What Happens If The Defendant In Your Case Goes Bankrupt?

If you are injured in an accident, you just assume that someone on the other side of the case will be there to pay whatever dollar amount you may settle for, or whatever the jury orders must be paid to you. But what if they are not? What if the other side in your case files for bankruptcy?

Bankruptcy Can Wipe Out a Judgment

Bankruptcy is a threat to injury victims who obtain injury verdicts or settlements, because personal injury judgments and settlements, can be discharged in bankruptcy court. That means that if they are successful a Defendant who files for bankruptcy, will completely wipe out any money that Defendant may owe to you.

Certainly, an individual (such as someone who injures you in a car accident) is more likely to file bankruptcy than a company may be.

For a company, it is unlikely that your court judgment will lead them to file for bankruptcy. More likely is that the company has other financial problems driving them into bankruptcy, and your personal injury settlement or judgment happens to be just one of a number of debts the company owes.

The Automatic Stay

When a company files for bankruptcy, all actions against that company stop—that includes your lawsuit, if it hasn’t already settled or resolved. At that point, you become a creditor to the defendant, just like any other creditor.

In a typical Chapter 7 bankruptcy, which is normally filed by individuals, your judgment or whatever is owed to you will likely be wiped out and eliminated completely. In some cases, companies file Chapter 11, which is a reorganization of their financial affairs. In Chapter 11, there is still some hope of obtaining some recovery, but that largely depends on getting the judge’s permission.

In Chapter 11, a company is allowed to get rid of certain debts, so that it can “start fresh.” The court will only allow the most vital and important of debts to survive the Chapter 11, which means that a lot of creditors are fighting each other to try and ensure they are the ones paid through the limited assets that the company has. Your personal injury lawsuit or settlement may not be one that is important enough (to the bankruptcy court) to be allowed to survive the Chapter 11 bankruptcy.

A bankruptcy only eliminates the debts and obligations that existed before the case was filed. That means that if you are injured by a company after the case is filed, your claim may still be valid and may still survive.

Can You Avoid The Discharge?

You may be wondering if you can just settle a case, and agree that your settlement can never be discharged in bankruptcy. But these kinds of agreements are generally not enforceable; a bankruptcy court will not honor a “not dischargeable” clause in a contract or settlement agreement.

Contact us for help with your personal injury claim or case.  Call the Boston personal injury lawyers at The Law Office of Joseph Linnehan, Jr. today at 617-275-4200.

Sources:

investopedia.com/terms/c/chapter11.asp

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics4