How bankruptcy and creditor and medical liens affect personal injury victims
It is not uncommon for personal injury claimants to be thrust into credit problems and even bankruptcy, once they are challenged by a loss of income and enormous medical expenses. In addition, most medical payors are becoming increasingly aggressive in seeking repayment of their outlay for medical care.
In the context of automobile accidents, trouble won't normally arise during the first three years, regardless of the catastrophic nature of the injuries, since the No Fault Act provides broad protection for injured persons during those first three years after the injury, as well as long-term medical coverage. Similarly, workers compensation provides at least minimal protection for injured workers, although frequently not enough protection to preserve a middle class existence. Social Security Disability may keep a family with a catastrophically injured member above the poverty line. All of these safety nets, along with private insurance and other options need to be explored and in the case of SSD, even administrative resolution may take more than one year.
If an injury victim or family is forced into bankruptcy, or was already there when the injury occurred, the victim needs to carefully consider the impact of bankruptcy on the injury claim. Technically, it is likely that the claim now "belongs" to the Bankruptcy Trustee. He or she can pursue it, compromise it, choose a new attorney to pursue it, or cooperate with the victim and his or her choice of attorneys. We have found that the local Trustees are appropriately compassionate toward the interests and needs of injury victims and pretty easy to work with: they recognize that the injury claim is not worth much to the bankrupt estate if the victim has no remaining interest and declines to help pursue it.
As noted in other locations on this website and in this web log, injury victims must also take into account potential liens on their recovery. If they have been paid lost wages by an insurer, or if any medical has been paid by a third-party (particularly an insurer or ERISA plan or Medicare and Medicaid), the third-party has probably reserved a right to claim any settlement recovery up to the amount it has expended. This right is usually a priority over the victim's right to recover--even if catstrophically injured--and is a particular problem where there is comparative fault by the victim or where the at--fault has limited insurance or collectibility.
The lienors' rights may arise out of subrogation or reimbursement provisions in statutes and in contracts. The contract language may be included in your Summary Plan Description at work, or it may be necessary to obtain it through the payor or through Human Resources employees. The traditional lien, called subrogation, gives the paying entity the right to participate in any claim against any person responsible for the loss the lienor incurred. This right rarely applies in Michigan autombile liability cases because the "at fault" is not responsible for medical expenses. The entity claiming a right of subrogation is required to share proportionately in out-of-pocket expenses and fees. The subrogation claim applies to every dollar paid, no matter what the victim or his attorney calls the purpose of the payment. (In other words, if the settlement is called lost wages or pain and suffering or consortium, the subrogating medical-payor still gets to grab the first dollar.)
More recently, more aggressive insurers such as Priority Health have been writing their contracts to claim a right of reimbursement. This right can be pursued against any injury recovery, even if the "at fault" was not legally obligated to pay medical expenses. Further, it may be legal for these companies to forego paying their share of fees and costs: there is currently a confusion of opinions on that subject. Priority routinely denies any obligation to pay for out-of-pocket litigation expenses, and its contract language is broad enough to avoid responsibility for its share of attorney fees. Thus far, we have not seen them press the attorney fee issue in court, but they are aggressive in all other aspects of asserting their rights.
Blue Cross and Medicare/Medicaid are also far more assertive than they were a decade ago. Blue Cross routinely cross-checks court filing records and all three providers examine medical charts to assess the likelihood of third-party fault and an injury suit or settlement. Medicare and Medicaid have privatized the collection of these liens in a manner that defies logic, compassion or common sense, and these "last resort" payors have been given the legal authority to demand payment of an entire recovery--to be held until it determines that it has made an error in computation.
We have found that this administrative process [by which the contractor grabs a share of your money and will pay it back if you prove you deserve it] can extend over a year with only rare and impotent reference to a human being. Attorneys and persons attempting to resolve a case with the "at fault" or his or her insurer must be extremely attentive to the rights of lienors and trustees.