Hi, good morning. My name is Arkady Frekhtman. I’m a personal injury lawyer here in New York City.

Today I wanted to talk about how bankruptcy could affect your personal injury case. And this is either a bankruptcy of the plaintiff, the injured person who’s suing, or the defendant, the person you are suing. Either one can become bankrupt. And what bankruptcy does is usually involves three different issues.

Number one, the bankruptcy will put a stay, an automatic stay, and a moratorium on the case, on the litigation, because the bankruptcy is usually filed in federal court. Whether it’s a chapter 7, chapter 11, or a type of bankruptcy is filed in federal court and it’ll stay and put to sleep the state court action, meaning you can’t do anything. So what a lawyer will have to do is they’ll have to go to federal court and they’ll have to file a motion to lift the stay so that the case can proceed in state court.

And usually what that involves is agreeing to proceed against the insurance proceeds because the insurance, for let’s, say the defendant, is not bankrupt, right? The insurance company is still in existence and doing well financially. It’s the company that’s bankrupt or the individual that’s bankrupt. So why not lift the stay and proceed against the available insurance? And that’s one of the ways that people can continue the cases.

So the second point about bankruptcy is that it’s very important to file a proof of claim. Once you know that a defendant that you’re suing is in bankruptcy, you have to file a proof of claim. Failure to file a proof of claim, in some instances, could mean that you’re not a creditor and if you’re not a creditor, then you’re just out of luck. You had an opportunity, they send you a lot of letters, notices, “Hey, file your proof of claim.”

So you have to do that. I remember being involved in a case against A&P supermarkets and they were bankrupt, and I kept getting notices from the bankruptcy court. And we filed a proof of claim on behalf of our client. And later we learned that some other plaintiffs did not file a proof of claim and they were just out of luck. They couldn’t recover anything. So that’s very important.

The third thing with bankruptcy is that if you are the plaintiff in a bankruptcy if you are the person suing and you, due to financial hardship have to file bankruptcy, you’re not really in charge of your own case. Now the person in charge of the case becomes the trustee, the bankruptcy trustee. And so the bankruptcy trustee then has to hire a personal injury lawyer. Usually, they hire the same lawyer you hired, but your lawyer has to call the trustee, has to update the trustee, and has to work together with the trustee because the trustee speaks to the bankruptcy judge.

And so that’s an important point to know that if you are a plaintiff suing and then you get into bankruptcy, you don’t really own the case anymore. The case becomes the property of the trustee and he has to approve the settlement. So, for example, if you tell the trustee, “Hey, I got an offer for like 50,000.” He might say, “That’s too low because this particular person’s debts are way more. He owes like 200,000 and 50,000 are not going to help. So go out and get more from the insurance company.” But usually, it’s a pretty streamlined and seamless process. Usually, it’s fairly easy. The plaintiff’s attorneys work together with the trustee and they go before the bankruptcy court and they get approval. But just so you know, technically the plaintiff is not the owner of their case.

And I guess there have been some circumstances where the trustee just takes over the case and the trustee settles the case even sometimes without the agreement of the plaintiff. So those are the things to look out for if you have to file bankruptcy and you are the plaintiff. So let us know if you have any questions.

Hopefully, you don’t have to file bankruptcy. That’s the last resort. But if you do have to file bankruptcy, you can still maintain a personal injury case. You could still obtain compensation. And the same thing goes for when you’re suing somebody and the defendant just happens to file bankruptcy. There are steps that you can take to lift the stay, to proceed with the case, and still recover. Okay. I hope this has been helpful. Have a great day, and we’ll talk to you very soon. Bye-bye.

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