Personal Injury Lawsuit and Bankruptcy Weighed in Morton v. Schlotzhauer

When a personal injury victim suffers financial hardship, it may be necessary to file for bankruptcy in order to discharge debts. It’s not all that common, especially when you consider that many victims are unable to continue working, at least temporarily. caraccident4

Whatever claim — or potential claim — a personal injury victim has to collect compensation becomes part of the bankruptcy estate, which normally would mean that those damages would be collected and then distributed to creditors. However, personal injury claims are usually exempt from the bankruptcy estate, assuming the debtor discloses it to the bankruptcy court and asks for a waiver. These are details that a bankruptcy attorney should advise you on if this is the situation you’re in.

For plaintiff in Morton v. Schlotzhauer, it’s not clear whether she had legal counsel during the Chapter 7 bankruptcy she filed between the time she was involved in a car accident and the time she filed her personal injury lawsuit against the other driver and his employer. However, a recent review of her situation by the Maryland Court of Appeals (the highest court in that state), indicated there was no dispute that her failure to disclose the then-potential legal action was due to ignorance, rather than intentional concealment. 

Plaintiff had been involved in a crash with defendant, who at the time was on-the-job. She filed her personal injury lawsuit shortly before the three-year statute of limitations on the action expired.

However, then defendant became aware of that bankruptcy action — and the fact that plaintiff hadn’t actually listed it with the court or asked for an exemption. At that point, the Maryland high court described it as, “a race for relief” between the state court and the federal bankruptcy court. The plaintiff sought to ask the bankruptcy court to re-open the action so that she could file the claim and ask for the exemption so she could be re-vested as the rightful claimant in the injury lawsuit.

Meanwhile, defendant sought to have the car accident lawsuit dismissed because plaintiff did not have the standing to pursue the case.

Ultimately, that “race” ended in a “dead heat,” as both courts issued their decisions at the same time. The state court dismissed plaintiff’s action for lack of standing, and it did so with prejudice (meaning she could not refile the case) because by that time, the statute of limitations had run out. However at almost the exact same time, the bankruptcy court issued its ruling, re-opening the case, granting the exemption and re-vesting plaintiff with the right to pursue the case. It further made that ruling retroactive to the date she filed her bankruptcy petition.

Plaintiff then returned to the trial court, bankruptcy order in hand, seeking reconsideration. But the court refused.

Plaintiff appealed, and the Court of Special Appeals reversed. The court held that because the cause of action revested back to the debtor and that revesting related in law back to the date of filing of the bankruptcy petition — which was before the expiration of the statute of limitations — plaintiff did in fact have lawful standing in her personal injury lawsuit. The state high court affirmed.

If you have been a victim of a traffic accident, call Chalik & Chalik at (954) 476-1000 or 1 (800) 873-9040.

Additional Resources:

Morton v. Schlotzhauer, Aug. 19, 2016, Maryland Court of Appeals

More Blog Entries:

In re Estate of Woody v. Big Horn County – State Supreme Court Reverses Rejection of Wrongful Death Lawsuit, Aug. 19, 2016, Miami Car Accident Lawyer Blog