Bankrupt Defendants: What Does Bankruptcy Mean to Your Case?
As you probably know, several companies that once manufactured asbestos-containing products have filed for bankruptcy. Here is a brief explanation about how bankruptcies work and how they may affect your lawsuit.
What is a bankruptcy?
We all know the “basics” about bankruptcy: people or companies file for bankruptcy when they claim they are close to or out of money and have few prospects for paying all of the people or companies to whom they owe money. In the case of asbestos manufacturers, many have filed for bankruptcy claiming that they face more current and future asbestos-related claims than they have money or insurance coverage to pay. In most of these cases, the bankruptcy judge has set up a trust funded with the company’s assets to help compensate asbestos victims.
What happens when a company files bankruptcy?
When a company files for bankruptcy, a “trustee” is appointed by the bankruptcy court. The trustee takes an inventory of the funds and assets belonging to the company and assesses the company’s “creditors,” that is, the individuals or companies to whom the bankrupt company may owe money.
There are different categories of creditors and claims: a “secured” creditor, for example, is one who has a security interest in some of the bankrupt company’s assets (for example, your home mortgage is a secured interest because if you don’t pay your loan, the bank can foreclose on your house). A debt can also be “liquidated” or “unliquidated.” A debt is typically liquidated when the amount of the debt is known and unliquidated when the amount is unknown. For example, in an asbestos lawsuit, once you enter into a settlement agreement the debt is generally liquidated; but (depending on the applicable state’s laws) all or part of your claim might be unliquidated if you have not agreed on a settlement amount or you have not received a judgment from the trial court.
The bankruptcy court, with the help of the trustee, develops “claims administration procedures” to try to equitably pay each class of creditors. Once these procedures have been set up, the creditors typically must submit their claims (called a “proof of claim”) for approval for payment according to the procedures established by the court.
Will I be able to receive compensation from a company that files for bankruptcy?
In many cases, the company’s existing funds can be paid to the company’s creditors. Unfortunately, such payments are typically smaller (sometimes much smaller) than what they might have been had the company not filed for bankruptcy. This is because there are only limited funds available, and the bankruptcy court needs to try to make sure that the funds are disbursed to the creditors as equitably as possible. So, while you may be entitled to compensation from a bankrupt entity, often the settlement amount you receive is relatively small.
Can I still pursue my lawsuit against the bankrupt company?
Once a company files for bankruptcy, you can generally no longer sue them in court. Even if you have already filed suit against the defendant, your lawsuit against that defendant is “stayed” (put on hold) pending the resolution of the bankruptcy proceedings.
How about if the company comes out of bankruptcy and keeps operating? Can I sue it then?
Generally, a company’s bankruptcy means a discharge of all of the company’s existing debts (including all of their asbestos-related liabilities). Even if, at a later date, the company comes out of bankruptcy after a “reorganization,” you will typically not be able to sue the new company.
