Submitted by New Jersey Bankruptcy Lawyer, Lee M. Perlman.
An unfortunate truth is that when someone is injured in an accident, they are almost always going to be suffering a financial hardship on top of their injuries. For this reason, you confirm the bankruptcy status of your client. Are they in an active bankruptcy? Are they considering bankruptcy? Have they ever been in bankruptcy? It matters, especially when considering there may be some time in between the cause of action arising and being brought to you for a case.
If your client is in an active bankruptcy, there are things you need to know from the client. For starters, who is their bankruptcy attorney? You should probably give them a call. You see, a cause of action is what we call an asset. Whether that asset is a part of the bankruptcy estate (it usually is) depends on when the cause of action arose, NOT when the claim is taken to court. If the cause of action arose prior to the bankruptcy being filed, then it is almost certainly part of the bankruptcy estate. If it arose after the bankruptcy was filed, it depends what chapter of bankruptcy your client filed for.
There are two common ways consumer debtors file bankruptcy: Chapter 7 (liquidation) and Chapter 13 (reorganization). A Chapter 7 is generally only concerned with the Debtor’s assets at the time the case was filed. A Chapter 13 is also concerned any asset that a debtor acquires after the case is filed. This means a Chapter 13 Debtor who is injured after the bankruptcy is filed has an obligation to update their bankruptcy petition and the proceeds of the settlement or verdict may be subject to the trustee’s administration.
If your client formerly had a bankruptcy that was discharged, you need to consider whether their claim was (or should have been) part of the previously bankruptcy. Did the cause of action arise before the case? During the case? After the case?
Failure to properly disclose the existence of a claim or cause of action can lead the client receiving nothing from the settlement, or worse, having their claim thrown out lead judicial estoppel. You don’t want to find out on the eve of settlement from opposing counsel that there is a bankruptcy and worse, non-disclosure. Settlement coordinators also always run a check for bankruptcies.
Practice Pointers:
· Find out if your client has filed bankruptcy and if so, when and what chapter.
· Contact their bankruptcy attorney and make sure they know about the client’s cause of action. Assume nothing. Go through the analysis together.
· Keep the bankruptcy attorney informed about case status. Get a waiver to speak with each other about the respective cases if necessary.
· When it comes time to settle the case let the bankruptcy attorney have the talk about “how much money am I getting”. They are going to be better suited to discuss what, and how much, the client can protect.