By John Lee
Failing to list your personal injury claim on your bankruptcy schedules can lead to a total loss of your personal injury claim. The debtor in bankruptcy has a duty to list all of his assets, including potential or contingent assets. When a debtor files for bankruptcy most of his assets become part of the bankruptcy estate and may be administered by the Trustee. The Trustee will abandon his interest in any assets that the debtor properly exempts, including personal injury claims. The debtor may amend his schedules to claim his exemptions any time up until the bankruptcy court closes his case. Upon the court closing the bankruptcy case, the debtor can no longer amend his schedules without first getting court approval, which in many cases is difficult to obtain.
An asset, including a personal injury claim, becomes part of the bankruptcy estate even if the debtor fails to list it on the bankruptcy schedules. The Trustee can only abandon assets that are listed on the schedules and that he is aware of. Therefore if the personal injury case is not listed, it can not be abandoned by the Trustee. If the bankruptcy case closes and the Trustee has not abandoned the asset, then the Trustee remains the owner of the asset and holder of the claim. That means the Trustee, not the debtor, is the owner of his personal injury case and only he can be the plaintiff in the State Court personal injury action. When the insurance company defense attorney finds out that the debtor filed bankruptcy and the asset was not listed, he may file a motion to have the State Court personal injury suit dismissed because the debtor/plaintiff is no longer the rightful owner of the claim. This is a critical point because the statute of limitation to file a personal injury case is only two years. If your personal injury case is dismissed because the Trustee is the rightful owner of the personal injury claim, then you may miss your filing deadline attempting to fix the mistake in bankruptcy court.
If the debtor/plaintiff leaves the personal injury suit off his schedules the defense attorney for the insurance company may also raise the defense of Judicial Estoppel. Judicial Estoppel is a legal doctrine that prevents a person from claiming two contradictory positions under oath. If the debtor/plaintiff successfully completes his bankruptcy with his schedules showing no personal injury claim, then the debtor will not be allowed to assert that he has a personal injury claim in State Court. The debtor is required to sign his bankruptcy schedules under oath. If he signs his schedules under oath stating that he has no personal injury claim, then how can he pursue a personal injury claim after filing bankruptcy? The debtor can not state, under oath, in one court that he is owed no money for a personal injury suit; and then claim he is owed money in a State Court tort action. The debtor may be placed in the situation where he has to answer the question: when were you lying, then or now? In this situation, the insurance defense lawyer may ask the State Court to dismiss the personal injury suit based on Judicial Estoppel.
Even if you win your personal injury suit in State Court, you still may not be able to keep the settlement award. If you receive an award for a personal injury suit that you did not list and exempt on your schedules, the Trustee may reopen your case and take the award for the benefit of your creditors. The Bankruptcy Courts have held that a debtor does not have the right to amend his schedules without court approval after the case is closed. Typically, a case where the debtor simply “forgot” to list his personal injury settlement is not one where the bankruptcy court would grant leave to amend. If you are not granted leave to amend your schedules to claim your exemption, then the Trustee will be entitled to the entire personal injury settlement award.
So far everything seems pretty straight forward, right? List your personal injury claims on your schedules so you can exempt them. But what about the personal injury case that you legitimately don’t know about? You might ask, how can one not know they were injured?
Consider the case where a woman has surgery in 2012 and then files bankruptcy in 2013. Her Bankruptcy case is completed and closed, and then, in 2014 she learns that the doctor left a medical instrument inside her by mistake. The injury occurred prior to her filing bankruptcy but she did not learn of it until after the bankruptcy was closed, so she did not list and exempt it on her schedules. Can she still maintain a medical malpractice suit against her doctor? If she is successful in her malpractice claim can she keep the award, or does the Trustee get it because she did not exempt it? Is it fair for her to loose her malpractice settlement because she did not list it on her bankruptcy schedules?
