Louisville Bankruptcy Clinic

Personal Injury Claim

The debtor listed a personal injury claim against his former employer, James Simms (“Simms”), on his schedule of assets. Subsequently, a personal injury lawsuit was filed against the former employer, as well as another party, Bureau of Workers’ Compensation (“BWC”). The claim against BWC was not included in the debtor’s schedules. The debtor claimed no exemption related to the value of the personal injury claim.

The trustee filed a Report of No Distribution (“NDR”), certifying that the estate had been fully administered “with the exception of a possible settlement in connection with a personal injury claim against Simms.” The bankruptcy court order closing the case contained no reservation of rights related to the personal injury claim.

Two years later the trustee filed a motion requesting the bankruptcy court to reopen the case in order to present a settlement resolving the personal injury claim for the court’s approval. The debtor objected on the basis that the trustee had abandoned any interest in the personal injury litigation.

The bankruptcy court ruled against the debtor, finding that the personal injury claim was not abandoned and granted the trustee’s motion to reopen and motion for authority to compromise. The debtor appealed the decision.
The Appeal

The Court first considered whether the trustee did, in fact, abandon the personal injury claim pursuant to Section 554(c). Ruling in favor of the debtor on this issue, the Court explained that “[t]he plain language of the statute unambiguously states that if an asset was properly scheduled and not administered by the trustee, upon closing the case, the asset is abandoned as a matter of law.”

The Court next turned to whether the personal injury claim against BWC – which was not listed on the debtor’s schedules – was also abandoned by the trustee. According to Section 554(d), if a debtor fails to schedule property, it is not abandoned upon closure of the case. The Court ruled that such circumstances did not exist in this case.

Finally, the Court considered whether the bankruptcy court erred in approving the trustee’s request to settle or compromise the personal injury claim. The Court ruled that the bankruptcy court erred in approving the compromise because the trustee had no right to settle the abandoned personal injury claim.

If you have any questions about this case, or bankruptcy in general, please visit the Contact page.