It’s easy to forget how dangerous it is to drive a car when many of us use them to get to work, run errands, and more every day. But being in a car accident can be a highly painful and stressful experience, and more so if it leads to the accumulation of overwhelming debt. There may or may not be a personal injury lawsuit in the works, in which the individual could be the plaintiff or the defendant. These factors and more can lead someone who has recently been in a major car accident to consider filing for chapter 7 or chapter 13 bankruptcy. But with such an important issue at play, it makes it even more important for a debtor in this type of bankruptcy case to retain skilled legal counsel. Schedule your free phone consultation with Atlas Bankruptcy Lawyers today at 602-649-4949 for more information.
Insurance Limits and Car Accident Debt
There is a potential for massive amounts of debt for a driver who is at fault for a serious traffic accident. Even with an auto insurance policy, a serious accident can cause damages far beyond policy limits. In Arizona, state minimum auto insurance is a 25/50/15 liability policy. This means $25,000 for bodily injury or death to one person, $50,000 for bodily injury or death to two people, and $15,000 in property damage. The property damage coverage applies to other people’s property, not the driver’s own property. Those numbers may sound high, but they are just a fraction of the damages accrued in catastrophic traffic collision cases. Let’s say you cause an accident that totals a rare vintage collectible vehicle or a fancy sports car. These vehicles can be worth several hundreds of thousands of dollars, which is much more than Arizona’s state minimum insurance requirements. Hopefully, the driver of such a vehicle would have uninsured or underinsured motorist coverage. Even if so, that insurance company may come after the driver for whatever their insurance policy didn’t cover.
You could be in quite a bit of debt if another driver pursues you for damages remaining beyond your insurance coverage after a major traffic collision. And how the other driver pursues that judgment could wreak havoc on your life. That judgment could be used to garnish your wages, intercept your tax refunds, and more. With the cost of living as high as it is, losing 15-25% of your paychecks to a car accident judgment could be absolutely devastating. But until that judgment is secured as a lien on one of your assets, it is unsecured. Unsecured debts can be cleared by bankruptcy, with the automatic stay protecting you from collection efforts in the meantime.
The DUI Exception
Alcohol is a factor in several accident claims, especially those resulting in serious injury and death. Higher damages make it more likely that a driver involved in a DUI accident may wind up with debts that cause them to consider bankruptcy. But bankruptcy won’t be effective if the party considering it was under the influence of drugs or alcohol when they caused the accident. Bankruptcy does not clear debts stemming from a DUI traffic accident. Chapter 13 bankruptcy can be used to pay off such priority debts, but the debtor must have enough disposable monthly income to pay off the full balance in either 3 or 5 years to qualify.
Bankruptcy Concerns for a Personal Injury Plaintiff
Even if a car accident victim expects an insurance payout, they may end up accruing debt while waiting for a settlement or trial award to be issued. Credit cards, personal loans, and more may stack up if a plaintiff can’t work due to their injuries, and it can take months or even years to receive an injury award payout. They need to discuss the situation with an attorney before filing, as their injury award could be at risk if they file for bankruptcy before receiving it, even if the case is discharged before receipt. A.R.S. § 33-1126 contains Arizona’s bankruptcy exemption for money proceeds like a personal injury settlement. Payments from an insurance policy from such an event are protected in bankruptcy, as are up to $20,000 of proceeds from a wrongful death lawsuit of a loved one. However, there is no specific exemption for an injury award, and Arizona does not allow debtors to opt in to the federal bankruptcy exemption system instead.
Car Accident Medical Bills
Bills from a serious car accident can be staggering. However, if they are the only type of debt a person has, they may want to pause before filing for bankruptcy. There are restrictions in place on medical creditors for pursuing collection, and many hospitals are required to offer financial assistance programs for low-income patients. So, a person under these circumstances may be protected from medical debt collection, or the hospital may be required to forgive the debt anyway.
Bankruptcy might not be the best option if an accident victim only has medical debt, but these types of injuries can lead to other types of unsecured debts being accrued, as well. Their doctor may instruct them to stay home from work until they have healed from their injuries, and without insurance for this, most American households don’t have savings to continue paying their regular expenses for more than a few weeks. Losing that income, especially combined with using credit cards or other lines of credit to float expenses in the meantime, can create a debt balance which also accrues interest at a high rate. Qualifying for hospital financial assistance programs won’t release the individual from these types of debts. However, these are exactly the types of debts with which bankruptcy is meant to help. Which chapter of bankruptcy that person should file depends on more individualized factors. Chapter 7 bankruptcy is usually the first choice for clearing medical bills, credit cards, personal loans, and other unsecured lines of credit. It can wipe out these types of debts in just a matter of months. But if the debtor has high income, previous bankruptcy filings, or assets that would be left unprotected by bankruptcy exemptions, chapter 13 may be a better option.
Considering Bankruptcy After a Serious Car Accident in Arizona? Weigh Your Options with an Experienced Bankruptcy Lawyer Today.
Bankruptcy is a powerful tool for debt relief, but there are many factors that can render it ineffective. Several of these can apply to someone who is trying to address debt stemming from a serious car accident. It can be complicated to discern which apply to your situation, especially if you are still recovering from your injuries. And if you do file for bankruptcy after a serious car accident, it’s even more crucial that your filing is executed correctly the first time around. Our Arizona bankruptcy team has years of experience assisting residents of Phoenix and Tucson in clearing their debts to secure a better financial future. We even offer flexible payment plan options that allow eligible clients to get filed for $0 down. Your debt relief journey doesn’t begin until you pick up the phone and schedule your free consultation. Get started today by calling 602-649-4949.
