Personal Injury Lawsuits and Bankruptcy

If you have been injured in an accident and are pursuing a personally injury claim, you may want to be aware how filing for bankruptcy can negatively affect you case.  When you file for Bankruptcy in Arizona, you give up control of your personal injury lawsuit.  In a chapter 7, the Trustee’s job is to take all non-exempt property, turn it into cash, and distribute that cash to your creditors.  In a Chapter 13, the proceeds of any settlement or judgment are used to fund your Chapter 13 plan.  Essentially, the right to collect money is out of your control until the trustee gives up the property.  If the trustee determines that the case has value in excess of the exemption, they may want to administer the personal injury claim as an asset of the bankruptcy estate.  On the other hand, if the Trustee finds the claim to be of inconsequential value, they may decide to abandon their interest in the cause of action.

In cases which you are being sued, so long as the debt is dischargeable, your personal obligation to repay the debt will be discharged in bankruptcy.  Also, the lawsuit has to stop while you are in bankruptcy unless the other side gets relief from the automatic stay.  Even if a default judgment has already been entered, by filing bankruptcy you can avoid the judgment and eliminate the underlying debt.  The personal injury case will presume once the bankruptcy case is over.  Note, bankruptcy does no stop any type of criminal proceedings.

Make sure to disclose to your bankruptcy lawyer that you have a lawsuit pending.  The lawyer will be able to put a strategy together to handle the situation.  If you fail to disclose the lawsuit, you could lose the right to begin or continue the action.


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