Institutions accused of abuse in personal injury lawsuits are finding a safe haven in bankruptcy courts. While bankruptcy and personal injury lawsuits often go hand-in-hand, it is frustrating for plaintiffs to negotiate a settlement through a bankruptcy trustee that often must make accommodations to the financial status of a debtor accused of terrible crimes. 

Before the pandemic, several states lifted the statute of limitations on sex abuse lawsuits filed against institutions. This created a flood of claims. The defendants in these suits filed for bankruptcy protection which put a halt to the proceedings. The plaintiffs were forced to negotiate a lump-sum settlement with the bankruptcy trustee. 

For the defendant, filing for bankruptcy halts the collections process, including the personal injury lawsuits, and acts as a bar to future claims. The tactic is so effective that it is being used all across the U.S. by institutions to avoid paying the massive judgments leveled against them. 

Today, sex abuse lawsuits are resulting in Chapter 11 filings for corporations that pay a fraction of what they owe back to the victims. Deadlines are established by the bankruptcy judge, so plaintiffs who miss the deadline are often out-of-luck or forced to file a claim on a trust containing whatever is left over. Victims claim that bankruptcy protections are being used to shield institutions from liability.

Can an individual discharge a personal injury judgment in bankruptcy?

For consumers, bankruptcy is typically filed under Chapter 7 or Chapter 13. Chapter 7 bankruptcies allow a debtor to discharge their debts and wipe their ledger clean. However, there are rules, protections, and in some cases, a debtor may be prevented from filing under Chapter 7. The question then becomes, when?

When it comes to personal injury judgments, the law does not want to create a safe haven for corporations that commit intentional misconduct. In those cases, a bankruptcy discharge can be blocked by the court, but a finding of intentional misconduct must be found. If it is, then the company cannot file bankruptcy on the claim. They can file under Chapter 11, but no part of the debt can ever be discharged. 

For individuals, this happens when they injure or kill someone in a drunk driving accident. If the injured party sues, the defendant would be prevented from discharging the debt in bankruptcy. They may declare bankruptcy to reorganize their payments, but the debt will remain attached to their estate until it is repaid. 

In a case like institutional sexual abuse, there has never been a finding of intentional misconduct on the part of the institution. Thus far, 31 Catholic dioceses have filed for bankruptcy protection. 20 of those cases have concluded. The churches have secured partial discharges. Victim compensation varies from one jurisdiction to the next. 

Talk to an Indiana Bankruptcy Attorney Today

Chris Arrington helps those struggling with financial debt wipe the slate clean and start fresh. Call today to schedule a free consultation, and we can begin discussing your next moves immediately.