Part Three: Duties Of Trustee As Pertains To Personal Injury Lawsuits And Settlements

What are the Bankruptcy Trustee’s Duties when there is an active Personal Injury Lawsuit during the pendency of a Bankruptcy?

Bankruptcy Code Section 330, Section 326, Section 328, and 329, is one of the clearer and better written portions of the code, and it clearly spells out the duties of the Bankruptcy Trustee and the Personal Injury Attorney, who is representing the Debtor in the Personal Injury matter. The Duties of the Trustee and the Personal Injury Attorney are largely aligned, as both parties represent the Bankruptcy Estate, and both parties have a Fiduciary Duty, in particular the Trustee, that all Personal Injury Proceeds are preserved and accounted for.

Bankruptcy Code Section 330(a)(1) clearly states that only after Notice and a Hearing may the Professional Person or Officer, or in this case the Personal Injury Attorney, receive compensation for services performed. This means that the Personal Injury Attorney may not take any monies from the completion of the Personal Injury Lawsuit, without the approval of the Bankruptcy Judge. Bankruptcy Code Section 327 states that the Trustee is given the responsibility of hiring the Personal Injury Attorney. The Bankruptcy Judge must give approval to the Application or Motion To Employ The Professional Person, or the Personal Injury Attorney.

The Motion can be denied if the Personal Injury Attorney holds an interest that is adverse to the Bankruptcy Estate. Both the Personal Injury Attorney and the Bankruptcy Trustee have the Duty to represent and preserve the monies to be derived from the Personal Injury Lawsuit, as such monies are part of the Bankruptcy Estate.

Our next discussion will be on what Liability the Bankruptcy Trustee has if he violates the Duties enumerated in Parts One, Two and Three of our discussion. I will give you a hint; in every Jurisdiction, the Bankruptcy Trustee is liable for Willful Violations of his Duties.