When a person who has a personal injury case files bankruptcy, they, in essence, give up that asset to the Trustee in Bankruptcy.  If the recovery is greater than the creditor’s claims, then the plaintiff may get some money.  If not, then the entire proceeds go to the creditors.

Going along with this, the trustee in bankruptcy becomes the plaintiff.  Personal injury attorneys must play by bankruptcy rules, and, for example, must be permitted to represent the trustee by court order, any settlements are subject to court order, as are all fees, regardless of the retainer agreement.

Here is a case in which the personal injury attorney was ousted for simply not following the rules. "In April 2004, Ms. Smith filed for bankruptcy. She had debts of $14,000 and a single potential asset: a personal injury claim based on a sledding accident in which she was blinded in one eye. According to the circuit, "all parties agree that if the personal injury claim is successfully prosecuted, recovery would likely far exceed creditors’ claims against Smith."

Ms. Smith retained Mr. Schwartz for the personal injury case with the initial approval of bankruptcy trustee Robert Geltzer. But the trustee later slammed Mr. Schwartz for naming Ms. Smith, and not Mr. Geltzer, as plaintiff in the action and then stalling for more than nine months to change the caption in the case while he brought in another lawyer without court approval.

The filing of the personal injury action under Ms. Smith’s name, the circuit said in Schwartz v. Geltzer, 06-4450-bk and 06-5323-bk, "was the first in a litany of errors that, when viewed together, reflect at best a lack of understanding of the bankruptcy process and at worst an effort to circumvent its requirements."