Accident victims often struggle to make ends meet during their recovery process. For instance, if you are seriously injured in a car accident, it may be several weeks or months before you can return to work. If your accident was the result of someone else’s negligence you can file a personal injury lawsuit, but that process takes time and may require an extensive process of settlement negotiations and ultimately litigation. During this time, you still have to pay bills and deal with mounting debts.
Unfortunately, in some cases the financial pressure proves too much and the victim–and their spouse, if they are married–need to consider filing for bankruptcy protection. But how does this impact a personal injury lawsuit? If you file for bankruptcy, are you effectively signing away your right to sue the driver who caused your accident?
How Bankruptcy Works
Unlike a personal injury lawsuit, which is generally governed by Iowa state law, bankruptcy is an exclusively federal process. Most individual debtors–the legal term for a person who owes money–file for either Chapter 7 or Chapter 13 bankruptcy protection. For debtors with few assets and little or no regular income, Chapter 7 is generally the preferred option.
In a Chapter 7 bankruptcy, a court-appointed bankruptcy trustee takes possession of any assets owned by the debtor–and their spouse, if it is a joint filing–that is not otherwise exempt from creditor claims under state law. These non-exempt assets are then liquidated (sold) and the proceeds used to pay off as much of the money the debtor owes as possible. Any remaining unpaid debts are then discharged by the court. The discharge does not eliminate the debt; rather, it absolves the debtor of any future obligation to repay that debt. (Some debts can never be discharged, such as unpaid child support.)
Transparency is the key to the bankruptcy process. The debtor must make a complete and honest disclosure of any assets they own at the time they file for Chapter 7 protection. In this context, an asset includes any pending or potential legal claim the debtor might have against someone else. Notably, this includes a personal injury lawsuit.
So let’s say you are seriously injured in a car accident. You cannot go back to work due to your injuries. You run up credit card debt as you struggle to pay for basic necessities. Eventually, you are in over your head and decide to file for Chapter 7 bankruptcy. Meanwhile, you have also filed a personal injury lawsuit against the driver who hit you. That case is still pending, however, and may not be resolved for several more months.
Even though the outcome of your personal injury claim is still in doubt, you still need to list it as an asset when you file for bankruptcy. This would be true of any personal injury claim based on an accident that occurred before you filed for bankruptcy. As far as federal bankruptcy law is concerned, the claim now belongs to the bankruptcy trustee.
In practical terms, this means the court-appointed trustee has the right to handle and dispose of your personal injury case while you remain in bankruptcy. Now, both federal and state law allow you to exempt a portion of your personal injury settlement or judgment from creditor claims. But these exemptions often do not cover the entire award, so some of that money, if any, will be used to repay your creditors.
Iowa Courts Dismiss Injured Delivery Driver’s Claim Due to “Judicial Estoppel”
The one thing you should never do is fail to list a personal injury claim in your bankruptcy petition. If you do that, the person you are suing can accuse you of committing bankruptcy fraud and get your personal injury lawsuit dismissed. And even if you genuinely believed you did not have to disclose your personal injury claim, the courts are unlikely to accept that as an excuse.
Indeed, the Court of Appeals of Iowa recently addressed this very situation. In Bradford v. Scooter’s Coffee, LLC, the plaintiff, a Missouri resident, worked as a delivery driver. One day while making a delivery to a coffee shop in Windsor Heights, Iowa, the plaintiff slipped and fell on a patch of ice or snow and sustained serious injuries. He subsequently filed a workers’ compensation claim in Missouri.
Nearly two years after the accident, the plaintiff and his wife filed for Chapter 7 bankruptcy in Missouri. About a week before the bankruptcy court granted a discharge of the plaintiff’s debts, he filed a personal injury lawsuit in Iowa, alleging negligence on the part of the coffee shop and its landlord caused his slip-and-fall accident. The plaintiff never disclosed this claim in any of his bankruptcy paperwork.
The coffee shop and its landlord subsequently moved to dismiss the Iowa personal injury lawsuit as barred by “judicial estoppel.” This is a legal rule that prevents someone from successfully asserting a position in one lawsuit and then taking a contradictory position in a subsequent lawsuit. Basically, the Iowa personal injury defendants argued that since the plaintiff failed to list his personal injury claim against them as an asset in his bankruptcy case, he was now barred from pursuing that same claim in Iowa.
The Iowa courts agreed. The Court of Appeals, upholding an earlier ruling from the District Court in Polk County, held that “by withholding these tort claims from the bankruptcy proceedings, [the plaintiff] kept his creditors from recovering their rightful portion of the bankruptcy estate.” The plaintiff insisted it was an honest mistake. He listed his Missouri workers’ compensation claim on his Chapter 7 petition and assumed that included his Iowa personal injury claim. But the Court of Appeals noted those were two completely different claims, and in fact the plaintiff had hired separate lawyers to pursue each. So he could not now claim that he did not understand his legal obligation to separately disclose the personal injury case.
Contact an Iowa Personal Injury Lawyer Today
When it comes to pursuing a personal injury claim, you want to make sure you act under the advice of a qualified attorney who can help protect you from innocent mistakes that could deprive you of your right to compensation. If you need to speak with an Iowa personal injury lawyer, contact Ball, Kirk & Holm, P.C., today at 319-419-4279 to schedule a free consultation. We have offices in Waterloo and Iowa City. We are available 24/7 and can travel to meet our clients when circumstances require.