Ten Bankruptcy Mistakes That Can Jeopardize a Personal Injury or Wildfire Recovery
Every year, people who have filed bankruptcy are involved in automobile accidents, employment disputes, insurance disputes, wildfire losses, and other events that may produce legal claims or settlements.
Most recoveries can be protected with proper planning. Problems usually arise when the bankruptcy and litigation are handled separately and no one addresses the overlap until late in the case.
Keathley provides greater protection when a debtor makes an honest disclosure mistake, but it does not eliminate the need for prompt disclosure. The following are ten common mistakes to avoid.
Mistake #1: Failing to Tell Your Bankruptcy Attorney About the Claim
A legal claim may be an asset. Tell your bankruptcy attorney about personal injury claims, wildfire claims, insurance claims, employment claims, contract claims, and any possible right to recover money, even if no lawsuit has been filed.
Mistake #2: Waiting Until Settlement
Bankruptcy issues are easier to address before settlement. Waiting until funds are ready for distribution can delay payment and create avoidable disputes with trustees, creditors, or defendants.
Mistake #3: Assuming a Lawsuit Is Not an Asset
Bankruptcy schedules require disclosure of claims, including contingent, unliquidated, disputed, and potential claims. An asset does not have to be certain or reduced to judgment to require disclosure.
Mistake #4: Forgetting That Post-Petition Claims May Matter
In Chapter 13, claims acquired after filing may become property of the estate while the case remains open. The Supreme Court did not resolve every continuing-duty question, but prompt disclosure remains the safest practice.
Mistake #5: Assuming Litigation Counsel Handles Bankruptcy Issues
Personal injury and wildfire attorneys focus on liability, damages, insurance, causation, and settlement. Bankruptcy counsel focuses on estate property, exemptions, trustee authority, plan modification, and court approval. Both may be needed.
Mistake #6: Ignoring the Trustee
The trustee may need notice, documents, settlement information, or court approval. Ignoring the trustee can create larger problems later.
Mistake #7: Assuming All Settlement Proceeds Belong to You
Depending on timing, exemptions, chapter, and case status, some or all proceeds may be property of the bankruptcy estate. Funds should not be spent until the bankruptcy issues are evaluated.
Mistake #8: Waiting Until the Defense Raises Judicial Estoppel
Defense counsel often searches bankruptcy records. If an omitted claim is discovered, the defense may seek dismissal. Keathley makes automatic dismissal harder, but proactive disclosure is still better than defensive repair.
Mistake #9: Believing Bankruptcy Prevents You From Filing a Lawsuit
Bankruptcy does not necessarily eliminate a claim. Many lawsuits can continue if properly disclosed and coordinated. The question is who has authority, whether the claim is estate property, and whether approvals are needed.
Mistake #10: Waiting Too Long to Obtain Bankruptcy Advice
Early advice can preserve options. Late advice often means emergency amendments, trustee disputes, settlement delays, or motion practice.
Bottom Line
Keathley protects honest debtors from overly rigid judicial estoppel rules. But it does not replace the duty to disclose. If there is any chance a claim exists, disclose it and obtain advice early.
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