Medical Clinic Files For Bankruptcy After $98M Judgment
An Iowa jury awarded $98 million to the parents of a newborn infant who suffered permanent brain damage as a result of deficient medical care. According to the lawsuit, the child was delivered by vacuum suction and forceps resulting in the child’s head being crushed during delivery. As a result, the child sustained permanent brain damage. An attorney representing the plaintiffs called it the largest medical malpractice verdict in Iowa history.
Nonetheless, the plaintiffs now have a new problem. If the medical clinic files for bankruptcy, then the family may only be able to recover a fraction of what they are owed. Below, we’ll discuss what happens to a personal injury judgment after a defendant has declared bankruptcy.
The defendant declares bankruptcy after losing a personal injury lawsuit
The rules are slightly different depending on whether or not you’re a company or a person. Typically, there are two options available to companies: Chapter 7 and Chapter 11. Individuals can file under Chapter 7, Chapter 11, or Chapter 13. Most individuals do not file under Chapter 11, which is reserved primarily for businesses. However, individuals can file under Chapter 11 and sometimes have to.
Chapter 7 bankruptcy is called liquidation bankruptcy. For an individual, it means that you liquidate any assets you cannot protect via bankruptcy exemptions to repay your creditors. The debt is discharged after liquidation and creditors recover very little of what the debtor borrowed.
For businesses, declaring Chapter 7 is like falling on your sword. As a result of a Chapter 7 filing, the business will be liquidated and dissolved. In other words, while a person can survive a Chapter 7 bankruptcy, a business cannot.
The alternative for the business is to reorganize its debts under Chapter 11. Chapter 11 allows the business to set up a payment plan that is within the business’s means. Some assets may be sold off to repay creditors, but the survival of the business is a factor in a Chapter 11 filing. So long as the debtor company can make its payments, it will survive. The court may require the company to pay some of the debt they owe, but not the debt in its entirety.
For plaintiffs, the matter is taken out of your hands and administered by a bankruptcy trustee. This can be quite upsetting because the plaintiff has already won their day in court, but now, their money is tied up in another hearing. Ultimately, the plaintiffs may only get a fraction of what they’re owed. The clinic has filed under Chapter 11, reorganization bankruptcy and the plaintiff has now become the equivalent of the company’s creditor. All of their debts will be rolled in one lump sum and they will be required to make payments on a monthly basis. The trustee will distribute those payments to the creditors, including the plaintiffs, as part of the settlement. However, the plaintiffs are unlikely to recover anywhere close to $98 million.
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