Who Pays Your Damages if the At-Fault Party Files Bankruptcy?

When a person is injured in an accident caused by another party’s negligence, Virginia law allows them to pursue legal action against that party to recover financial compensation for the losses they suffer as a result of their injuries. But what happens if the at-fault party files for bankruptcy? How can the injured party collect the damages they are entitled to?

Federal bankruptcy laws are superior to state laws, meaning federal laws generally trump state laws allowing personal injury lawsuits, but here is the good news: you or an attorney can file a petition in the bankruptcy court for the right to resume your personal injury claim. This is called seeking a stay of bankruptcy. It is usually given to such a personal injury claimant if there is an applicable insurance policy in favor of the person or business being sued for injuries.  Insurance companies’ contractual duties to their insureds are not wiped out or extinguished by the bankruptcy.

The following is a brief overview of the impact bankruptcy can have on a personal injury claim. For more detailed information if you’ve been injured, contact our firm to speak with one of our Virginia personal injury lawyers.

Bankruptcy Petition

Bankruptcy is a legal process that helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. When a person files for bankruptcy, an automatic stay goes into effect. This stay halts most legal actions against the petitioner, including personal injury lawsuits. It prevents creditors, including the injured party, from pursuing or collecting debts during the bankruptcy proceedings.

Upon filing for bankruptcy, the debtor’s assets become part of the bankruptcy estate. A bankruptcy trustee is appointed and is responsible for managing and distributing these assets to creditors according to the bankruptcy laws. The injured party may need to file a claim with the bankruptcy court to seek compensation from the at-fault party’s available assets. Filing this claim can be complex, which is why a Virginia Beach injury lawyer should be consulted.

Chapter 7 vs. Chapter 13 Bankruptcy

The type of bankruptcy filed by the at-fault party can also impact the injured party’s chances of recovering compensation. In Chapter 7 bankruptcy, the debtor’s non-exempt assets are liquidated to pay off creditors, while in Chapter 13 bankruptcy, the debtor develops a repayment plan over a specified period. Once a bankruptcy stay is obtained to pursue the personal injury claim, the recovery may be limited to the available car or business insurance coverage but the insurance company’s obligation of coverage is not changed even when the insured person files their bankruptcy claim.

Insurance Coverage

If the at-fault party has insurance coverage, the injured party may still be able to seek compensation from the insurance company. Insurance policies are separate from the at-fault party’s personal bankruptcy proceedings and provide the source of funds for the injured party’s claims, once the bankruptcy court approves a stay for the personal injury claim to proceed outside the federal bankruptcy court.

Complex Legal Road

Navigating a personal injury claim when the at-fault party files for bankruptcy can be complex. It is crucial for the injured party to seek legal guidance from a knowledgeable personal injury attorney who can assess the specific circumstances, understands the bankruptcy process, and advocate for the injured party’s rights.

In some cases, it may be necessary to pursue a claim against other potentially liable parties, such as employers, contractors, or manufacturers, if they share responsibility for the accident and have the means to compensate the injured party.

Contact a Virginia Personal Injury Law Firm

Although the at-fault party’s bankruptcy filing can complicate the personal injury claim process, it does not automatically preclude the injured party from seeking compensation. Working with a Virginia personal injury lawyer who has experience in navigating this challenging situation, understands bankruptcy laws, and will explore all available avenues for recovery will greatly increase your chances of a successful outcome.

Call Shapiro, Washburn & Sharp to schedule a free and confidential case evaluation. Our firm is dedicated to fighting for clients and getting them the financial compensation they deserve, like the $235,000 personal injury insurance settlement we obtained for a client who suffered multiple injuries after another driver failed to yield the right of way.