Lawsuits and Bankruptcy

File-for-Bankruptcy-in-FloridaMost people who consult with a bankruptcy lawyer know enough to disclose any lawsuits where they are a defendant.  Most of the time these individuals are sued by a creditor (or creditors) such as a credit card issuer.  This is pretty common – after all, many individuals will look into bankruptcy because they are behind on their debts, and have been sued by a creditor.  In the end, bankruptcy can be a great benefit to an individual who has been sued by a creditor.  The filing of the bankruptcy stops any and all efforts by your creditors to collect on a debt, including lawsuits.

But what happens when the person filing for bankruptcy is a plaintiff in a lawsuit?  There can be problems when the debtor is the plaintiff in a lawsuit that has been filed, or even has a possible lawsuit that has not yet been filed.  For instance, a debtor may have suffered a personal injury caused by someone else (Such as  car accident) and then had to file bankruptcy to get rid of the medical bills.  Maybe the person was injured so much she could not work for a period of time, fell behind on her bills (and even had to live off of credit), and could not catch up.  It’s not too hard to think of situations where personal injuries could lead to a bankruptcy filing.

Another scenario is a debtor that suffered a personal injury as a result of an automobile accident caused by an at-fault driver.  The personal injuries cause her to miss or even lose her job, and then she falls behind on her mortgage and files Chapter 13 bankruptcy.

So, what happens to a debtor’s lawsuit in a bankruptcy?  First of all, any lawsuit and a potential lawsuit are assets of the bankruptcy estate.  In some cases your bankruptcy attorney should be able to exempt a portion or even all of the money received from winning or settling the lawsuit.  In other cases the bankruptcy trustee may consider the lawsuit or potential lawsuit of little potential value to the bankruptcy estate (and your creditors), and may abandon the estate’s interest in the claim or lawsuit.

Bankruptcy law requires a bankruptcy debtor to disclose all pending lawsuits and claims, whether the debtor is a plaintiff or a defendant.  Failure to disclose a lawsuit or claim can have serious consequences for both the bankruptcy attorney and the personal injury attorney.  Whether the failure to list the claim was intentional or an unintentional, failing to disclose a pending or potential lawsuit is the same as representing to the bankruptcy court that the potential claim or lawsuit does not exist.  Basically, a bankruptcy debtor who denies owning an asset, such as a possible personal injury claim or lawsuit, cannot act on that concealed asset after the bankruptcy ends.  Simply put, if you do not list your claim or lawsuit as an asset, it can terminate your right to sue or recover anything on the claim.

If you have a pending or potential lawsuit, discuss your situation with your bankruptcy attorney. Your attorney can advise you on your legal options for discharging your debts and keeping your lawsuit proceeds.  An experienced bankruptcy attorney can guide you through the legal maze without terminating your rights.

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