Top 10 Frequently asked question regarding effects of filing bankruptcy on an auto accident claim

Top 10 Frequently asked question regarding effects of filing bankruptcy on an auto accident claim

  1. Is my auto accident claim effected by filing bankruptcy?

Answer: The simple answer is yes.

  1. Can I keep the same lawyer for my accident claim after I file bankruptcy?

Answer: Yes. What often happens in a Chapter 7 case is that the trustee will hire the debtor’s PI attorney to prosecute the case on behalf of both the bankruptcy estate. Note, however, that the trustee is able to hire any attorney that he or she wants to as well. But for obvious reasons, they generally hire the attorney who has been working the case. The employment of the attorney as well as the fees and expenses must be approved in advance by the bankruptcy court. At the time of recovery, a separate fee application must be filed before the PI attorney’s fees can be paid to the attorney. This actually protects the attorney’s fees. An attorney who continues work on the PI case without getting advance approval of his or her employment and fees may likely have to disgorge any fees they take from the PI recovery. It is critical to understand that that for all intents and purposes, the Trustee is the client and is the only one who can authorize settlement.  Generally, the injured party client should be involved the settlement discussions and try to get consensus on settlement.  Do Not, Do Not fight with the Trustee regarding their authority.  You need their cooperation.  Simply accept them as a new part of your case. Usually, the trustee will seek bank­ruptcy court permission pursuant to Bankruptcy Code § 327(e) to employ the personal injury attorney as special coun­sel to the estate to continue with the case so that a recovery is obtained, with the understanding that a later determina­tion of the split of the proceeds between the debtor and the bankruptcy estate will have to be made. The bankruptcy court will routinely approve this employment as special counsel. The usual terms of employment will generally be a one-third contingency fee plus the reimburse­ment of reasonable expenses. Most importantly, all fees and expenses of special counsel must be approved by the bankruptcy court pursuant to Bankruptcy Code § 330(a)(1)(A), prior to any payment’s being made. Therefore, [Comment: regardless of?] whether the trustee or special coun­sel holds the claim proceeds pend­ing approval and distribution, no funds may be paid to special counsel until the fees and expenses have been approved by the bankruptcy court. There are no exceptions to this.

 

  1. Do I retain the right to make the final decision in settlement negotiations?

Answer: No. Once a bankruptcy is filed, the Trustee becomes the “owner” (get it… Trustee) of all property of the debtor including the personal injury claim. the Trustee is the client and is the only one who can authorize settlement. Once a bankruptcy case is filed, bankruptcy court approval of both the settlement and of the PI attorney’s fees and expenses are required. Moreover, the debtor (injured party) cannot receive a distribution of the recovery without approval either. All of this will be accomplished by the bankruptcy trustee assigned to the case.

  1. Does the type of bankruptcy I file effect any of the above answers?

Answer: Yes. It does make some difference whether the case is a Chapter 7, Chapter 11, or Chapter 13. However, under the current state of the law in the District of Maryland, the bankruptcy estate may be entitled to a portion of the recovery. It is that portion that a trustee will seek to protect and get into the bankruptcy estate. In a Chapter 11, the debtor is the trustee so there is no independent trustee appointed. In a Chapter 7, an independent trustee is appointed. This happens as well in a Chapter 13 case. Note, however, that the Chapter 13 trustee does not generally get too involved in the PI case, as would the Chapter 7 trustee. But the Chapter 13 trustee will expect the portion to be paid into the bankruptcy estate. A discus­sion with the Chapter 13 trustee is essential prior to the personal injury counsel’s continuing with the repre­sentation to ascertain the extent to which the matter

 

  1. Does the bankruptcy effect a pending claim not yet resolved before the bankruptcy is filed?

Answer: Yes.

  1. Does it matter whether with regard to pending claims which occurred prior to the bankruptcy filing whether the case is in litigation or only at an informal stage without lawyers?

Answer: No. when a bankruptcy case is filed and there is a pending car accident claim, or even a claim not pending but existing, the claim is property of the bankruptcy estate unless it is exempted.

