Car Accidents and Bankruptcy, Part II

As discussed in my previous post, there are three major questions that must be answered when considering whether to include an auto accident lawsuit in a bankruptcy for potential discharge.

• Was the debtor under the influence of drugs and alcohol at the time of the accident?
• Was there bodily injury to the victim, or just property damage?
• Were the actions of the debtor willful or malicious (intentional)?

These three questions will determine if the lawsuit filed (most likely by the insurance company) will be discharged, or whether it will survive the bankruptcy.

The United States Bankruptcy Code addresses bankruptcy discharge under Title 11, Sections 523, 727, and 1328, and these are the sources for most of the information to follow.

Congress has embraced a policy that personal injury and death damages caused by a driver intoxicated or under the influence of drugs should not be eligible for a discharge in either a Chapter 7 or a Chapter 13 bankruptcy.

Section 523(a)(9) prevents the discharge of a debt related to, "death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance."

This section applies to both Chapter 7 and Chapter 13 bankruptcies. It is most important to note what this section does NOT apply to... property damage caused while under the influence of drugs and alcohol. If an individual causes only property damage while intoxicated, for instance by running into a parked car or destroying a fence, the purely property damage claim can be discharged in either a Chapter 7 or Chapter 13 bankruptcy.

If, on the other hand, the damage claim relates to a bodily injury or death, the claim cannot be discharged, even if it was not willful or malicious. The claim and the debt will survive or "pass-through" the bankruptcy. It will be important to review the details of the lawsuit with your bankruptcy attorney to determine how section 523 will apply to your bankruptcy petition. It is entirely possible that filing a bankruptcy will remain worthwhile, if the debtor has large amounts of other debt. Filing a bankruptcy on the remaining debt may make it possible to pay damages related to an accident.

Congress has taken a hard stand against discharging debts related to driving under the influence when someone has been injured. As an experienced Pittsburgh bankruptcy attorney, I can help you determine if you are eligible for a discharge of an accident related debt.

In my next post, I will write about damages related to willful or malicious conduct of the debtor, and the (sometime) differing results in Chapter 7 and Chapter 13 bankruptcy. Willful and malicious acts will prove to be the most difficult to discharge.

Credit Card Lawsuits, Part IV: What Happens if I Don't Respond

I have already discussed what constitutes a "response" to a credit card lawsuit, in general how to file one, and whether you should respond.

Even if you don't formally respond to the complaint, you should NOT ignore it. Negotiating a debt settlement or filing a bankruptcy will probably be your best options. Why should you not ignore the lawsuit?

First, when you do not respond, the complaint will become a "default judgment" roughly 30 days after it was served. That means the Court will find for the law firm of the credit card company suing you without you ever appearing in Court. The default judgment happens automatically. Does this seem unfair? Of course! But, it's a fact, so act accordingly.

A holder of a default judgment will have 20 years to "execute" on the judgment. This means they can take the default judgment and place a lien on a bank account, a car, your personal property, or even your home. Once this happens, you cannot transfer your home without the judgment holder getting paid. A lien on your bank account can occur at any time without your prior notice. You can literally lose an entire pay check (or two) before you realize what happened (hint: if there is a default judgment against you, stop your automatic deposit). You will receive service from the Court if a judgment holder attempts to put a lien on your home. If this happens, contact us immediately.

The lawsuit will not go away, so even if you don't have property now, it can be placed on after-acquired property. It can also prevent you from passing on property unencumbered to your children and heirs if you do not take action.

Another thing to point out briefly (to be discussed further in another set of posts)... the statute of limitations for collecting on a debt (4 years in Pennsylvania) does NOT apply to default judgments. Even if you had a proper statute of limitations defense, it must be raised BEFORE the deadline to answer the original complaint.

A second issue, even if you don't have any property to lien (right now) this default judgment will most likely destroy your credit. Clients I meet with are often concerned about the effects of bankruptcy on their credit score. I tell them a default judgment does FAR worse to their credit. They are like a malignant growth that constantly harms your credit by sending negative reports that don't go away.

