~~Avoiding Turning Over Funds from a Personal Injury Claim
Q: What is a Personal Injury Claim?
A: Personal Injury is a term used to refer to injury to the body, mind or emotions. The most commons types of claims that are referred to as Personal Injury claims or PI claims are car accidents, accidents at work, product defect claims and assault claims. However, it also includes medical and dental accidents as well as others not listed herein.
Example: You were driving on Highway 70 westbound and a car loses control, crosses over the median and collides with your vehicle. You now have a personal injury claim. If the accident happened on October 24, 2013 and your bankruptcy was filed with the court on October 31, 2013, the personal injury claim is an estate of the bankruptcy estate.
Q: I have personal injury claim so I will just wait to sue them after the bankruptcy is over and then they cannot make me turn the money over right?
A: Good thinking, however that will not work. Anything owed to you at the time of filing of the bankruptcy is part of the bankruptcy estate regardless of when the money or property is actually received. Waiting to pursue a claim does not change that the money or property was owed to you at the time the bankruptcy case was filed. When money is received does not determine if it is part of the bankruptcy estate. Your bankruptcy case can be held open or reopened at any time if assets of the bankruptcy estate are found or received by the estate.
Example: You were driving on Highway 70 westbound and a car loses control, crosses over the median and collides with your vehicle. You now have a personal injury claim. The accident happened on October 24, 2013 and your bankruptcy was filed with the court on October 31, 2013. The bankruptcy case is discharged on January 30, 2014. You wait until February 15, 2014 to contact and attorney to represent you in the personal injury case, or let’s say you even wait until September, 2014; Guess what, it is still part of the bankruptcy estate.
Q: What is the point of filing bankruptcy is they are going to take all of the money to pay my creditors?
A: The most important thing to help this process make sense is to understand that the trustees cannot just start sending money to creditors based on what you think is owed to them. In an asset case, this is usually to your benefit. Instead of a creditor just getting mailed money the trustee makes them do a little bit of work first. When assets are discovered, i.e. when the trustee receives money from a claim that you might have or find out that you are definitely going to be receiving some portion of money that will be taken be the estate, the trustee sends out a Notice of Assets. This is to alert the creditors that there are assets that will be distributed. The creditors are then given a deadline of when they must make a claim to the court as to what is owed to them. This claim comes in the form of a proof of claim that must be filed with the court along with proof of the debt which is usually some signed document that was acquired and signed the by Debtor when the debt was incurred. While it does not have to be signed, there must be some documentation that the debt is valid. Once the deadline for filing claims with the court has passed and the money that is the asset of the estate is received, the trustee determines what portion of each creditors debt can be paid. The first creditors that are paid are priority claims. This is usually things such as taxes, back child support and other administrative fees and priority claims. After those are paid the trustee determines how much money is left to distribute to the remaining creditors. Here the trustee does not get to simply pick which creditors to pay. Instead, all creditors of the same status are paid on a pro rata basis. This means that while someone who is owed a larger amount of money may be paid more, they will all be paid the same percentage of the debt owed. However, if there are enough assets, the trustee may be able to pay off all of the creditors. However, the important thing to remember again is that ALL of the creditors really only means all of the creditors that filed a proof of claim with the court. This usually means that some creditors, the ones who did not file a proof of claim, will receive nothing. In short, even though you may owe $100,000 in debt, and as long as all your creditors are listed on the petition, you may only end up paying out $20,000 to your creditors if those are the only proof of claims that come in. After the creditors are paid and the trustee’s fees are paid, the trustee would return any remaining money to you and discharge all of the creditors who were listed on the petition but for whom did not file a proof of claim. So you see, the bankruptcy is still a good option for most people even if you are expecting to reason some sort of settlement.