A defendant can only pay for your injuries if they have the money to pay. Claims are often filed through insurance specifically because individuals might not be able to afford serious expenses. But what happens if the defendant is actually in bankruptcy?
When someone files for bankruptcy, they usually benefit from an “automatic stay.” This stay halts all collection efforts and claims against them, including personal injury claims. This means you may not be able to sue them – at least not until their bankruptcy is over – but you may be able to sue insurance.
For help with your injury case, call The Queenan Law Firm’s Dallas car accident lawyers today at (817) 476-1797.
How a Defendant’s Bankruptcy Affects Your Car Accident Case
If you want to file a car accident claim against someone, but they file for bankruptcy, it can block your ability to sue, at least for a while.
Automatic Stay
When someone files for bankruptcy, an “automatic stay” is put in place. This stay shuts down collection efforts and claims automatically, making it so you cannot continue your case against them.
However, it doesn’t stop their car insurance company from paying a claim.
Timing
If they file for bankruptcy before you file a claim against them, the bankruptcy court issues an “automatic stay” that applies as soon as they file their bankruptcy petition. This blocks or pauses any new or ongoing cases.
If you have already won a claim against them, collection will be paused. You will have to wait in line with other creditors, e.g., banks, mortgage companies. However, claims their insurance is paying are not paused by the driver’s bankruptcy.
Discharge
If the debt for your negligence claim is discharged in bankruptcy, you will get nothing. However, our lawyers can file a claim with the bankruptcy court saying that the injury was caused by “willful” or “malicious” conduct for things like drunk driving crashes, reckless driving, etc.
In these cases, the court will typically not discharge the debt, so we can still collect when the bankruptcy case is over.
How Long Does the Automatic Stay Last?
An automatic stay remains in place throughout the bankruptcy proceedings. Depending on the type of bankruptcy they filed, this could take months or years.
If they were supposed to pay you directly, then you can only collect by waiting in line as a creditor. However, if their debt is discharged, you will not get anything.
Insurance is Separate
Claims against insurance are not stopped by the driver’s automatic stay. This means the insurance company can still pay claims they already settled, as well as take in and settle new claims.
Is There a Difference Between Suing a Poor vs. Bankrupt Defendant?
If the defendant can’t afford damages anyway, you’re going to have trouble recovering against them either way. Some challenges overlap while others are unique to bankruptcy.
Insurance
If they have insurance, then their insurance likely can cover at least some of your damages, whether the defendant has money or not.
Bankrupt Defendants
The defendant’s assets will be tied up in bankruptcy court if they actually file for bankruptcy. This puts a halt on your ability to make claims against them and to collect damages, which may be discharged later.
Poor Defendants
If the defendant cannot afford to pay damages, then it doesn’t matter if they are officially in bankruptcy or not: you cannot win money that they don’t have. Even after a bankrupt defendant’s bankruptcy case ends, they might still not be able to afford your damages.
How Do You Get Paid When the At-Fault Driver is Bankrupt?
Instead of suing, we can often recover damages – in full or in part – through insurance policies.
At-Fault Driver’s Insurance
When individual drivers cannot pay, their insurance often can. Even while the driver is in bankruptcy proceedings, their insurance may still settle a case and pay your damages.
However, insurance companies will not pay more than the policy limit. If the driver had a low policy limit, this might block your recovery beyond a certain point.
Your Insurance
Fortunately, many drivers have additional coverages on their insurance policy that can help them out, whether the other driver can pay or not. Things like collision coverage and medical payment coverage can supplement your damages.
All you have to pay is a deductible, and you may be able to recover that amount you paid from the other driver’s insurance.
UM/UIM
In addition, you may have uninsured/underinsured motorist (UM/UIM) coverage. If the driver who caused your accident was uninsured, then our Abilene, TX car accident lawyers can use your UM coverage. If their insurance limit was too low to cover your damages, we can tap into your UIM.
This means that if the other driver is in bankruptcy and we cannot sue them – and their insurance refuses to pay or pays too little – your UM/UIM may be able to cover the rest.
FAQs for Car Accident Claims Against Bankrupt Drivers in Texas
Can You Sue Someone Who is in Bankruptcy?
No. The automatic stay in their bankruptcy case blocks all lawsuits and claims for payment.
However, it only blocks claims directly against them; claims with their insurance are allowed.
Can Bankruptcy Discharge Personal Injury Debts?
When you win a case against someone, they are now in debt to you. If they file for bankruptcy, that debt could be wiped away or “discharged” through the process.
This means that their obligation to pay you goes away entirely, and you get nothing from them. You may need to find alternative compensation, such as a UM/UIM claim with your insurance.
However, claims for willful or malicious conduct usually cannot be discharged. That may include reckless crashes.
How Do You Know if the Driver Can Afford to Pay Your Damages?
Our lawyers will contact them and their insurance company/lawyers to make determinations about what the other driver can and cannot cover. The insurance company will usually be able to supply proof that the other driver is unable to pay damages or else provide us with a copy of the automatic stay, letting us know they are in bankruptcy and cannot be sued.
Can You File an Insurance Claim When the Defendant is Bankrupt?
Drivers are required to carry car insurance even when they are bankrupt. Insurance claims can be paid and negotiated even while the driver is in the middle of a bankruptcy case.
If their insurance refuses to pay, knowing that we cannot sue until the bankruptcy is over, then your insurance may be able to fill in the gaps in coverage.
Call Our Texas Car Accident Lawyers Today
For your free case evaluation, call the Fort Worth, TX car accident attorneys at The Queenan Law Firm at (817) 476-1797.