The automatic stay protects debtors from collection activities after a bankruptcy case has been filed. What about a case where there is insurance coverage available on behalf of the debtor? What I am referring to is a case where the debtor was involved in an auto accident, had insurance coverage and then files for bankruptcy protection under Chapter 7. In that case, the debtor is protected by the automatic stay and the creditor cannot pursue the debtor personally. However, since there was automotive insurance coverage in place at the time of the accident, which was before the case was filed, the creditor has a cause of action. Instead of pursing the debtor, the creditor has the legal right to pursue a cause of action for the limited purpose of seeking the insurance coverage.
In a recent case, I was contacted by a creditor with such a cause of action. The difficulty with the recent case is that the matter has just gone to discharge. Thus, the creditor is not comfortable pursuing the insurance proceeds without the approval of the bankruptcy court. Since the case has previously gone to discharge, there are additional steps that must be done.
First, the case must be reopened to allow for the creditor to bring a proper motion to modify the automatic stay. This involves a motion to reopen being filed with the court and a reopening court cost being paid. The Judge may or may not grant the motion. Some judges will see what the creditor is trying to accomplish and other judges will deem the motion unnecessary. In any event, the motion should be brought. Once the case has been reopened, it is on to the second motion.
The second motion is a motion to modify the automatic stay for the limited purpose of pursuing insurance benefits of the debtor as they relate to the pre-petition debt from the auto accident. This motion is routine and should be granted without a problem. Once granted, the creditor and/or the creditor’s attorney can continue with the cause of action for that limited purpose. It is not until the case is reopened and the motion to modify granted that the creditor should feel right in pursing the action.
If you have bankruptcy related issues that need professional advice, feel free to contact the office of Chicago bankruptcy attorney David Siegel. The office would be happy to assist you with your questions. If it is not in our wheel house, we can certainly direct you to other attorneys within the Chicago area who can provide personal assistance. It is always best to seek advice then to try and go it alone.
