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.

Credit Card Lawsuits, Part IV.5: The Hearing Date

A quick interlude about your credit card lawsuit hearing date...

When you are served with a complaint by the sheriff, it will show a hearing date, usually on the cover sheet. This date often becomes a point of obsession for clients, and understandably so. It's not a routine experience to be served a complaint by a sheriff, and it is terrifying to think about missing a hearing date.

However, this hearing date is only important if you intend to formally respond to the complaint. I discussed these responses in an earlier post. It will require a formal answer to the complaint, exerting a valid legal defense (statute of limitation, for instance), and filed in the proper court using its forms and practices. If you make this full answer, the hearing will go on as scheduled and you will need to attend.

If you do NOT file a full, formal response, a default judgment will be entered against you around 30 days after you have been served by the sheriff, and the hearing listed on the complaint will be cancelled. The hearing date can be safely ignored, because no hearing will be held. The sheriff will not come looking for you, and you will not be held in contempt.

This is also true if you are filing a bankruptcy or negotiating a settlement through a lawyer. The bankruptcy automatic stay will automatically stop the credit card lawsuit from proceeding. Once again, there will be no lawsuit hearing to attend. If your attorney is actively negotiating with the creditor's law firm, they will routinely agree to hold off on proceeding (but make sure to verify this with your attorney!)

If you have any confusion about what hearing you need to attend and what hearing you can ignore, speak with your bankruptcy lawyer. But, the hearing listed on the cover sheet of the complaint will rarely be of concern in most instances.

Car Accidents and Bankruptcy, Part II

As discussed in my previous post, there are three major questions that must be answered when considering whether to include an auto accident lawsuit in a bankruptcy for potential discharge.

• Was the debtor under the influence of drugs and alcohol at the time of the accident?
• Was there bodily injury to the victim, or just property damage?
• Were the actions of the debtor willful or malicious (intentional)?

These three questions will determine if the lawsuit filed (most likely by the insurance company) will be discharged, or whether it will survive the bankruptcy.

The United States Bankruptcy Code addresses bankruptcy discharge under Title 11, Sections 523, 727, and 1328, and these are the sources for most of the information to follow.

Congress has embraced a policy that personal injury and death damages caused by a driver intoxicated or under the influence of drugs should not be eligible for a discharge in either a Chapter 7 or a Chapter 13 bankruptcy.

Section 523(a)(9) prevents the discharge of a debt related to, "death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance."

This section applies to both Chapter 7 and Chapter 13 bankruptcies. It is most important to note what this section does NOT apply to... property damage caused while under the influence of drugs and alcohol. If an individual causes only property damage while intoxicated, for instance by running into a parked car or destroying a fence, the purely property damage claim can be discharged in either a Chapter 7 or Chapter 13 bankruptcy.

If, on the other hand, the damage claim relates to a bodily injury or death, the claim cannot be discharged, even if it was not willful or malicious. The claim and the debt will survive or "pass-through" the bankruptcy. It will be important to review the details of the lawsuit with your bankruptcy attorney to determine how section 523 will apply to your bankruptcy petition. It is entirely possible that filing a bankruptcy will remain worthwhile, if the debtor has large amounts of other debt. Filing a bankruptcy on the remaining debt may make it possible to pay damages related to an accident.

Congress has taken a hard stand against discharging debts related to driving under the influence when someone has been injured. As an experienced Pittsburgh bankruptcy attorney, I can help you determine if you are eligible for a discharge of an accident related debt.

In my next post, I will write about damages related to willful or malicious conduct of the debtor, and the (sometime) differing results in Chapter 7 and Chapter 13 bankruptcy. Willful and malicious acts will prove to be the most difficult to discharge.

Credit Card Lawsuits, Part IV: What Happens if I Don't Respond

I have already discussed what constitutes a "response" to a credit card lawsuit, in general how to file one, and whether you should respond.

Even if you don't formally respond to the complaint, you should NOT ignore it. Negotiating a debt settlement or filing a bankruptcy will probably be your best options. Why should you not ignore the lawsuit?

First, when you do not respond, the complaint will become a "default judgment" roughly 30 days after it was served. That means the Court will find for the law firm of the credit card company suing you without you ever appearing in Court. The default judgment happens automatically. Does this seem unfair? Of course! But, it's a fact, so act accordingly.

A holder of a default judgment will have 20 years to "execute" on the judgment. This means they can take the default judgment and place a lien on a bank account, a car, your personal property, or even your home. Once this happens, you cannot transfer your home without the judgment holder getting paid. A lien on your bank account can occur at any time without your prior notice. You can literally lose an entire pay check (or two) before you realize what happened (hint: if there is a default judgment against you, stop your automatic deposit). You will receive service from the Court if a judgment holder attempts to put a lien on your home. If this happens, contact us immediately.

The lawsuit will not go away, so even if you don't have property now, it can be placed on after-acquired property. It can also prevent you from passing on property unencumbered to your children and heirs if you do not take action.

Another thing to point out briefly (to be discussed further in another set of posts)... the statute of limitations for collecting on a debt (4 years in Pennsylvania) does NOT apply to default judgments. Even if you had a proper statute of limitations defense, it must be raised BEFORE the deadline to answer the original complaint.

A second issue, even if you don't have any property to lien (right now) this default judgment will most likely destroy your credit. Clients I meet with are often concerned about the effects of bankruptcy on their credit score. I tell them a default judgment does FAR worse to their credit. They are like a malignant growth that constantly harms your credit by sending negative reports that don't go away.

So, if you do not respond, bad things happen. Liens and damaged credit are sure to follow. Contact us to determine if you are a candidate for bankruptcy or a debt negotiation. I frequently meet with clients in this situation. I can help.

Next, I will look at how bankruptcy deals with creditor lawsuits that have become, or will become, a default judgment.

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.