Bankruptcy is a very serious development that can impact personal injury claims in a variety of ways. One common example occurs when the negligent defendant (i.e. the person who caused the accident) declares bankruptcy in order to protect their assets from a jury verdict or judgment.
In this scenario if no automobile or umbrella insurance is discovered, an injured plaintiff can be reduced to being just another in a long list of creditors, seeking to collect money from the defendant in federal bankruptcy court. Defendants have a constitutional right to declare bankruptcy, so it is extremely important that your attorney leave no stone unturned when attempting to identify any and all insurance coverages that may be applicable to your accident. In the absence of applicable insurance, an asset investigation of the negligent party is critical to a successful recovery.
In addition to an at-fault party’s declaration of bankruptcy, it is also possible that the injured party may declare bankruptcy as well. Sometimes this happens after the accident, and if so it is usually the result of catastrophic medical bills and expenses. Fortunately, there are usually a number of steps your attorney can take before bankruptcy becomes necessary. These include case fundings, letters of protection, bill and lien reduction negotiations and policy limits settlements. A more difficult example is when the injured party declares bankruptcy prior to the accident. In this situation it is very important that your bankruptcy attorney and personal injury attorney consult and work together, as federal law limits how much an individual may recover while under bankruptcy protection. Limits or caps that limit case recovery may lead to a decision to exit bankruptcy temporarily or altogether, and is certainly something you should discuss with your attorney.