Am I Responsible for Car Accident Damages in Excess of Insurance Coverage?

by Jonathan Ginsberg, Esq.

April 10, 2008

Car accidents happen all the time and most of us have sufficient insurance to cover the claims of an injured third party.  What happens if you are at fault in an accident and the other driver sues you for thousands or millions of dollars?   I received this question from a visitor to my Atlanta bankruptcy web site:

I am currently being sued for $750K regarding an accident I was involved in over a year ago.  If the plaintiff is awarded more than my insurance will cover, I am responsible for the difference.  There is no way I will ever be able to pay any amount of judgment.  Is filing for bankruptcy a way to no longer be responsible for the judgment?

Here is my answer: first, recognize that just because you were sued for $750,000, you are not necessarily going to owe $750,000.  Plaintiff’s lawyers often put hugely inflated numbers in their lawsuits for intimidation purposes.  The defense counsel that will be provided to you by your insurance company will have a better idea about the legitimacy of the plaintiff’s claim.

Second, even if the plaintiff was hurt very badly, most plaintiff’s lawyers are going to rely more on insurance proceeds than any expectation that they will ever collect from an individual.  To put this another way – if the insurance carrier offers policy limits (say $100,000), and the option is to take the policy limit offer or to litigate the case, most plaintiff’s lawyers are going to think twice about turning down a firm, cash offer from an insurer and risk the vagaries of a jury and the problem of collecting from an individual.

Here, too, I would turn to your defense counsel for advice – although remember that the defense counsel is being paid by the insurer to protect the insurer’s rights.  If your counsel feels that there is a significant risk that the case will not settle and that you could find yourself liable for several hundred thousand dollars, I would look at filing bankruptcy prior to any trial.  Why?  You have more flexibility in dealing with an unliquidated, unsecured claim as opposed to a liquidated, judgment (secured debt).  You will, of course, need to consult with a bankruptcy lawyer to determine how to proceed in bankruptcy.

There is one other factor to consider – is this debt dischargeable in bankruptcy.  The Bankruptcy Code exempts from discharge debts caused by willful and malicious injury and debts arising from DUI or driving while under the influence of drugs.  Here, too, your bankruptcy lawyer can advise you if you have any risk in this regard.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including www.atlanta-bankruptcy-attorney.com and an Atlanta bankruptcy blog, www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.

Last modified: April 28, 2011