When Does a Plaintiffs' Lawyer Need to Seek a
by Betsy Lynch
There are so many PI cases floating around the country, but many plaintiffs' lawyers may be missing opportunities to help their clients if they aren't asking the appropriate questions to assess their client's financial situation upon consulting with the firm. Many plaintiffs have put medical expenses on credit cards or have gone through a period of unemployment or underemployment due to injury, job loss, or a family death. Those unfortunate circumstances can sometimes wreak havoc on a plaintiff's finances, some of which may or may not be able to be adequately compensated for in a PI case, even if recovery is awarded to the plaintiff. Sometimes bankruptcy may be a valid option. Instead of viewing bankruptcy as the end-all, be-all or another hoop to jump through, attorneys may recognize bankruptcy as a financial tool to be used to help put their client back on their feet after an injury or accident.
There are several factors to consider when you have a plaintiff-debtor who you may feel needs to file for bankruptcy, but one of the most important to consider is the timing of the bankruptcy. Sometimes it can be more beneficial to your client to file before the PI Claim settles. These instances can arise in class action suits or in any case when the plaintiff-debtor and/or his attorney have no idea what the claim is worth or if the claim could be virtually worthless. Another instance would be if the debtor would still be insolvent once the settlement pays outstanding debts resulting from the claim. For example, a PI attorney discovers that the insurance policy limit in a car accident case is $150k. The defendant had no insurance or poor insurance for the accident and plaintiff-debtor has $70k in medical bills as a result of the accident with an additional $10k in credit card debt (or more if client was off work due to the accident). If the plaintiff's attorney is entitled to 40% of the amount recovered, the attorney would get $60k and client would then receive $90k. After all his bills are paid, client would only truly walk away with $10k in this scenario. On the flip side, if the client had filed for bankruptcy, typically the $90k debtor would be entitled to under the settlement could be negotiated to be split with the trustee 50/50 and client could have walked away from bankruptcy with $45k in his pocket vs. the $10k he otherwise would have received. Things to remember in running the case this way would be that the debtor will need a settlement agreement with the trustee and has to have court approval of the agreement.
On other occasions, it may work to the plaintiff-debtor's advantage to wait to file bankruptcy after the PI case settles. For example, if there will be a large PI settlement – i.e. potential for no bankruptcy filing because the settlement amount would pay medical bills plus other unsecured debt so that a bankruptcy would not be necessary. On the other hand, if the settlement is going to be small due to low policy limits, liability issues, etc. and the potential settlement will not pay the vast majority of client’s obligations, sometimes it is better for the client to wait to file so that he can live off the settlement for a few months prior to filing bankruptcy. In this case, there is no need for court or trustee approval, but the settlement funds need to be spent down prior to filing for bankruptcy.
In conclusion, it's important to recognize that you may be able to help your clients even more than you imagined by simply asking some prudent questions about their finances. If appropriate, referring them to a bankruptcy lawyer may help them obtain the information they need to decide how to put them on the highest financial ground possible after an unfortunate accident is presented.