Car Accidents and Bankruptcy: A Summary

My last three posts have discussed the dischargeability of certain debts related to auto accidents. There are several distinctions to make... Chapter 7 or Chapter 13? Intoxicated or not? Willful and/or malicious? Personal injury or death? Or just property damage? I'll attempt to summarize the distinctions below. Please review my previous blog posts "Car Accidents and Bankruptcy, Parts I, II, and III for great detail.

Below is an attempt to summarize, in shorthand, what is (and is NOT) discharged in both Chapter 7 and Chapter 13 bankruptcy when dealing with damages in an auto accident.

Damages Discharged in Chapter 7:

• Not willful and malicious, AND;
• No intoxication or drugs influencing accident
• Intoxication/influence causing only property damage

Damages NOT Discharged in Chapter 7:

• Willful AND malicious damage to either property OR person, OR;
• Intoxication/influence causing personal injury or death

Damages Discharged in Chapter 13:

• All damages related only to property
• Damages related to personal injury/death but NOT willful OR malicious

Damages NOT Discharged in Chapter 13

• Personal injury or death resulting from intoxication/influence OR willful act OR malicious act

NOTE: Even though a debt may be "dischargeable" in Chapter 13, it may still end up paid in full or in part depending on the rate at which the debtor is required to repay unsecured creditors. More accident-related debts are dischargeable in Chapter 13 due to this being the case.

Car Accidents and Bankruptcy, Part III

The last situation to discuss regarding the dischargeability of debts related to auto accidents is the situation in which the debtor's conduct was considered to be "willful and malicious".

"Willful" denotes the idea that the act was done with motive, on purpose. It could involve a level of premeditation or planning by the actor. The act must be more than merely negligent to be willful. There must be a clear intention to cause harm.

"Malicious" is defined by Merriam-Webster as, "having or showing a desire to cause harm to another person; having or showing malice." Once again, someone can act willfully or intentionally, but if there was no intent to do harm, the standard of "willful and malicious" is not met.

It should be pointed out, this standard of willful and malicious conduct will rarely be applicable to auto accidents. Most auto accidents involve either driving under the influence or negligence. Auto accidents are rarely "willful and malicious", though the possibility exists. For instance, an individual could intend to injure a victim with a car by ramming their car or chasing and hitting them.

The willful and malicious standard will more commonly apply to situations where a judgment has been entered in a civil lawsuit for physical assault. But, as discussed above, it could apply to an auto accident in rare instances.

There is an important distinction in Chapter 7 bankruptcy between intoxication damages and willful and malicious damages. As discussed in an earlier post, property damage resulting from intoxication may be discharged in a Chapter 7; however, property damage resulting from a willful and malicious act is NOT dischargeable in Chapter 7. It will be important to discuss this distinction with your attorney. -See 11 USC Sec. 523(a)(6)

There are a couple slight distinctions to the willful and malicious standard in Chapter 13 bankruptcy. In Chapter 13, the act need be only willful OR malicious to be non-dischargeable. Therefore, the act only needs to be intentional or done with malice. It will be a very slight distinction in almost every case. However, there is a major distinction between Chapter 13 and Chapter 7 related to property damages. Property damages caused by willful OR malicious acts can be discharged in Chapter 13, whereas they cannot be discharged in Chapter 7.

In my next post, I will summarize the last three posts, as it becomes quite complicated what can be discharged in Chapter 7 and Chapter 13 when dealing with auto accidents.

Car Accidents and Bankruptcy, Part I

The most frequent type of lawsuit involved in a bankruptcy filing is a credit card lawsuit, filed after a credit card has gone into default.

As discussed elsewhere on this website, these lawsuits are normally discharged through bankruptcy, and any related liens are avoided and removed. But, these are not the only types of lawsuits involved in bankruptcy.

Lawsuits stemming from auto accidents are another issue handled in bankruptcy. They are more complicated for several reasons to be discussed. Whether or not these lawsuits are dischargeable through bankruptcy will be a major issue, and if the lawsuit is the primary debt of the potential filer, dischargeability may determine whether or not the bankruptcy is filed at all.

These auto accident lawsuits will normally be filed by an insurance company against a debtor, often when the debtor had no insurance at the time of the accident. The claims may be quite large, especially if there was bodily injury. Lawsuits can exceeding $50,000, $60,000, even $100,000. This makes it especially important to determine if the Chapter 7 or Chapter 13 bankruptcy discharge is available as an option.

The major questions in determining if damages related to an auto accident are dischargeable are:

• Was the debtor under the influence of drugs and alcohol during the accident?
• Was there bodily injury, or just property damage?
• Were the actions of the debtor willful or malicious?

I'll discuss each question in turn in my next post. In short, if you were under the influence of drugs and alcohol at the time of the accident and you caused bodily injury to someone else, the debt will NOT be dischargeable (though mere PROPERTY damage while intoxicated may be dischargeable). Secondly, if the act causing damage or bodily injury was willful or malicious (intentional) the damages will NOT be dischargeable. The three questions are intertwined and must be reviewed by your bankruptcy attorney in relation to each other.

Nonetheless, there will leave many situations in which the lawsuit can be discharged. 

I'll discuss these issues in much more detail in my next post.