What Happens if the Business Responsible for Your Injuries Files for Bankruptcy?

We tend to think of bankruptcy as something affecting individual consumers, something people do to get a fresh start. We also hear a lot on the news about companies filing for bankruptcy. Those cases do not seem to affect us directly. All that changes when you are the one injured, and the business responsible for your injury declares bankruptcy.

What is the Effect of Chapter 11 Bankruptcy?

Most large companies file Chapter 11 bankruptcy. A company that files Chapter 11 does not always dissolve, but is often “reorganized” long after the bankruptcy filing. Companies do this by agreeing to pay certain creditors pennies on the dollar, or else by getting a court to waive their obligations to creditors entirely. Sometimes, separate companies will purchase the assets of a Chapter 11 company, in which case the new company is not required to pay off the previous company’s creditors.

This is the nature of the dispute in the current GM cases, where GM’s bankruptcy wiped out their obligations to pay some claims. The “new GM” is claiming protection under the discharge of liability of the “old GM.” Injured victims are currently seeking to remove all of GM’s bankruptcy protection against the prior injury claims, many of which occurred before GM filed for bankruptcy.

When you win a suit against a business that files for bankruptcy, you are considered a creditor of that business. However, if that business declares bankruptcy, your right to collect on that judgment may be eliminated.

Even if your claim survives the Chapter 11 bankruptcy, an automatic stay is placed on all business cases. In other words, your injury lawsuit will immediately halt, and will not proceed until all bankruptcy matters are sorted out, something that could take many years.

Dealing with Corporate Bankruptcies

If a business responsible for your injuries files for bankruptcy, you will need to file a proof of claim to protect your interests. Once that is done, there are some strategies you can employ to protect a personal injury claim and allow you to continue pursuing litigation.

One strategy is to ask the bankruptcy court to proceed in the injury case to the extent of available insurance payments. Alternatively, your claim may be exempt from discharge. Such might be the case if the business acted recklessly, if the injury was the result of fraud or DUI, or if there is some other specified liability not discharged by bankruptcy.

Make sure your injury claims are always protected, no matter the situation and no matter the defendant. If you’re injured in Maryland, contact the attorneys of Brassel, Alexander & Rice, LLC today for a free consultation to discuss your rights.