learn more.