Trustee Blog

Claims Debtors Might Have

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Chapter 7 Riverside Trustee John Pringle asks each debtor the following question before he terminates the examination: “Do you have any claims pending against anyone including a claim for personal injury?”

This question is asked so the trustee can find out if the debtor is planning to sue anyone. If the client says yes, then the trustee will ask for more information. If the client says “no” then his answer is on the record. If it turns out that the debtor actually has a claim and did not disclose it, then the debtor may have committed fraud and the trustee can challenge any subsequent exemption the debtor tries to place on the lawsuit proceeds.

The Trustee asks this question also, because this information may or may not be listed in the petition. However that claim is part of the bankruptcy estate in which the bankruptcy trustee can administer. The Trustee steps into the shoes of the debtor and has the power to proceed with the lawsuit or settle the lawsuit. The non-exempt proceeds of the lawsuit, if any, would go to the bankruptcy estate for the benefit of the creditors.

Practice Pointer:

Ask your clients before they file their petition, whether they are planning to sue someone or if they have a claim  against anyone. The client may have been in an auto accident or may  slipped in a grocery store or may have taken diet pills that did not work. The personal injury or civil claim against someone is an asset that may have some value. This may be a claim, even if they have not consulted an attorney. Be sure to list this potential claim or lawsuit in the petition so that the trustee is on notice about it and can make a business judgement on the claim or lawsuit.

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