Thursday, January 5, 2012

Traffic Crash, Bankruptcy, and Who Pays

So, you are in a traffic crash. Of course, as soon as you see one of those 800-ASK-???? adds, everyone that thinks the other person is at fault becomes injured. They call their local attorney, instead of an 800 number, and get signed up.

Well, how about the person that is at fault. It could very easily be someone that is having financial difficulties anyway. In fact, it could be you. So, if you file bankruptcy, will you still have to pay the other driver you injured? This questions should more appropriately be rephrased to ask if you file bankruptcy, will the injured party still be able to collect? While these questions look very similar, there actually is an important distinction I will hopefully make clear by the time you finish reading this blog.

First, we should look at the cause of the wreck. If you were impaired at the time of the crash, you may not be able to discharge this debt. According to the bankruptcy code, you will not discharge a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity” (11 USC 523(a)(6)). So, if you were partaking in some recreational activities causing you to become impaired at the time of the crash, you could very well fall under this exception to the dischargeability of the debt.

Now, lets look at what happens if the debt is actually discharged. After you file the bankruptcy, you can expect the Plaintiff, or injured party, to hire an attorney and file a motion for relief from automatic stay. What the heck does this mean? It, for the most part, is the injured party, through their attorney, asking the bankruptcy court to allow him or her to proceed in state court outside of bankruptcy. If the relief is granted by the court, the order will generally limit the injured party to being able to proceed, but not collect directly from you, the debtor. They are limited to collecting from third parties, such as insurance companies.

So, if you file bankruptcy, an injured party may still be able to collect, but if you receive a discharge, the injured party may be limited to being able to collect from your insurance company.

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