Author: Andrew M. Thaler
Personal injury counsel (“PI Counsel”) learns that the client has filed for chapter 7 bankruptcy. This is a major event that requires immediate action by PI Counsel. The failure to follow proper bankruptcy protocol could result in devastating financial and other consequences to PI Counsel.
Exactly what does PI Counsel need to know to keep out of trouble? The first thing is to recognize that upon filing of the bankruptcy the cause of action becomes property of the bankruptcy estate, which will be administered by a Chapter 7 Trustee under the supervision of the bankruptcy court. Upon the filing of the petition, the debtor/client no longer has control of the cause of action. PI Counsel must confirm if the cause of action has been disclosed in the bankruptcy schedules filed by the debtor with the bankruptcy court. If the action has not been disclosed, debtor’s bankruptcy counsel must be notified so the debtor’s Schedules can be amended to reflect the asset. PI Counsel must cease prosecuting the cause of action on behalf of the debtor and decide if it wants to accept an invitation by the bankruptcy trustee to be retained by the bankruptcy estate to prosecute the matter.
Exactly what does PI Counsel need to know to keep out of trouble? The first thing is to recognize that upon filing of the bankruptcy the cause of action becomes property of the bankruptcy estate, which will be administered by a Chapter 7 Trustee under the supervision of the bankruptcy court. Upon the filing of the petition, the debtor/client no longer has control of the cause of action. PI Counsel must confirm if the cause of action has been disclosed in the bankruptcy schedules filed by the debtor with the bankruptcy court. If the action has not been disclosed, debtor’s bankruptcy counsel must be notified so the debtor’s Schedules can be amended to reflect the asset. PI Counsel must cease prosecuting the cause of action on behalf of the debtor and decide if it wants to accept an invitation by the bankruptcy trustee to be retained by the bankruptcy estate to prosecute the matter.
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