What Happens to an Injury Claim When a Company Files for Bankruptcy?

When we think of bankruptcy, we usually do not think it has much impact on the world of injuries or personal injury lawsuits. Corporate bankruptcies can have a significant effect on injury cases, however, and when long-standing companies are filing for bankruptcy protection, injury victims need to be aware of how corporate bankruptcy could affect them.

Corporate Bankruptcies

Like people, companies can file for bankruptcy. Companies usually file for Chapter 11 bankruptcy, which will allow them to either stay in business and reorganize their financial affairs, or else allow them to close their business entirely free from the claims of creditors.

If you are injured by a company or have a pending lawsuit to recover for injuries against a company that files for bankruptcy, you are a potential creditor of that company, treated like any other creditor.

One of the most significant effects of corporate bankruptcy will be the automatic stay. When a company files for bankruptcy, jurisdiction between the company and its creditors—that is, you—automatically transfers to the bankruptcy court. That means if you have a state court case pending, it will immediately cease.

Court Will Determine Priority

In most cases, the bankruptcy court is not concerned with liability or the facts of your accident or your injuries. In most cases, the bankruptcy court will be more concerned with whether you are a creditor that the company should have to pay, and if so, how much of your potential claim it should pay.

A company filing for bankruptcy has limited assets to pay its creditors. You are fighting with other creditors for a piece of that pie. That means that the bankruptcy court may find that other, larger creditors get paid, while you do not. Or, the court may find that you only get .10 on the dollar for the value of your claim.

Notification is Required

Companies that file for bankruptcy must notify you that they are doing so, and must be open about potential liability, or they will have to pay your claims, even after the bankruptcy.

GM just learned this lesson the hard way, when a court decided that its bankruptcy would not excuse them from paying claims of consumers with faulty ignition switches that lead to massive recalls in 2014. Because the Court found that GM did not notify consumers of the existence of the ignition defect even though GM allegedly knew of them, the Court found that consumers’ constitutional due process rights would be violated if GM were allowed to include and discharge those claims in its bankruptcy.

GM also argued that its subsequent sale that occurred during the bankruptcy, and after the ignition switch debacle, should shield it from liability. However, that argument has also been denied, leaving GM on the hook to consumers with potential lawsuits.

Make sure you avoid problems by pursuing injury claims in a timely manner. Contact the attorneys of Brassel, Alexander & Rice, LLC today for a free consultation to discuss your case.