Subrogation Gone Bankrupt

Although the downfall of large corporations may be topping the headlines, individual bankruptcy filings continue to increase. Occasionally, the receipt of a personal injury settlement collides with a member's bankruptcy filing, or vice versa. It is perhaps ironic that a member about to receive a personal injury settlement could have financial problems, but their bankruptcy filing can definitely get in the way of a respectable lien recovery. In many cases, the member is forced to file for bankruptcy protection because the accident caused resulting job loss. Also, more providers are refusing to seek payment from health plans and instead asserting a lien against the third party settlement, complicating the picture further.

Lien holders, however, have recourse. Assuming that you have properly placed all parties on notice, you will likely be given the opportunity to file a "proof of claim" with the bankruptcy court. When filing a proof of claim, you must include supporting detail within a specified time period or else the Bankruptcy Trustee will ask the judge to dismiss your claim.

Courts have addressed this issue many times with varying outcomes. And, of course, plan language played a vital role in the outcome. In 2002, in In re Tina Carpenter, a federal court allowed Wal-Mart's subrogation claim despite Carpenter's bankruptcy filing mainly because the plan contained very strong reimbursement language. So the bankruptcy curve ball should not render your recovery efforts hopeless. Timely notice to the right parties, a proper filing of a proof of claim, a good subrogation provision, and savvy negotiating can make a big difference.

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