You were rear-ended by a careless driver, causing physical injury and significant financial strain. Medical bills are mounting, you’re missing work, and you’re struggling to keep up with your daily expenses. As a result, you’re considering filing for bankruptcy.
But what happens to your personal injury claim? How does bankruptcy impact your potential compensation?
Can I Retain Any Personal Injury Proceeds?
Oklahoma has an exemption for personal injury and wrongful death recoveries up to $50,000. However, the bankruptcy trustee may control the non-exempt portion of your claim – anything above the $50,000 exemption. They can settle the claim and distribute the proceeds to your creditors.
Bankruptcy is a legal process that relieves individuals or businesses unable to pay their debts. Filing for bankruptcy can either liquidate assets to pay off debts (Chapter 7) or create a repayment plan (Chapter 13, 11, or 12). It’s critical to understand the implications of each type of bankruptcy and how they can impact a personal injury claim.
Chapter 7 Bankruptcy
Often called “liquidation bankruptcy,” Chapter 7 allows individuals to eliminate most or all of their unsecured debts. The court appoints a trustee to liquidate the debtor’s non-exempt assets, with the proceeds distributed to creditors. In most cases, the debtor’s essential assets, like their home and vehicle, are exempt from this process.
Chapter 13 Bankruptcy
Also known as “reorganization bankruptcy,” Chapter 13 allows individuals to create a repayment plan to pay back their debts over a specified period, usually three to five years. The debtor can retain their assets while they make payments according to the plan. This type of bankruptcy is often selected by individuals with regular income who can afford to make monthly payments.
Chapter 11 Bankruptcy
Primarily used by businesses and higher-income individuals, Chapter 11 allows a company to continue operating while restructuring its debts. Like Ch. 13, the company must develop a plan to repay its creditors over time.
Chapter 12 Bankruptcy
Designed specifically for family farmers and fishermen, Chapter 12 is similar to Chapter 13 but has higher debt limits and more flexibility in creating repayment plans.
When the Defendant Files for Bankruptcy
Most of the time, a defendant filing for bankruptcy won’t affect a personal injury case. The defendant’s insurance company defends the lawsuit and pays any settlement or verdict.
When a defendant files for bankruptcy, an automatic stay is put in place, which halts all collection efforts and lawsuits against them. Your personal injury case will be on hold until the bankruptcy proceedings are resolved or your attorney files a motion to let your case proceed.
During the bankruptcy process, the trustee will evaluate the defendant’s assets and liabilities to determine how they will be distributed among their creditors. Your personal injury claim will be treated as an asset of the defendant’s bankruptcy estate. The trustee will assess the value of your claim and decide whether it should be pursued or settled.
In some cases, the bankruptcy trustee may choose to settle your personal injury claim on behalf of the defendant. The proceeds from the settlement will then be distributed to the defendant’s creditors according to the bankruptcy laws. However, if the trustee decides not to pursue or settle your claim, you may be able to continue your personal injury case outside of the bankruptcy proceedings.
It’s important to note that even if your personal injury claim is settled or won before the defendant files for bankruptcy, the bankruptcy trustee may still have control over the non-exempt portion of your settlement.
What if the insurance company files for bankruptcy or goes out of business?
The Oklahoma Property and Casualty Insurance Guaranty Association (OPCIGA) is a non-profit organization established by the state of Oklahoma to provide protection to policyholders if an insurance company becomes insolvent or goes out of business. If an insurance company files for bankruptcy or becomes insolvent, the OPCIGA will pay covered claims up to certain limits and subject to certain conditions.
36 OK Stat § 2007 (2022) limits the payout amounts to:
The full amount of a covered claim for benefits under a workers’ compensation insurance coverage.
An amount not exceeding Ten Thousand Dollars ($10,000.00) per policy for a covered claim for the return of unearned premium.
An amount not exceeding One Hundred Fifty Thousand Dollars ($150,000.00) per claimant for all other covered claims.
Does the timing of the bankruptcy filing matter?
No, you must still disclose the claim in your bankruptcy paperwork.
Under Chapter 7 bankruptcy, any potential personal injury claim you have when filing will become part of your bankruptcy estate. The bankruptcy trustee will evaluate the value of your claim and determine if it should be pursued or settled on behalf of your creditors.
Under Chapter 13 bankruptcy, you may be allowed to retain your personal injury claim and use it to fund your repayment plan. However, the value of your claim may still be considered part of your overall financial situation in determining your repayment obligations.
If you’re injured after your bankruptcy case has been filed and is still ongoing, you must disclose your personal injury claim to the court and the trustee. This claim may be considered additional income, potentially affecting the terms of your repayment plan in a Chapter 13 bankruptcy.
Exceptions to Discharge of Personal Injury Debts
Exceptions are arising from personal injury claims that cannot be discharged:
Injuries Caused by Driving While Intoxicated: Debts arising from personal injuries caused by drunk driving cannot be discharged in bankruptcy.
Injuries Caused by Intentional Acts: The court can deny the discharge of debts arising from personal injuries caused by the defendant’s willful, malicious, or intentional acts. To prevent the discharge of these debts, you must object to the discharge in the bankruptcy proceedings.
What is not excused or discharged with bankruptcy?
Bankruptcy can discharge many debts, but certain obligations are not excused or discharged. These include:
- Child support and alimony: Bankruptcy does not discharge any child or spousal support obligations. These debts must still be paid in full.
- Certain tax debts: Some may not be dischargeable in bankruptcy, mainly if they are recent or the debtor engaged in fraudulent or willful tax evasion.
- Student loans: Generally, student loans cannot be discharged in bankruptcy unless the debtor can demonstrate undue hardship, which is a high standard to meet.
- Debts incurred through fraud or dishonesty: If a debtor obtained a debt through fraudulent means or engaged in dishonest behavior, such as lying on a credit application, those debts may not be discharged.
- Court fines and penalties: Debts owed to the government for fines or penalties, such as traffic tickets or criminal restitution, are generally not dischargeable in bankruptcy.
- Debts not listed on the bankruptcy paperwork: If a debtor fails to list a debt on their bankruptcy paperwork, it may not be discharged in the bankruptcy case.