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Debtor Prevented from Pursuing Personal Injury Claim Because She Did Not Properly Exclude it from Bankruptcy Claim

Filing a bankruptcy claim requires great attention to detail and a deep understanding of complicated issues. In a recent case, one woman was prevented from filing a personal injury claim because she failed to properly exempt the claim in her bankruptcy schedules.

PaperworkThe woman was injured in a car accident and subsequently had to undergo surgery for her injuries. She later filed a Chapter 7 bankruptcy claim, and about two years later, she filed a lawsuit against another individual alleging that he caused the car accident. The defendant then moved to dismiss the claim arguing that the woman could not bring the claim. He claimed that because the woman had filed a Chapter 7 bankruptcy petition two years earlier, only the bankruptcy trustee could file a claim, because she had not exempted it in her bankruptcy case.

When a person files bankruptcy,  she is required to list all of her assets in the bankruptcy schedules.  A personal injury claim is considered an asset that must be listed on Schedule B.  Assets which the debtor claims as exempt are then listed on Schedule C, along with a citation to the statute that provides for the exemption.  In this case, the debtor listed this claim on Schedules B and C under the heading: “other liquidated debts owed to debtor, as: “proceeds related to claims or causes of action that may be asserted by the debtor.” The woman argued her personal injury claim fell within the language she listed, and that she had properly exempted her claim from the bankruptcy estate.

The issue for the court to decide was how specific a debtor has to be when listing an exemption such as a legal claim. Here, the court found the language used by the woman was overly general and provided no useful information that would lead the trustee to discover the personal injury claim. In addition, the court noted that she should have listed the claim under question 21, under other contingent and unliquidated claims, rather than in question 18, under other liquidated debts. For that reason, the court found the woman’s claim was part of her bankruptcy estate and she could not bring her personal injury claim.  This concept is often referred to as judicial estoppel.

The Bankruptcy Estate

Generally, when an individual files a bankruptcy claim, all the “legal and equitable interests in property” the individual had before filing the claim become part of the bankruptcy estate, and transfer to the control of the trustee. That includes the individual’s pending causes of action in court. If a claim is part of the estate, only the trustee can bring the claim. To exempt an asset, an individual must list it on both  Schedules B and C.

Are You Considering Bankruptcy?

Bankruptcy claims have to be filed with precision, detail, and an understanding of the law. The experienced Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center can help you through the complex and daunting Bankruptcy Code. We strive to identify possible solutions that will help you improve your life and get your finances back on the right track. To schedule your free initial consultation, call our Louisville office at 502-485-9200, our New Albany office at 812-945-9200, or toll-free at 866-366-3328. You may also contact us online. We are available after hours and on weekends.

More Blog Posts:

Court Finds Couple’s Payments Toward Home Improvements May Have Been Fraudulently Converted into Home Equity, Kentucky Bankruptcy Lawyers Blog, published March 1, 2017.

Fourth Circuit Declines to Punish “Frugal Debtors” in Bankruptcy Appeal, Kentucky Bankruptcy Lawyers Blog, published January 29, 2017.

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