So, if you do not respond, bad things happen. Liens and damaged credit are sure to follow. Contact us to determine if you are a candidate for bankruptcy or a debt negotiation. I frequently meet with clients in this situation. I can help.

Next, I will look at how bankruptcy deals with creditor lawsuits that have become, or will become, a default judgment.

What Are Post-Petition Debts?

Filing bankruptcy means dealing with and understanding lots of different types of debt... you'll be told about secure and unsecured debt, dischargeable and non-dischargeable debt, and pre-petition and post-petition debt (just to name a few!). It can get pretty confusing.

The question of what constitutes "post-petition" debt is an important one. In short, post-petition debts are any debts you incur after filing bankruptcy. Post-petition debts are so important because they are generally not dischargeable (there is another type of debt popping up). They don't go away after bankruptcy.

If you open a new credit card account or take out a new car loan after filing bankruptcy, the bankruptcy does not eliminate that debt, even if you wish to return the property. If you borrow from a friend or family member, or get medical treatment after filing, you will probably be facing a post-petition debt. These post-petition creditors will be free to sue you after the bankruptcy automatic stay ends at the discharge of your case.

Beyond these obvious examples, there are some ongoing debts that may be considered post-petition debts. Utilities, phone and cable bills, and taxes will all be due after filing bankruptcy, even if the amount you owed before filing (PRE-petition debt) is discharged. Taxes will be due as always, so make sure you are prepared to pay them.

Your car and mortgage payments will continue after bankruptcy, assuming you wish to retain the property. In a Chapter 7 bankruptcy, the payment must be made as normal or the property can be repossessed or foreclosed upon. You must be current on these payments at the time of filing bankruptcy. In Chapter 13 bankruptcy, the payments will be made through the bankruptcy plan.

It is important to point out that debts accrued during your Chapter 13 bankruptcy plan (which lasts 3 to 5 years) are NOT discharged, even though you are technically "in bankruptcy". Once again, only the debts from before the date of filing are discharged. Not only will post-petition debts survive your Chapter 13 bankruptcy, you must also get Bankruptcy Court permission to take on certain post-petition obligations, such as a new car payment.

If you have any question about what constitutes a post-petition debt, be sure to clarify it with your attorney before filing.

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.

Paying for Bankruptcy

It's a common and reasonable question, "How do I pay for my bankruptcy?"

In a Chapter 13 bankruptcy, the bulk of the legal fees and court costs are paid through the Chapter 13 plan. Generally, some money is paid up front to cover the court filings and initial work needed to file the bankruptcy petition. The remainder of the fees and costs will be paid to your bankruptcy attorney over the course of the 3 to 5 year plan, through the plan itself.

If attorney fees in a Chapter 13 bankruptcy go beyond the normal  amount anticipated, your attorney may file a "fee petition" to collect additional fees. However, the good news is that these fees are also paid through the Chapter 13 bankruptcy plan. None of the extra attorney fees will come out of your pocket directly; in fact, money formerly directed to your unsecured creditors may be used to pay your attorney fees at this point.

It should be noted, a fee petition will never occur without your knowledge or approval. A fee petition must be approved by the court and served on you before it will be approved. You will always have a clear, exact idea of what your attorney fees are when you retain my office.

Paying for a Chapter 7 bankruptcy can sometimes be trickier. Chapter 7 bankruptcy involves lower income filers, so money is often tighter. Knowing this, my office strives to offer flexible payment plans. I know that sometimes it will take weeks to pay me, sometimes months. An important part of my job is making it work. Whether the payments are large or small, my office will provide the same exceptional service and care.

Payments can also be made by third parties, such as parents, friends, and siblings. Gifts such as these are permitted to help debtors file bankruptcy. Tax returns can also be used, and this is important to keep in mind early in the calendar year. If you are anticipating a large tax return, use it to clear out your old debts! We can figure out a way to work with your current budget and financial situation.

Considering that bankruptcy can save tens-of-thousands of dollars, the fees involved shouldn't be viewed as something that cannot be overcome. Contact us for a free consultation and we can discuss your best way to pay for bankruptcy.