What Happens to My Potential Civil Lawsuit If I File for Chapter 7 Bankruptcy?
When you file for Chapter 7 bankruptcy in Florida, a court-appointed trustee will take possession of your “bankruptcy estate.” The bankruptcy estate includes all property you own that is not otherwise exempt from the bankruptcy process. By law the estate covers “all legal or equitable interests of the debtor in property as of the commencement of the case.”
Notably, your “legal or equitable interests” encompasses any potential lawsuits you might have as of the date you filed for bankruptcy. For example, let’s say you were seriously injured in a car accident. The medical debts arising from that accident were a major factor in your decision to file for bankruptcy. At the same time, you are thinking about suing the negligent driver who caused your accident. By law, if you do file for bankruptcy, that potential lawsuit–even if it has yet to be filed–becomes property of the bankruptcy estate.
Once the bankruptcy case begins, the Chapter 7 assumes control of your potential lawsuit. The trustee can decide to bring the lawsuit, settle with the other party, or even dismiss a case you filed pre-bankruptcy. The trustee may also “abandon” the claim back to you. But if you failed to disclose your lawsuit or claim when you filed for bankruptcy, you may lose the right to continue the case after bankruptcy ends.
Debtors’ Potential Lawsuit Remains with Bankruptcy Estate “In Perpetuity”
A recent decision from a federal bankruptcy judge in Orlando, In re Echeverria, provides a helpful illustration of what we are talking about. In this case, a married couple filed for Chapter 13 bankruptcy. The case was later converted to Chapter 7.
The couple never disclosed to the court or the Chapter 7 trustee that they had a potential claim against a group of creditors who previously issued them a car loan. Prior to bankruptcy, the debtors alleged the creditors had engaged in illegal debt collection activities.
After the bankruptcy court issued a Chapter 7 discharge, the couple then tried to bring an adversary proceeding in bankruptcy court against the creditors. But as the bankruptcy court explained, the couple no longer had the legal “standing” to pursue such claims. Indeed, “Only the Chapter 7 Trustee has standing to raise the claims challenging [the creditors’] improper pre-petition collection efforts.”
Put another way, the judge said, once a debtor files for bankruptcy and their assets become “property of the bankruptcy estate, the debtor’s rights are extinguished unless the asset is abandoned back to the debtor.” If the property is neither abandoned nor administered by the trustee, it simply remains in the bankruptcy estate “in perpetuity.” So by failing to list their potential claims against the creditors, the debtors effectively abandoned those claims to remain forever in the bankruptcy estate.
Speak with a Florida Bankruptcy Attorney Today
Bankruptcy can help you get a fresh start, but only if you are completely honest with the court and the trustee. An experienced Miami Chapter 7 bankruptcy lawyer can help guide you through this process to avoid any potential misunderstandings. Contact the Law Office of Julia Kefalinos at 305.676.9545 to speak with someone today. Our office remains open for consultations during the COVID-19 emergency and we can meet with you in-person, or via Skype, FaceTime, WhatsApp and other such video conferencing means while following all safety precautions recommended by the CDC.