A frequent question arises when someone files for Chapter 7 or Chapter 13 Bankruptcy and is suing someone. We will discuss Chapter 7 bankruptcy first. What happens in Chapter 7 is the bankruptcy trustee takes over the lawsuit. It is an asset of the estate. You will get your exempt amount that your bankruptcy attorney will advise you on. However, the rest of the money from the lawsuit will go to the trustee for fees and the rest to your creditors. If you are suing or thinking of suing anyone make sure you tell your Chapter 7 attorney. It may be advisable to not file for Bankruptcy. Or maybe it is depending on the value of your lawsuit.
On October 15, 2020 the Michigan Court of Appeals ruled that way. In that case the trial judge thought the lawsuit belonged to the Chapter 7 Trustee. But interestingly the trustee agreed it was exempt. And so the judge was wrong and the Court of Appeals reversed. Sometimes judges get it wrong.
Now in Chapter 13 you keep all of your property. The catch is if you have property such as a lawsuit you might have to pay more in your payment plan.
A good bankruptcy attorney will ask you if you have a lawsuit and advise you. But sometimes even attorneys overlook things so make sure you bring it up at your consultation.
The point of this short article is to consult a bankruptcy attorney (many of the times the consultations are free) who is qualified to give you the right advice.