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LawsuitIf you are thinking about filing bankruptcy and are mixed up in or will soon be involved a lawsuit, you need to let your bankruptcy attorney know about the lawsuit prior to when your bankruptcy case is filed. This is the case whether you are being sued by somebody or whether you have a claim against somebody else.

As part of your bankruptcy filing, you must list any cases that you have been involved in, in the last 1 year prior to filing your bankruptcy case. This is something that is reported on the statement of financial affairs section of your bankruptcy petition and is part of a chapter 7 or chapter 13 bankruptcy case.  If you have been sued by somebody this debt must also be listed as part of your bankruptcy filing and you will also want to notify any attorneys representing the plaintiff who has sued you so that they get notice of your bankruptcy filing and can file a dismissal of your lawsuit, stop any future wage garnishments, or determine whether they want to file an adversary case in which to object to the discharge or your debt in your bankruptcy case.  Adversary cases do not happen often, but there are several reasons why an adversary case may be filed to determine whether a debt is dischargeable or not.

If you believe you may have any claims against anybody in the future or are currently involved in a lawsuit where you may be entitled to damages or receiving funds, this must also be disclosed in a bankruptcy case whether the case has been filed already or not.  Once the act occurs in which you may be entitled to damages, that claim becomes part of your bankruptcy estate.  The most common type of claim somebody may have is a claim for personal injury from an auto accident. Any damages received from the lawsuit are property of your bankruptcy estate and must be listed as an asset on your bankruptcy schedules. If you have already hired an attorney you will need to provide this information to your bankruptcy trustee and in a chapter 7 case, the bankruptcy trustee can step into your shoes to make any future decisions on the case. The good news is, that depending on how much you are awarded, you may exempt, also known as protect, the award depending on what your state exemptions say. In Washington State, a debtor may choose to use federal or Washington State exemptions which differ in how much available protections you may have to protect funds received from a lawsuit.  It’s possible you may be able to apply a wild card exemption or even a personal injury exemption to your claim in which to protect any proceeds, but these protects are limited. Your bankruptcy law firm can advise you on whether this asset would be protected in your case as amount of protection would vary on a case by case basis.

If you have forgot to list any potential claims in your bankruptcy, your last chance will be at your 341 meeting of creditors with the bankruptcy trustee and then your bankruptcy schedules can be amended thereafter to claim any possible exemptions and disclose the claim.  If you are considering filing a lawsuit in which you may receive damage from an action that occurred prior to the filing of your bankruptcy case but have not disclosed this information to anybody, it is possible a bankruptcy trustee could find out, possibly from an adverse opposing party and you could risk not receiving a bankruptcy discharge altogether, which means your debt would not go away at the end of your bankruptcy case.  This could be the case, even years after your bankruptcy as your bankruptcy trustee may then reopen your bankruptcy case to obtain assets from you and you may lose your bankruptcy discharge.  A bankruptcy trustee could then take those assets from the claim to pay your creditors and you could be found to have been acting in bad faith for failure to disclose a claim you were aware of and your bankruptcy discharge could be taken away.

So if you are filing a bankruptcy case, it is always advisable to list all your assets, including any potential lawsuits or claims you may have against anybody. It includes any claims you have even if you don’t know what damages you may be awarded. It includes any claims you have even if there are significant defenses to the lawsuit. It is always advisable to play it safe when dealing in court matters and your bankruptcy case. Don’t take any chances, list the claim in your bankruptcy schedules, disclose it at your 341 meeting of creditors and be sure to discuss how these claims could be protected by possible bankruptcy exemptions and your risk of losing assets and whether it would make sense to file your bankruptcy case at a later date, after the claim is resolved, or whether you should go ahead and file your case as soon as possible.  Your bankruptcy attorney should be able to help you come up with a plan of action or determine whether filing bankruptcy makes sense at all if you do have such claims that are in excess of the amount of debt you have to discharge.

If you have additional questions about whether you need to disclose any potential lawsuits when you file bankruptcy and how those claims may be protected, schedule a free consultation with a bankruptcy lawyer so discuss your options or please call 206-682-7975 to learn about your options moving forward.

  • Richard Symmes

    Hi, Richard here.

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