In 2012, 1,181,016 individuals and 40,075 businesses filed for bankruptcy
protection in the United States (source). While there are many different circumstances that drive a person’s
decision to file for bankruptcy, usually the goal is the same. The goal
is to get a fresh start in life. This “fresh start” is also
supposed to be the purpose of the bankruptcy code. The Supreme Court has
stated that “[o]ur decisions lay great stress on this feature of
the [bankruptcy] law-as one not only of private but of great public interest
in that it secures to the unfortunate debtor, who surrenders his property
for distribution, a new opportunity in life.”
Stellwagen v. Clum, 245 U.S. 605, 616 (1918).
A common circumstance that leads to bankruptcy is a severe personal injury.
Many people that suffer a personal injury also experience economic difficulties.
This is due to the fact many people who are injured through the fault
of another, lose time from work or lose their jobs completely. Then on
top of that many people are without health insurance, or their insurance
does not cover all of their expenses. As the medical bills pile up, the
creditors mount their assault. Naturally, many people choose to get the
fresh start that filing for bankruptcy was meant to provide. But be extremely
careful, if your personal injury attorney does not understand the way
bankruptcy can affect your personal injury case, or is unaware of your
bankruptcy case, you could lose your ability to recover anything at all.
What’s even worse is that the person responsible for causing the
injury gets off Scott free.
When your bankruptcy attorney files a bankruptcy petition on your behalf,
an estate is created. 11 U.S.C. §541(a). The bankruptcy estate is
comprised of all of your legal or equitable interests as of the date the
petition was filed, including any claims that you have a right to bring
regardless of whether you have brought them prior to filing the bankruptcy
petition. 11 U.S.C. 101(5). This includes any right you may have to bring
a claim for the injury you suffered. What makes it even more confusing
is that if you file under Chapter 13, even property that you acquire after
the commencement of the case, but before the case is closed dismissed
or converted, is property of the estate. 11 U.S.C. §1306. So if you
are injured through the fault of someone else and then file for bankruptcy,
your right to bring a cause of action will become property of the bankruptcy
estate. If you file for Chapter 13, even an injury you suffer after the
petition is filed is property of the bankruptcy estate. This is true even
though Virginia law makes any recovery from a personal injury 100% exempt
from creditors. Va. Code Ann. 34-28.1.
One of the requirements you have as a debtor is to list any and all property,
including your personal injury claims (or even potential claims), in the
schedules that your bankruptcy attorney will provide. If you have a personal
injury claim you must list it in the schedule as exempt, and you must
place a proper value on the claim. Contact a competent personal injury
attorney to make sure that the valuation is correct. Then the bankruptcy
trustee will either abandon the claim, or the Court will rule that the
claim is exempt. Then and only then will you have the ability (standing)
to bring your personal injury claim in your own name.
In 2011, the Virginia Supreme Court showed just how important it is to
list these claims in your schedules.
Kocher v. Cambell, 282 Va. 113, 712 S.E.2d 477 (2011). In Kocher, the debtor was injured
prior to the filing of the bankruptcy Chapter 7 petition, therefore his
claim became property of the estate at the time of filing pursuant to
11 U.S.C. §541. The debtor failed to list the contingent, already
existing claim in his schedules prior to receiving a discharge, and prior
to the actual closure of his bankruptcy case. After the closure of the
debtor’s case but within the statute of limitations, he filed his
personal injury claim. The defendant moved to dismiss the case for lack
of standing. The Court held that since the claim was property of the estate
and not properly exempted at the time of filing, the plaintiff had no
standing to bring the claim and thus the statute of limitations was not
tolled by the filing. The debtor recovered nothing, and the defendant
was let off the hook.
Whether you filed for bankruptcy before you were injured, or are planning
on filing for bankruptcy as a result of your injury, be sure that your
personal injury attorney and your bankruptcy attorney know the consequences
and are in communication with each other.