Morton v. Schlotzhauer – Personal Injury Lawsuit and Bankruptcy

It’s not uncommon for people to suffer injury and sue someone in connection for that injury. It’s also not uncommon for people to go into debt and file for bankruptcy to get out of that debt. However, when people who are in debt are also party to a personal injury lawsuit, this is where things can get complicated.

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If you are the plaintiff in a personal injury action, understand that a bankruptcy filing by the at-fault driver or other defendants will likely result in an automatic “stay,” which means no further action can be taken until the bankruptcy is settled or unless the bankruptcy court gives you the green light to continue. It’s possible that personal injury liability may be discharged in a bankruptcy, although federal law does prohibit individuals from discharging debts that are incurred in personal injury lawsuits stemming from drunk driving. Conversely, personal injury claims of a debtor have to be listed as a property interest, though they usually are exempted from the bankruptcy estate and remain the debtor’s property. These cases must be deftly handled by an experienced car accident attorney.

In the recent case of Morton v. Schlotzhauer, the Maryland Court of Appeals (the highest court in that state) was asked to determine whether a car accident plaintiff had standing to continue with her complaint, given that the at-fault driver had already been through a bankruptcy. A big reason she was given the green light was because she first went through the bankruptcy court and was granted her request to re-open and re-vest her claim as of the filing of the bankruptcy petition. 

According to court records, respondent was involved in a motor vehicle accident with man who worked for an auto repair business. Almost three years later – but within the state statute of limitations for personal injury actions – she filed a car accident personal injury lawsuit against both the driver and his employer, alleging she suffered personal injuries in the accident and that he caused the crash, which occurred in the course and scope of his employment. Plaintiff alleged defendant driver was talking on his cell phone when he backed into her with his truck, causing her injuries.

Between the crash and the time she filed this action, plaintiff happened to file for personal bankruptcy and was discharged of her debts. However, she failed to list this claim as an asset or exempt property in her bankruptcy petition. It was not disputed that this happened because of ignorance, rather than some deliberate effort to hide the claim. Per federal bankruptcy law, her claim became property of the bankruptcy estate.

When this became known, the Maryland Court of Appeals describes the “shuttle back and forth between Circuit Court and Bankruptcy Court in a race for relief from those tribunals.” Defendant driver sought to have the personal injury action dismissed for lack of standing that the claim didn’t belong to her – and that she couldn’t refile because by then, the statute of limitations had passed. Meanwhile, plaintiff sought to re-open the bankruptcy case to eliminate the standing question by having the claim exempted and restored to her.

This ended in a “more or less dead heat,” the appeals court explained. The Bankruptcy Court granted plaintiff’s request to reopen the case and re-vested her with the claim, a move that was deemed retroactive to the bankruptcy petition. At almost the same time, the Circuit Court – not aware of the Bankruptcy Court’s decision – awarded summary judgment to defendant on grounds plaintiff lacked standing. Plaintiff then notified the circuit court of the bankruptcy court’s decision and asked for reconsideration, which the court declined to give without explaining why.

The Court of Special Appeals reversed, finding that even if plaintiff wasn’t the right party at the time she filed her complaint, state law does allow for substitution of the real party of interest. In this case, that would mean the bankruptcy trustee was the rightful party, but ultimately, the plaintiff was, due to the court’s re-vestment. This was valid because the “relation-back” rule allows the party of interest to continue pursuit of an existing action, without needing to file a new one.

The state high court agreed with the appeals court and affirmed.

Contact the Carolina injury lawyers at the Lee Law Offices by calling 800-887-1965.

Additional Resources:

Morton v. Schlotzhauer, Aug. 19, 2016, Maryland Court of Appeals

More Blog Entries:

Sellers v. Kurdilla – Car Accident Plaintiff Gets Second Crack at Injury Lawsuit, Aug. 20, 2016, Greensboro Car Accident Lawyer Blog

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