Does a Trustee in Bankruptcy Need to Approve a Settlement of a Lawsuit?
Full Question:
Answer:
The filing of a bankruptcy petition by your client creates a bankruptcy estate which the Trustee is appointed to administer. Pursuant to 11 U.S.C. section 541(a), property of the estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case.
The right to the proceeds of the personal injury lawsuit become property of the estate and, upon the filing of the bankruptcy, the Trustee succeeds to any right of the debtor in the lawsuit.
If the defendants make a settlement offer prior to trial, you must communicate that offer directly to the Trustee. It is the Trustee who has the right to accept or reject any offers, presumably after consulting with you on the likelihood of success at trial.
If the Trustee decides to accept the offer, s/he must obtain court approval. Do not let the state court dismiss the case prior to obtaining bankruptcy court approval.
The Trustee will file with the bankruptcy court a Motion for Authority to Compromise ("Motion") pursuant to Bankruptcy Rule 9019. The Motion will set forth the status of the case and the reasons for accepting the settlement. Until the bankruptcy court approves the settlement, the case is not settled. A recovery by way of settlement on a claim owned by the estate is subject to notice to creditors and opportunity for hearing on any objection against settlement.
Please see also:
http://www.dcba.org/brief/junissue/1998/art50698.htm
http://www.coloradolaw-blog.com/2009/06/med_mal_claim_right_to_settle.html