Published originally on LinkedIn.
Your client does not inform you that she filed for bankruptcy protection
The plaintiff, Fatima Shaw-McDonald, filed a medical malpractice action on April 29, 2019 against two health care providers who caused the permanent loss of vision in her left eye during what was supposed to be a routine cataract procedure performed on April 30, 2017. Virginia has a two-year statute of limitations for medical malpractice claims. The case was scheduled for jury trial on June 6, 2022.
Due to her vision loss, the plaintiff lost her job as a health aid, could no longer pay her rent, and unknown to her attorneys filed a bankruptcy petition on March 24, 2022. On her disclosure of assets form she did not list her medical malpractice case.
The bankruptcy trap
Standing is a fundamental requirement under Virginia law that requires that any person bringing a legal action have a โsubstantial right to do so.โ Cupp v. Board of Supervisors, 227 Va. 580, 589 (1984).ย When a plaintiff files a personal injury action and subsequently files a bankruptcy petition, then the personal injury cause of action along with the plaintiffโs estate transfers to the bankruptcy trustee under 11 U.S.C. 541(a). Under the holding in Kocher v. Campbell, 282 Va. 113 (2011), a personal injury plaintiff was barred from pursuing a personal injury claim after a bankruptcy petition was filed because the claim had been assigned to the bankruptcy trustee, and the plaintiff no longer had standing.
On the morning of trial, and after jurors had been convened, defense counsel moved for summary dismissal with prejudice, pursuant to the holding in Kocher, contending that the plaintiff had committed a fraud on the court, lost standing, and that the claim had been assigned to the bankruptcy trustee. Plaintiffโs counsel requested the opportunity to investigate the facts underlying the motion to dismiss that were disclosed by the defendants for the first time on the morning of trial.
The trial judge ordered a stay of proceedings, granted plaintiffโs counsel the opportunity to investigate, and scheduled a briefing schedule and hearing.
Facts discovered during the stay
An investigation and tutorial on bankruptcy law revealed:
- A final bankruptcy order had not been entered, and under Bankruptcy Rule 1009(a) the bankruptcy petition could be amended at any time prior to entry of the final bankruptcy order.
- On the day of trial, the plaintiff filed an amended bankruptcy petition and included her medical malpractice cause of action as an asset of her estate.
- VA Code 34-28.1 exempts personal injury actions from the claims of creditors, and such actions are frequently and routinely exempted and restored to the debtor by the bankruptcy trustee.
- A final bankruptcy order was entered on July 8, 2022, and left unadministered the plaintiffโs medical malpractice cause of action, thereby restoring it to the plaintiff under 11 U.S.C. 554(c).
The trial court rules that Kocher requires dismissal with prejudice
The trial judge who originally heard the motion to dismiss was appointed to the Virginia Supreme Court prior to argument and a new judge was assigned. The new judge received briefs, heard oral argument and then granted the motion to dismiss with prejudice holding that under the Kocher holding the plaintiff lost standing as well as the right to pursue her cause of action when she filed her bankruptcy petition on March 24, 2022.
Appeals to the Court of Appeals and Virginia Supreme Court
The plaintiff appealed to the Court of Appeals, and after briefing and argument the court reversed the trial court and allowed the medical malpractice action to proceed. Shaw-McDonald v. Eye Consultants of N. Va., P.C., 79 Va. App. 576 (2024). The court ruled that the plaintiff had standing when her medical malpractice action was initially filed, and that standing was not lost when she subsequently filed her bankruptcy petition. After the final bankruptcy order was entered and the medical malpractice claim was left unadministered by the bankruptcy trustee, that claim reverted to the plaintiff by operation of law, as if the bankruptcy had not occurred. 79 Va. at 585-586.
The defendants filed a petition for appeal to the Virginia Supreme Court, and that petition was granted.ย After receiving briefs and hearing oral argument, the Court rendered an opinion on April 3, 2025 unanimously affirming the holding of the Court of Appeals. 2025 Va. LEXIS 16, *.
The Court clarified and distinguished its holding in Kocher. The plaintiff in Kocher filed bankruptcy before his personal injury action was filed and after a final bankruptcy order had been entered. After the final bankruptcy order was entered the plaintiff withdrew without prejudice the original personal injury action and filed a new one. That new personal injury action was subsequently exempted by the bankruptcy trustee and released to the plaintiff, but when the exemption occurred, the two-year statute of limitations has expired. The restoration of the personal injury action to the plaintiff did not revive the personal claim that was then barred by the statute of limitations.
In Shaw-McDonaldโs case, she had standing when her case was initially filed, and the claim was not barred by the statute of limitation at that time. Her standing to pursue her medical malpractice claim was suspended, but not forfeited by the bankruptcy filing, and the entry of the final bankruptcy order restored her standing to pursue it. 2025 Va. LEXIS 16, *10-14.
Protecting your personal injury client from the bankruptcy trap
This holding is significant because it clarified and did not apply the Kocher โautomatic forfeitureโ rule. ย In previous cases, Kocher had been applied by trial judges to trap personal injury plaintiffs by forfeiting their claim.ย The Shaw-McDonald holding allows a plaintiff to obtain a bankruptcy exemption for personal injury claim that was not initially disclosed on the bankruptcy asset disclosure statement, and that claim will no longer be subject to automatic forfeiture by the mere filing of a bankruptcy petition.
Plaintiffโs counsel must still inquire about any bankruptcy petition filed prior to the filing of the personal injury claim. Even if a bankruptcy petition has been filed and the personal injury claim has been omitted, an amended bankruptcy petition can be filed prior to entry of the final bankruptcy order. Where a final bankruptcy order has been entered then an exemption can still be requested and obtained from the bankruptcy trustee.ย The plaintiff will be able to pursue the claim as long as the statute of limitations had not expired as of the date of the initial personal injury filing.
There is now a safe harbor under Virginia law for salvaging a personal injury cause of action that would otherwise have been forfeited due the plaintiffโs failure to disclose the claim on the bankruptcy asset form. The filing of the bankruptcy petition now suspends but no longer forfeits the personal injury claim. When the personal injury claim is disclosed and exempted by the bankruptcy trustee, then it will revert to the debtor, and not to the tortfeasor.
