If You Have a Personal Injury Claim, It May Be Best to Wait to File Bankruptcy

Beware: Filing Bankruptcy During A Personal Injury Claim Could End Up Hurting You

If you’ve been injured and believe you have a personal injury claim, you shouldn’t file a bankruptcy without first having a thorough discussion with a personal injury attorney. You could lose a large portion of your claim in bankruptcy.

A personal injury claim is treated as an asset in a bankruptcy, just like a house, a car or a bank account. That means an injury claim must be listed in the bankruptcy schedules, even if you haven’t formally made a claim for your injury or filed a lawsuit. As long as the date of injury was before you chose to file bankruptcy, any claim resulting from that injury is treated as an asset and is subject to the bankruptcy court.

For example, if you are injured in an automobile collision in May and you filed a bankruptcy in October, you are required to list the potential injury claim from the motor vehicle collision as an asset in your bankruptcy. This subjects any recovery you might make on your injury claim to the bankruptcy court. The issue isn’t whether you’ve actually made a claim for injuries, but whether you might have a claim for injuries at some point in the future.

Bankruptcy court rules require that you list any potential claim for injuries in the schedules even though you might not have determined whether you will bring a claim. Failure to list a claim as an asset can have serious negative consequences.

At Abeyta Nelson Injury Law, we’ve seen individuals who have been injured, incurred substantial medical bills because of that injury, and missed work because of their injury. They may be tempted to file bankruptcy because of the mounting medical bills and their inability to pay even their regular bills. But, if they file bankruptcy before they pursue their personal injury claim, a large portion of their injury claim may be lost to the bankruptcy court and their creditors. In addition, because of the automatic stay of any litigation imposed by the bankruptcy court, filing a bankruptcy may delay their ability to resolve their personal injury claim.

We have often found that our clients may be better off actively pursuing their personal injury claim before filing a bankruptcy. It’s possible that pursuing the personal injury claim will help resolve outstanding medical bills resulting from the injury. It’s also possible that pursuing an injury claim will re- cover sufficient funds to allow an injured party to catch up on some of their bills, making it unnecessary to file a bankruptcy.

Even if it’s necessary to file a bankruptcy immediately, or you filed bankruptcy before resolving a potential personal injury claim, you should contact a personal injury attorney to discuss your claim. A personal injury attorney can help make arrangements to lift the automatic stay imposed by the bankruptcy court so that you can pursue the claim.

Your personal injury attorney can also coordinate with your bankruptcy attorney to assert the bankruptcy exemptions for personal injury claims. In Washington you have the option of asserting state exemptions of $20,000 or federal exemptions of $23,675. It’s also possible that you may be able to use a portion of your homestead exemption, normally available in bankruptcies, to protect equity in your home and to increase these numbers.

Each situation is unique and your bankruptcy attorney, with input from your personal injury attorney, can determine what is the best course of action for you in order to maximize the amount of the exemption to be applied to your injury claim. Bear in mind that the fees charged by your personal injury attorney are not counted towards your bankruptcy exemptions. So, for example, if your attorney charges a contingency fee of one-third of the amount of the settlement on a recovery of $30,000 on your claim, only the net amount to you of $20,000 applies toward your exemption.

THE BOTTOM LINE: if you have been injured, talk with Abeyta Nelson Injury Law before you file bankruptcy. We can determine whether you have a viable claim and whether it would be best to pursue that claim before filing for bankruptcy.

-blog written by Rod Nelson, Attorney, Abeyta Nelson Injury Law