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Should You Include Any Rights Arising from a Lawsuit or Potential Lawsuit in a Bankruptcy?

August 13, 2019 David E. Sklar Bankruptcy

When filing for bankruptcy, you must file a bankruptcy petition. The Bankruptcy Code requires that the bankruptcy petition contain all of your assets. An asset, which you might not think is an asset, includes a lawsuit or potential lawsuit that arises from an event that occurred prior to your bankruptcy filing.


            Upon filing for bankruptcy, a bankruptcy estate is created which consists of all of your legal and equitable interests to property. In cases where you may have the right to sue someone, this is an asset of your bankruptcy estate that must be listed in your bankruptcy petition. The key determination of whether a potential lawsuit must be listed in your bankruptcy petition is whether the action which forms the basis of your right to sue occurs prior to the bankruptcy filing. For example, if you are hit by a car and have suffered an injury, you may have a right to sue for damages. The determination as to whether the potential lawsuit must be listed in the bankruptcy petition rests on whether the accident occurred prior to the bankruptcy filing.[1] In a case of wrongful death, the determination will rest on whether the individual for whom wrongful death is sought died prior to the bankruptcy filing. In a chapter 7 bankruptcy proceeding, the trustee appointed to administer your case will obtain decision making control over the litigation until that asset is abandoned by the trustee.


            11 U.S.C. § 522(d)(11) states that

[t]he following property may be exempted under subsection (b)(2) of this section: (11) The debtor’s right to receive, or property that is traceable to-(A) an award under a crime victim’s reparation law; (B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; (C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; (D) a payment, not to exceed $25,150, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or (E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.”

If your lawsuit fits within these guidelines, and in the instance of 11 U.S.C. § 522(d)(11)(D) dollar value, then the proceeds from the lawsuit will not be subject to collection by a trustee or unexempt equity in your case. It is important to note that the dollar value for purposes of 11 U.S.C. § 522(d)(11)(D) is based on what is remaining after the attorney takes his or her fees and expenses.




            Ordinarily, if a person dies without a will while their spouse is still alive and all the decedent’s children are also children of the surviving spouse, then the entire estate goes to the surviving spouse pursuant to N.J.S.A. 3B:5-3(a)(2). However, N.J.S.A. 2A:31-4 contradicts this to a degree in stating that for purposes of a wrongful death action

[t]he amount recovered in proceedings under this chapter shall be for the exclusive benefit of the persons entitled to take any intestate personal property of the decedent, and in the proportions in which they are entitled to take the same except if there is a surviving spouse of the decedent and one or more surviving descendants of the decedent they shall be entitled to equal proportions for purposes of recovery under this chapter notwithstanding the provisions of Title 3B of the New Jersey Statutes.

Therefore, if you have a parent that died that may be the subject of a wrongful death action, then you should be aware that you will have an entitlement to the proceeds of this action even if your other parent is still alive. If you are filing for bankruptcy, it is important that this interest be listed as a potential asset in your bankruptcy case due to your legal right to a portion of the recovery.

If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. It is also important to inform your bankruptcy counsel about everything going on in your life, so your bankruptcy attorney can guide you through the process as smoothly as possible. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.


[1] There are different implications in a chapter 13 and chapter 11 bankruptcy proceeding, since the bankruptcy estate in those proceedings is an expanding estate.


David E. Sklar

Prior to joining Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, David Sklar graduated from Rutgers University-Newark School of Law with a J.D., Cum Laude. Mr. Sklar was the recipient of a Pro Bono Award and was honored by the New Jersey Bar Association for his commitment to the Street Law Program by being awarded the Street Law Prize.

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