Many of the companies that used to make asbestos-containing products have now filed for bankruptcy. This section is to explain briefly how bankruptcies work and what they mean for your lawsuit.
Individual people and large corporations can all seek bankruptcy protection when they no longer have enough money to pay everyone to whom they owe a debt. As early as 1982 when Johns-Manville filed for bankruptcy, asbestos manufacturers began to use the bankruptcy courts to avoid paying claims to everyone who had been injured by exposure to their asbestos products.
Since that time, many more corporations followed suit, claiming that they lacked the cash or the insurance coverage to pay all the asbestos-related claims that they currently had or were likely to see in the future.
When someone files for bankruptcy, the matter is filed in a special bankruptcy court. One of the first things to happen is the appointment of a “trustee” by the bankruptcy court. The trustee makes a detailed list of all the money and other assets of the bankrupt corporation (called the “debtor”) and also identifies those to whom the company owes money, called “creditors.”
In a mesothelioma case, the injured plaintiff would be the creditor and the asbestos company would be the debtor.
There are different types of creditors with different types of claims, and each group may be treated differently under the bankruptcy law. A creditor may be a “secured creditor” or an “unsecured creditor.” The secured creditor is in a better position because the secured creditor has a “security interest” in the debtor’s assets.
When you take out a loan on a car, for instance, the lender has a security interest in your car; if you miss enough payments, the lender has the right to repossess your car. An unsecured creditor doesn’t have the right to take something specific from the debtor if a debt is not paid.
There are also different types of debts. They can be “liquidated” or “unliquidated.” With a liquidated debt, the specific amount to be paid is known; but a debt is unliquidated when its precise amount is unknown. In a mesothelioma case, if you reach a settlement with an asbestos defendant, in most states, the debt is a liquidated debt, because it has a fixed, known amount.
But generally, if you have not settled your claim with a defendant, or the trial judge in your lawsuit has not entered a judgment on the claim, the debt owed to you by the asbestos defendant will be unliquidated.
When the bankruptcy court and the trustee make plans for paying the different types of creditors and the different types of debts, secured creditors are generally in a better position than unsecured and liquidated debts are usually better off than unliquidated debts. The plans for payment created by the court and the trustee are known as “claims administration procedures.”
When the procedures have been established, it is time for creditors to file their “proof of claim,” which is the document that must be submitted to the bankruptcy court to get approval for payment under the claims administration procedures.
The good news for asbestos claimants, such as yourself, is that often, bankrupt asbestos companies still have funds available to pay creditors. The disappointing news is that the payments to asbestos claimants are generally much smaller than the defendant would have paid had the company not declared bankruptcy.
The problem, of course, is that when a company has less money than it needs to pay its debts, everyone is going to receive less than the amount to which they would otherwise have been entitled. The money just isn’t there.
After a company seeks bankruptcy protection, it can no longer be sued in court as part of your lawsuit. If an asbestos defendant files for bankruptcy after you have filed suit against it, your lawsuit against that defendant will come to a halt, as that small portion of your suit is “stayed” to allow the rest of your case to go forward.
The bankruptcy will not interfere with your ability to proceed against other companies. If an asbestos company that had filed for bankruptcy emerges from bankruptcy, you still will not be able to sue the new post-bankruptcy company. A company’s bankruptcy usually works to clean the slate on its debts, including debts to those injured by exposure to the company’s asbestos products.
Bankruptcy is a complicated issue, no doubt. But rest assured, your mesothelioma lawyers at Bergman Draper Oslund are well equipped to protect your interests with bankrupt asbestos companies. We will answer any questions you may have until you are as comfortable with the process as possible. You can ask us a question here.