When an individual files for Chapter 7 or Chapter 13 bankruptcy, they are already facing financial difficulties. Suffering a personal injury in an accident can only make financial struggles worse due to medical bills, lost income, and other injury-related losses. If another party was negligent in causing the accident, the injured victim can seek compensation from them by filing a claim for personal injury in civil court. However, if the injured victim has filed for bankruptcy or plans to file, it is important to address how the two cases may affect one another.
In a Chapter 7 bankruptcy case,1 the bankruptcy trustee will take inventory of all of the filer’s assets to try to pay the creditors as much as possible prior to discharge. In a Chapter 13 case,2 the filer’s assets will be considered when determining the details of the debt repayment plan.
The filer has a duty to truthfully disclose to the court all of their assets, including the following:
Using Exemptions to Protect Personal Injury Settlements in Chapter 7 Bankruptcy
Simply because a filer must disclose a personal injury settlement to the bankruptcy court does not necessarily mean that you will lose the settlement funds, however. There are exemptions available that may allow you to keep all or part of your personal injury settlement or award. In New York, bankruptcy filers can choose between the federal exemptions3 or state exemptions.4 The following is some information comparing the two exemptions, however, these exemptions may be subject to change so an experienced attorney should always help you decide.
|Federal||New York State|
|Protects awards for bodily injury, wrongful death, and future lost income.||Protects awards for bodily injury (not including funds for pain and suffering).|
|Protects up to $22,975 or $45,950 for a married couple.||Protects up to $7,500 or $15,000 for a married couple.|
|Can also use unused wildcard or homestead exemptions.||Can also use unused wildcard exemption.|
The Importance of Disclosing any Personal Injury Cases in Bankruptcy due to the Doctrine of Judicial Estoppel
Even if a bankruptcy filer fears their personal injury settlement may be jeopardized by their bankruptcy case, they still must ensure to disclose the potential settlement to the bankruptcy court. If they fail to do so, the defendant in their personal injury claim may be able to prevail in the case due to a claim of judicial estoppel.
It is only natural that, in any type of court case, a party will want to assume the position that is most favorable to them. This can cause problems, however, if a party has two different cases in which opposite positions may be the most beneficial. The courts will not simply allow a party to maintain two different positions in two different cases and the consequences of doing so can be harsh, as the court can dismiss a claim under the legal doctrine of judicial estoppel.
In the case New Hampshire v. Maine,5 the Supreme Court of the United States (SCOTUS) held that three main factors must be identifiable in order for judicial estoppel to apply:
“First, a party’s later position must be clearly inconsistent with its earlier position.
Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled.
Third, courts ask whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”
This doctrine can apply to any type of case—including Chapter 7 and Chapter 13 bankruptcy cases. In recent years, the issue has arisen in cases in which the bankruptcy filer has also had an impending or already pending personal injury case.
A Look at How Judicial Estoppel can Affect Bankruptcy and Personal Injury Cases
In a bankruptcy petition, a filer has the duty to disclose any potential legal settlements, including recovery for personal injury. It is important to remember that this duty to disclose does not only arise when the settlement is received but when the filer first knows that they are entitled to a settlement. Even if a filer did not know about the possible personal injury case when they first filed for bankruptcy, they have a duty to amend their petition and keep the court informed of changing circumstances throughout the duration of their case.
If an individual decides to pursue a personal injury claim yet denies the fact that they have any pending legal cases in their bankruptcy petition, the court can determine this as taking two opposite positions, which can lead to a finding of judicial estoppel and the loss of the personal injury claim. The following are some examples of debtors that failed to inform the court of possible personal injury settlements and the resulting court decisions regarding judicial estoppel.
Chapter 7 bankruptcy
In one case, Berge v. Kuno Mader and DMG America, Inc.,6 Shirley Berge filed for Chapter 13 bankruptcy, which was later converted to a Chapter 7 bankruptcy. Her Chapter 7 case ended with a no assets discharge, which means she did not have to give up any property. However, the court was unaware that she had been in a car accident one month after filing for bankruptcy and filed a lawsuit for negligence to seek a personal injury settlement, failing to amend her bankruptcy petition to reflect the possible settlement that she was pursuing. DMG learned that she had not disclosed the pending case in her bankruptcy and filed with the court a motion for summary judgment, which asks the court to resolve the case in their favor. The court found in favor of DMG due to a finding of judicial estoppel. Though Berge claimed it was her attorney’s fault, the court was not persuaded by that argument, therefore she lost her ability to recover for her injuries in the car accident.
Chapter 13 bankruptcy
Plaintiffs have a “continuing duty to disclose all assets acquired during the pendency of the bankruptcy proceeding.”7
Chapter 13 bankruptcy cases take between three and five years to be closed after the repayment plan is started. During that time, changing financial circumstances and additional assets can affect the repayment plan or allow creditors to challenge the sufficiency of the repayment plan. In the case of Seymour v. Collins,8 the Seymours lost their personal injury case because of a claim of judicial estoppel for failing to disclose the case during their Chapter 13 repayment. However, the Illinois Supreme Court reversed the decision because it found that the Seymours did not intend to manipulate or deceive the bankruptcy court, as is a requirement for judicial estoppel. Since the court found no bad faith, it sent the case back down to the lower court for additional review. However, the Seymours have had their potential recovery for personal injury substantially delayed because they failed to properly disclose their possible entitlement to a settlement.
Bankruptcy cases can be extremely complex, especially if you have a pending personal injury claim, as well. It is critical to have an experienced New York bankruptcy attorney handling your case, so please call the Law Office of Ronald D. Weiss, P.C. at 631-271-3737 for assistance today.
5State of New Hampshire v. State of Maine, 532 U.S. 742. https://law.resource.org/pub/us/case/reporter/US/532/532.US.742.130.html
6Berge v. Kuno Mader and DMG America, Inc., 354 Ill.Dec. 374, 957 N.E.2d 968 (1st Dist. 2011). http://caselaw.findlaw.com/il-court-of-appeals/1582181.html
8Terry and Monica Seymour v. Bradley A. Collins, Rockford Country Club, ATS Medical Services, Inc., Shaun P. Branney, and Leo j. Verzani, 2015 IL 118432. http://www.illinoiscourts.gov/opinions/SupremeCourt/2015/118432.pdf