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Palmdale Personal Injury Lawyer / Blog / Personal Injury / How a Defendant’s Bankruptcy Can Affect Your California Personal Injury Claim

How a Defendant’s Bankruptcy Can Affect Your California Personal Injury Claim


Let’s say that you were injured in a car accident. You know the other driver was at-fault, so you file a personal injury lawsuit against them, seeking compensation for your losses. What happens if the defendant–the driver you sued–then files for bankruptcy?

Bankruptcy raises a number of legal complications with respect to personal injury claims. When a debtor files for bankruptcy, a federal court imposes an “automatic stay” on any pending lawsuits against that debtor, including personal injury claims. This stay prevents the case from proceeding until the bankruptcy is concluded or the bankruptcy judge lifts the stay. And if someone files a personal injury claim against a debtor who is already in bankruptcy, that plaintiff may need to seek permission from the bankruptcy court to proceed.

Bankruptcy Trustee Faces Premises Liability Claim Over Gate Accident

A recent decision from the California Fourth District Court of Appeal, Martin v. Gladstone, illustrates the potential complications that may arise when pursuing a personal injury case against a bankrupt defendant. In this case, a married couple filed for bankruptcy. Their assets included a company that owned and operated a rental property.

This was a Chapter 7 bankruptcy, which meant that a court-appointed trustee took possession of the debtors’ assets, including the rental property company. The court subsequently authorized the trustee to continue operating the rental business while the bankruptcy case remained pending. Two months later, however, the trustee informed the court that the sale value of the rental property was less than the liens against it, so intended to “abandon” the property.

Two days after the trustee filed this notice, a woman was injured on the rental property when an iron gate fell on her. She subsequently filed a personal injury lawsuit in California state court against the bankruptcy trustee. The trustee argued that her notice of abandonment effectively deprived the plaintiff of her ability to pursue her lawsuit. The trial court agreed and granted the trustee’s motion to dismiss. The Fourth District reversed on appeal, however, holding that the trustee did not abandon the property until several weeks after the plaintiff’s accident occurred. The trustee’s notice simply initiated the abandonment process, but it did not become final until the trustee filed a final report with the bankruptcy court.

The Fourth District also rejected the trustee’s claim that a federal common-law principle known as the Barton rule required the plaintiff to seek permission from the bankruptcy court before pursuing her state personal injury claim. The Barton rule only applied to lawsuits against a bankruptcy trustee in connection with the liquidation of the bankruptcy estate. It did not apply to a personal injury claim arising out of the trustee’s operation of a business during bankruptcy proceedings.

Contact a Palmdale Personal Injury Lawyer Today

There are many unforeseen legal events that may have a significant impact on your personal injury case. That is why it is important to work with an experienced Palmdale personal injury attorney. Contact the Trevino Law Firm today to schedule a free consultation. We serve clients in Palmdale, Lancaster, Littlerock, and Lake Los Angeles.



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