• Beware of Bankruptcy Miscommunication
  • July 5, 2017 | Author: Benjamin D. Byrd
  • Law Firm: Gentry Locke, LLP - Roanoke Office
  • Bankruptcies are at times an unfortunate necessity. Our clients often find themselves financially overwhelmed, especially when they are the victims of medical malpractice, a defective product or car, and trucking crashes. At times, the financial burdens become so great that clients are left with no choice but to seek the protection of bankruptcy. When clients do so, they must notify their attorneys of this. Failure to do so can lead to drastic consequences.

    The strange case of Ricketts v. Strange

    The recent case of Ricketts v. Strange, (February 16, 2017), highlights what can happen when lawyers and clients don’t communicate with each other about bankruptcy. In that case, the plaintiff suffered injuries in a car crash. Shortly before the statute of limitations expired, the plaintiff filed suit for injuries sustained in the crash and attempted to press forward to trial. The defendant, however, moved to dismiss the case asserting that the plaintiff lacked standing to bring the case at all. How could that be since the plaintiff was injured and filed a complaint before the statute of limitations expired? Everything had to be copacetic. The defendant must have filed a motion merely to bill the file, right?

    Wrong.

    It turns out that the defendant was correct. Just months after the crash, the plaintiff filed a bankruptcy petition. In that petition, the plaintiff failed to properly describe her personal injury claim and exempt it from the bankruptcy estate. The Supreme Court referred to the attempt to list the claim as “boilerplate” and “overly general.” As a result, the plaintiff’s personal injury case belonged to the trustee of the bankruptcy case and could not be asserted by the plaintiff. Unfortunately, by the time the circuit court ruled on the defendant’s motion, the time for the bankruptcy trustee to pursue the case had expired. The plaintiff’s lawsuit did not toll the statute of limitations because it was filed by someone without standing to assert it. The Complaint was therefore a legal nullity. The bankruptcy trustee also could not be substituted in for the plaintiff because the law precludes such a substitution. A party with standing cannot be substituted for one without standing. The Supreme Court affirmed the circuit court’s dismissal of the case. The defendant walked away without having to pay for the injuries the plaintiff suffered.

    So, how could this situation be prevented? It turns out that had the plaintiff merely listed “Auto Accident” in her bankruptcy schedules that would have been sufficient to exempt the claim from the bankruptcy estate.

    Had the plaintiff’s petition merely included two additional words, the plaintiff would have been able to pursue the case and could have been fully and fairly compensated. Instead, the plaintiff’s case got dismissed.

    What is the lesson from this case? It is simple – clients and attorneys must communicate about bankruptcy claims. This is something that should be part of an intake checklist for all lawyers. Attorneys should always ask clients if they have filed or are considering filing for bankruptcy. If so, attorneys must learn of the identity of a client’s bankruptcy attorney and provide that attorney with sufficient information to exempt the claim. Clients must also communicate with their attorneys before filing for bankruptcy. If attorneys and clients don’t talk about bankruptcy, then, just like the plaintiff in Ricketts, the plaintiff may end up being kicked out of court. That is a situation that no plaintiff’s attorney and no plaintiff wants.