Can Defendants Use Bankruptcy to Avoid Paying Judgments?

Yes, Defendants have used bankruptcy to avoid paying judgments in personal injury lawsuits. Dealing with a personal injury claim can be challenging enough without an at-fault party filing for bankruptcy. The intersection of bankruptcy and personal injury law is complex. The outcome of your claim could be affected by the type of bankruptcy filed, the nature of your injuries, and whether the at-fault party has liability insurance. Some claims are protected, while others may be delayed or discharged, leaving victims unsure about their next steps.

The good news is that bankruptcy does not automatically wipe away injury verdicts. In fact, under federal law, judgments based on reckless or intentional harm often survive bankruptcy. Knowing the difference—and acting quickly—can mean the difference between collecting your award and watching it vanish.

Chapter 7 Bankruptcy in Colorado

Chapter 7 bankruptcy is the most commonly filed type of bankruptcy in the United States. Sometimes referred to as “liquidation bankruptcy,” Chapter 7 bankruptcy helps people overwhelmed by debt to discharge most unsecured obligations, such as credit card balances and medical bills. While it relieves the person filing, it can complicate matters for those pursuing compensation in personal injury claims.

If the person responsible for your injuries files for Chapter 7, you may wonder how it affects your ability to recover damages. First, when a debtor files for Chapter 7 bankruptcy, the Court in the personal injury case will issue an automatic stay, halting all collection efforts. While a pause in proceedings can be frustrating, the automatic stay is not necessarily the end of the road.

One of the most important considerations is whether the at-fault party carried bodily injury liability insurance. In most personal injury cases, judgments from a jury trial are paid out through the at-fault party’s auto insurance policy and not their individual assets. This is because liability insurance exists independently of an at-fault party’s financial situation. This means a personal injury victim may still be able to pursue and recover damages from the at-fault driver’s insurance company, notwithstanding the stay.

If the at-fault party lacked bodily injury liability insurance coverage, recovering an award from a jury trial becomes more challenging. In these cases, the successful Plaintiff must file proof of a claim with the bankruptcy court to be considered a creditor. Unfortunately, unsecured creditors, including personal injury claimants without insurance backing, are lower on the priority list for repayment.

While Chapter 7 bankruptcy can introduce delays and challenges, liability insurance often provides a pathway for compensation. Even if the at-fault party struggles financially, legal guidance can help you explore options to recover your debts. Protecting your claim may require quick action and a clear understanding of how bankruptcy laws interact with personal injury cases.

Does Bankruptcy Wipe Out Lawsuit Judgments?

The short answer is: not always. Bankruptcy is designed to give debtors a “fresh start” by discharging certain obligations, but it specifically excludes others. Under Federal Law, debts arising from “willful and malicious injury” are not dischargeable. This means that if a personal injury verdict is based on reckless conduct, intentional harm, or malicious acts, the defendant cannot use bankruptcy to walk away from that responsibility.

To ensure your judgment falls under this exception, an attorney can file an adversary proceeding in bankruptcy court. This process allows you to argue that the defendant’s conduct was intentional or reckless, and therefore, your judgment should survive discharge. Without legal representation, critical deadlines can be missed, and your verdict could be lost in the bankruptcy process.

What is a “Willful and Malicious Injury?”

The U.S. Bankruptcy Code defines “willful” as conduct that is intentional rather than accidental. “Malicious” means that the act was done with the intent to cause harm or with a reckless disregard for the safety and rights of others. For example, judgments arising out of drunk driving crashes, physical assaults, or hit-and-run cases often survive bankruptcy because they are considered willful and malicious. By contrast, a routine negligence case—such as a driver running a stop sign without intent to harm—may be discharged. The law draws a clear distinction between mere carelessness and conscious disregard for safety.

What Happens When Someone Files Bankruptcy in Colorado?

When a defendant files bankruptcy in Colorado, the process begins with an automatic stay, which temporarily halts all collection efforts — including garnishments, liens, and enforcement of verdicts. The debtor must then disclose all debts and assets in their filings. A bankruptcy trustee reviews the case, and if the debts qualify, they may be discharged.

Creditors, however, including injury victims with judgments, have the right to object to discharge of specific debts. To preserve your rights, your attorney can step into the bankruptcy case and argue that your injury judgment falls under one of the exceptions, such as willful and malicious injury. This is a critical step, because bankruptcy courts do not automatically know the details of your case. Without proactive legal action, you could lose your ability to collect.

What Does “Discharge” Really Mean?

A discharge in bankruptcy means that the debtor is no longer legally obligated to pay certain debts. But not all debts qualify. For personal injury victims, this is where the law works in your favor. If your verdict stems from intentional conduct, punitive damages, DUI-related injuries, or even wrongful death caused by felonious acts, the debt is not typically wiped away.

This is why timing matters. Bankruptcy deadlines are strict, and if you do not contest discharge at the right stage, even a strong injury judgment can be lost.

Colorado Damage Caps Still Apply

It’s also important to understand how damage caps interact with bankruptcy. Colorado law limits certain damages in personal injury cases. For example, non-economic damages such as pain and suffering are capped, as are punitive damages (generally capped at the amount of actual damages). Wrongful death cases are also capped, unless the death involved a felonious killing.

These limits, set by Colo. Rev. Stat. § 13-21-102.5, do not change because of bankruptcy. However, enforcing a verdict after bankruptcy often requires aggressive action to ensure payment is actually collected.

What If the Defendant Refuses to Pay?

When a defendant does not voluntarily pay a judgment in Colorado, the law gives you several options. You may garnish their wages, levy their bank accounts, or place liens on their property. Judgments can also be renewed and remain enforceable for up to 20 years.

If the defendant files for bankruptcy, those collection efforts pause under the automatic stay until the case is resolved. At that point, your attorney can argue that the judgment should survive discharge, particularly if reckless or intentional conduct was involved.

Why You Should Not Face Bankruptcy Court Alone

Defendants — and sometimes even insurance companies — may use the threat of bankruptcy as leverage to pressure victims into accepting low settlements. This tactic is meant to scare you into believing you will recover nothing if bankruptcy is filed. The truth is far more complex. With the right attorney, you can challenge discharge, meet all court deadlines, and use creative strategies to enforce your judgment even in the wake of bankruptcy.

Attempting to navigate this system alone is risky. Bankruptcy law is highly technical, and missing a single procedural step could mean losing the compensation you rightfully earned after years of litigation.

Final Thoughts: Do Not Let Bankruptcy Erase Your Justice

Bankruptcy does not automatically cancel injury verdicts. Judgments that stem from reckless, intentional, or malicious acts often survive bankruptcy. While Colorado law does impose certain damage caps, your right to collect what you are owed remains intact. Having the right lawyer ensures that your verdict is enforced and that defendants cannot escape responsibility by manipulating bankruptcy rules.

At Bowman Law, LLC, we do more than win cases—we help clients enforce verdicts when defendants try to avoid justice. If bankruptcy is threatened or filed, we guide you through the process and fight to protect your award. Contact us today for a free case evaluation and learn how we can help protect what you rightfully earned.