Filing for bankruptcy does not automatically end your right to pursue someone who owes you money or caused you harm. In most cases, the answer is yes, but the rules governing who controls the lawsuit and who keeps the money can be more complicated. The outcome depends on when the claim arose, which chapter you filed under and whether it belongs to you or the bankruptcy estate.
Does your claim belong to you or the bankruptcy estate?
Claims in which you had a legal or equitable interest when you filed generally become estate property. In Chapter 7, the trustee typically controls those claims. In Chapter 13, you generally remain in possession of estate property and may pursue claims, subject to bankruptcy court requirements. Claims arising after your filing date generally remain your property in Chapter 7 but may become part of the estate in Chapter 13 and individual Chapter 11 cases.
When can the trustee pursue your claim?
In Chapter 7, the trustee may pursue claims that belong to the bankruptcy estate and use any recovery for the benefit of creditors. Personal injury, contract and property damage claims often fall into this category.
Maryland exempts certain money payable for sickness, accidents, injuries or death, subject to exceptions. The state has opted out of federal bankruptcy exemptions, so eligible debtors generally must use Maryland’s exemption laws. How much you keep depends on the type of claim.
What must you do before pursuing a claim?
Disclose all claims and potential claims when you file, even if no lawsuit has started or the value is uncertain. Failing to disclose can result in:
- Possible loss of the right to pursue the claim because of judicial estoppel or other legal restrictions.
- Possible denial of a Chapter 7 discharge for knowingly and fraudulently making a false oath or account.
- Possible criminal investigation if the nondisclosure involves intentional bankruptcy fraud.
Before filing or continuing a lawsuit, confirm who owns the claim and who has authority to act on it. The automatic stay generally bars actions against you and estate property but does not prevent you from suing others. Estate-owned claims must be pursued by an authorized party.
Speak with an attorney before taking action
Bankruptcy law affects your legal rights in ways that are not always obvious. An attorney can help you identify which claims require disclosure, protect a potential recovery and avoid missteps that could put your discharge at risk.