They are unintentional mishaps, usually occurring because of negligence.
Negligence claims, such as personal injury suits, can be won if the injured party can prove that the driver who cause the accident, called the tortfeasor, had a duty and breached that duty, which caused the accident and resulted in damages.
These elements are usually found in auto accidents as follows:
Duty… Paying attention to the road and circumstances
Breach… Being inattentive
Causation… Having rear-ended the injured party, for example
Damages… Having caused a whiplash neck injury, for example
Under these facts, the injured party would seem to have a very good claim for recovery from the tortfeasor.
The injured party, or its insurer who has already paid the injured party, could commence suit to recover the damages. Usually before a suit is started, demands are made, and negotiations may take place.
This is often where bankruptcy attorneys are called in. Either the defending driver or his/her attorney, or sometimes even an insurer, will realize there could be significant damages to pay, as well as costly litigation, and seek to resolve the claim more effectively.
We are called in to determine whether a bankruptcy would be beneficial under the circumstances, or perhaps whether our analysis of the tortfeasor’s finances can assist in reaching a settlement. In many instances we have been able to have the entire claim dropped against the tortfeasor.
I am often questioned, or at least looked at puzzlingly, when I make this statement about these results. “Why would they simply drop the claim?” I am asked. Like many things in the world of insolvency, the answers may initially seem contrary to normal life, but digging deeper provides a rational explanation.
Typically, vehicle accident suits are brought against both the driver/tortfeasor and his/her insurance company. The insurer is usually the “deep pocket” for recovery. The insurer has a duty to defend the tortfeasor, while wanting to pay as little as possible. The insurer would also like that payment to be as far into the future as possible. If a million dollars must be paid out, it is far better to pay it out in three years than to pay it today. The interest the company can earn on that money totals up to a lot, especially when you consider the insurer has thousands of claims.
We meet with the tortfeasor and analyze his/her financial situation. If this driver could file a bankruptcy now, he or she can use that option. We prepare a summary of our analysis explaining that we have been retained and are prepared to file a bankruptcy to eliminate the liability of the tortfeasor. We further explain that we do not intend to file at this time but that we will wait until after the trial of the negligence lawsuit.
In instances where our client is not immediately ready or able to file bankruptcy, our analysis includes the steps which will be taken in order to become so prepared and ready. We often even explain the steps we will be taking in that regard. We make no misrepresentations to the injured plaintiff or the attorney representing the plaintiff.
So, why would the plaintiff take nothing and drop the claim against our client? The answer lies in timing. The plaintiff has almost certainly sued both our client and our client’s insurer. Because we will not be filing the bankruptcy until after the trial, the plaintiff is likely facing a long delay before he or she will receive restitution. Our client’s insurer might even be prepared to pay the policy limits if our client is willing to waive the duty of the insured to defend in the lawsuit.
Jury trials can take many months or even years. After the trial there may be additional motions which further delay any recovery which the plaintiff may have been awarded.
Because the plaintiff will not be able to recover from our client in any event, it is to the plaintiff’s substantial benefit to release our client and simply deal with the insurer. This way, the plaintiff gets the insurance money now, without delay, and our client gets dismissed from the lawsuit.
We have handled dozens of these cases in this fashion, usually with our client paying nothing to the plaintiff. It probably helps that we have the reputation and credentials to support our assurance of being able to protect assets.