 

  1. Does the bankruptcy filing effect an auto accident that occurs after the date of filing bankruptcy?

Answer: No

  1. Can you keep some or all of your personal injury claim even after you file bankruptcy?

Answer: It depends. While Maryland requires that all assets and liabilities become part of the bankruptcy, the debtor who has an auto accident claim can elect certain exceptions called exemptions which allow the car accident victim to keep some or all of the proceeds of the car accident claim.

Md. COURTS AND JUDICIAL PROCEEDINGS Code Ann. § 11-504 (2010)

  • 11-504. Exemptions from execution

(a) “Value” defined. —

  • In this section the following terms have the meanings indicated.
  • “Value” means fair market value as of the date upon which the execution or other judicial process becomes effective against the property of the debtor, or the date of filing the petition under the federal Bankruptcy Code.

(b) In general. — The following items are exempt from execution on a judgment:

  1. Money payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings. This exemption includes but is not limited to money payable on account of judgments, arbitra­tions, compromises, insurance, benefits, compensation, and relief. Disability income benefits are not exempt if the judgment is for necessities contracted for after the disability is incurred.
  2. Cash or property of any kind equivalent in value to $ 6,000 is exempt, if within 30 days from the date of the attachment or the levy by the sheriff, the debtor elects to exempt cash or selected items of property in an amount not to exceed a cumulative value of $ 6,000.

(f) Interest in real or personal property. — In addition to the exemptions provided in subsection (b) of this section, and in other statutes of this State, in any proceeding under Title 11 of the United States Code, entitled “Bankruptcy”, any individual debtor domiciled in this State may exempt the debtor’s aggregate interest, not to exceed $ 5,000 in value, in real property or personal property.

(g) Federal bankruptcy exemptions. – In any bankruptcy proceeding, a debtor is not entitled to the federal exemp­tions provided by § 522(d) of the federal Bankruptcy Code.

This particular section of Maryland law controls what you can keep from your car accident settlement.

In general, the current state of the law in the District of Maryland is that there appears to be an unlimited exemption contained in Courts and Judicial Proceedings (“CJP”) 11-504(b) (2) for Money payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings.

There are however some limitations on the exemption

  1. only applies to pain and suffering.
  2. exempts claim or proceeds in regard to both bodily inju­ries and non-bodily injuries such as emotional injury and mental anguish.
  3. Does not apply to:
  4. The money collected for unpaid medicals incurred prior to the bankruptcy filing. Money will be used to pay these bills.
  5. The money collected for lost wages incurred prior to the date of the bankruptcy filing are not covered under CJP 11-504(b)2) exemption statute and must be claimed, to the extent of available room, under either CJP 11-504(b)5) or (f).
  6. Property damage claims
  7. there had been no express limit on the amounts exemptible under. the personal injury exemption statute. The sole limitation was the require­ment of reasonableness required by MD. CONST. art. III, § 44. As such, the exemption statute will be construed in light of the “reasonableness” requirement of the Maryland Constitution. See gener­ally In re Butcher, 125 17.3d 238 (4th Cir. 1997). Exemption Statute

CJP § 11-504(b)(2)

  1. Does the bankruptcy trustee have the final say on settlement of the case and approval of attorney fees?

Answer: No. Once a settlement is authorized by the Trustee and agreed by the parties, it still needs to be submitted for bankruptcy court approval under BR Rule 9019 (which is usually pro forma).  While the trustee has authority to liti­gate the personal injury claim, he or she has no authority to settle the claim. This does not mean that the claim cannot be settled. Rather, the settlement must be approved by the bankruptcy court before it is final. The trustee, therefore, has the authority to enter into settle­ment negotiations and to recommend the approval of the settlement.

10.  Do I still have to pay my Doctors bills related to the accident claim and the lawyer I hired to handle my accident claim?

Answer: yes. These bills are not wiped out by the bankruptcy. See question #8.

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