What Happens If The Defendant in My Personal Injury Case Files For Bankruptcy?

If you are a victim of an accident due to someone else’s fault, they are liable to compensate you for your injuries and the related losses. You can go to court to press for your rightful claim, and you can recover the compensation either through settlement or litigation with the help of a Virginia Beach personal injury lawyer.

However, your legal right to recover damages may receive a setback if the at-fault party files for bankruptcy. Bankruptcy proceedings have the potential to stop personal injury lawsuits and reverse the course of judgments.

Whether the defendant files for bankruptcy because of legitimate financial difficulties or some unforeseen situation, it reduces your chances of recovery.

Understanding the Basics of Bankruptcy Rules

Bankruptcy rules and laws are complicated, involving the rights of creditors and debtors. The proceedings in a bankruptcy case are usually filed and pursued in federal bankruptcy court. Bankruptcy filed by the defendant can allow them automatic stays against most civil lawsuits, including your personal injury lawsuit against them.

The options that you may have if the defendant in your personal injury lawsuit goes bankrupt depend on the timing of the bankruptcy and their applicable insurance. Let us try to explain it further in detail.

Scenario 1: Bankruptcy Filing During the Personal Injury Lawsuit

The automatic stay gained by the defendant when they file for bankruptcy will restrain you to pursue your personal injury suit. The only way you can continue is with the permission of the bankruptcy court. You will need to file a motion to get permission to remove the automatic stay.

The two scenarios in which the bankruptcy court may grant you permission by lifting the automatic stay, are:

  1. You can prove to the court that the reasons behind the filing of bankruptcy by the defendant are fraudulent and the bankruptcy filing is a ploy to stop the personal injury lawsuit.
  1. The damages you seek to recover are not beyond the policy limits of insurance coverage of the defendant and your recovery will not affect other creditors trying to collect from the defendant.

In case the bankruptcy court lifts the stay, you can continue your lawsuit either in state court where you filed the matter initially or in a federal district court. If the bankruptcy court decides not to lift the automatic stay, it signals an end to your personal injury lawsuit.

Scenario 2: Bankruptcy Filing After the Personal Injury Lawsuit

If you win your lawsuit but the defendant declares bankruptcy before the recovery process, your chances of collecting the claim depend on the defendant’s insurance coverage. You must prove to the court that there is sufficient insurance coverage to cover your awarded claim.

In the absence of any insurance coverage, or the awarded compensation amount exceeding the insurance policy limits, you might not be able to collect the entire judgment amount. In this case, if any amount of money remains after the liquidation proceedings and payments to secured creditors, you may be fortunate to recover your judgment fully, or in part.

Scenario 3:Bankruptcy Filing Before the Personal Injury Lawsuit

It may not be advisable for you to file and pursue your personal injury case against the defendant if they filed for bankruptcy prior to your injuries unless there is sufficient insurance to make payments for a settlement or judgment in your favor.

If there is no insurance, your winning judgment is nothing but a kind of unsecured debt. Your chances of getting anything in bankruptcy proceedings are minimal except if the defendant’s intoxicated or willfully malicious behavior caused your injuries.

When is the Defendant Not Allowed to Discharge Personal Injury Debts?

The law does not allow the discharge of personal injury cases under two circumstances even in the event of the defendant’s bankruptcy filing:

  1. The personal injury lawsuit leads to a death or injury because of the defendant driving under the influence of alcohol or drugs.
  1. The personal injuries are due to a malicious or willful act by the defendant.

The plaintiff needs to file an objection to prevent the discharge, but the failure to do so can allow the defendant to discharge these debts.


If you are the plaintiff in a personal injury lawsuit, the law classifies you as an unsecured creditor. Once the defendant files a bankruptcy petition, your litigation cannot move forward. The course of action by your personal injury attorney depends on whether the defendant, be it an individual or a business entity, has liability insurance. But the court will limit the recovery amount to the insurance limit.

Call Our Office Today for a Free Case Evaluation

Under the Virginia case law, your accident attorney in Virginia Beach can include the medical bills in the evidence even if bankruptcy wiped out those medical bills, to prove the pain and suffering you went through because of the accident.

Contact an experienced personal injury attorney at Shapiro, Washburn, and Sharp to ensure that the bankruptcy does not impact your personal injury case. Call us at (833) 997-1774 today or contact us online to schedule a free and confidential consultation.