Car Accidents and Bankruptcy, Part I

The most frequent type of lawsuit involved in a bankruptcy filing is a credit card lawsuit, filed after a credit card has gone into default.

As discussed elsewhere on this website, these lawsuits are normally discharged through bankruptcy, and any related liens are avoided and removed. But, these are not the only types of lawsuits involved in bankruptcy.

Lawsuits stemming from auto accidents are another issue handled in bankruptcy. They are more complicated for several reasons to be discussed. Whether or not these lawsuits are dischargeable through bankruptcy will be a major issue, and if the lawsuit is the primary debt of the potential filer, dischargeability may determine whether or not the bankruptcy is filed at all.

These auto accident lawsuits will normally be filed by an insurance company against a debtor, often when the debtor had no insurance at the time of the accident. The claims may be quite large, especially if there was bodily injury. Lawsuits can exceeding $50,000, $60,000, even $100,000. This makes it especially important to determine if the Chapter 7 or Chapter 13 bankruptcy discharge is available as an option.

The major questions in determining if damages related to an auto accident are dischargeable are:

  • Was the debtor under the influence of drugs and alcohol during the accident?
  • Was there bodily injury, or just property damage?
  • Were the actions of the debtor willful or malicious?

I'll discuss each question in turn in my next post. In short, if you were under the influence of drugs and alcohol at the time of the accident and you caused bodily injury to someone else, the debt will NOT be dischargeable (though mere PROPERTY damage while intoxicated may be dischargeable). Secondly, if the act causing damage or bodily injury was willful or malicious (intentional) the damages will NOT be dischargeable. The three questions are intertwined and must be reviewed by your bankruptcy attorney in relation to each other.

Nonetheless, there will leave many situations in which the lawsuit can be discharged. 

I'll discuss these issues in much more detail in my next post.