Can I file for bankruptcy if I have a lawsuit going against my employer?

Well, you can, but there might be unfortunate consequences.  Sadly, some people who are terminated from their employment find themselves unable to pay their bills and must file for bankruptcy protection.  What happens in this instance is that the lawsuit- along with all of your other assets- become the property of the bankruptcy estate.  This estate is administered by a bankruptcy trustee who works for the bankruptcy court.  The trustee will then “own” the lawsuit, and any recovery you get out of it.  He or she can decide whether to retain the employment lawyer you have, how much to pay him or her, whether to settle, how much to settle for, and make any other decisions.  If and when the lawsuit settles, you may or may not see any of the recovery.

There is also the possibility that the defendant can move to dismiss the case for lack of standing.  What this means is that you can’t bring a lawsuit if you don’t have a “dog in the fight,” that is, if you don’t own the lawsuit, you don’t have any interest in the outcome of it, and therefore shouldn’t be able to waste everyone’s time with it.  This is especially likely if you fail to tell the bankruptcy trustee about the lawsuit and bankruptcy estate isn’t properly “subbed in” as the plaintiff.

When you file for bankruptcy, you must let your employment lawyer know about it.  He or she will have to contact the bankruptcy lawyer and will need to enter into a contract with the bankruptcy trustee.  The bankruptcy trustee is then the employment lawyer’s client- not the actual plaintiff.

In sum, deciding to file for bankruptcy is a big decision that can have a negative effect on your lawsuit and your ability to collect a settlement or award from the court.  

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