Medical Clinic Files For Bankruptcy After $98M Judgment
An Iowa medical clinic recently filed for bankruptcy after jurors returned a verdict against it for $98 million. The lawsuit was related to the injury of an infant during birth. The infant’s parents claimed that an unsophisticated use of forceps and a suction tube resulted in the compression of the child’s head and permanent brain damage. The judgment is believed to be the largest in the history of the State of Iowa.
However, the medical clinic against whom the judgment was entered has since filed for bankruptcy protection throwing a wrench in the plaintiff’s ability to recover the jury award. Typically, the judgment would be set aside in a trust to pay for the child’s medical care. The parents would get some money for their emotional pain and suffering, but most of that money will pay for the child’s extensive medical care. Hence why the judgments in birth injury cases tend to be so high.
A $7 million judgment was entered against one of the named defendants. The plaintiffs contend that the other defendant now owes the remainder while that defendant claims they only owe half of $91 million or $45.5 million. The clinic filed for Chapter 11 bankruptcy protection. Below, we’ll discuss what that means.
The automatic stay
Any debtor who files for bankruptcy protection can stop all attempts to recover a debt by filing for bankruptcy. In the case of a company that is facing a massive personal injury judgment, this stops the litigation in its tracks and prevents the enforcement of the judgment against the company. It also prevents the case from being litigated further. In most cases, this is when filing for Chapter 11 protection is of the most benefit. Because most companies incur massive costs when it comes to defending the case and not just the judgment.
In this case, the company lost the claim and then filed for Chapter 11 protection. The automatic stay remains in effect until the reorganization of the company is complete and the company begins to make Chapter 11 payments to its creditors. If the company cannot make these payments it can reorganize again or liquidate. A company that chooses to liquidate will not survive the process. Chapter 7 bankruptcy is a death sentence for corporations and companies. This happens also when a company cannot repay the debt on the schedule imposed by the court. The Chapter 11 can be turned into a Chapter 7.
If a Chapter 7 bankruptcy is granted, then the company’s assets will be consolidated into a trust, auctioned off, and thus liquidated for the benefit of the creditors. Whatever the creditors can recover from the auction is all the money they will ever see and they’ll have to split it between them in accordance with the trustee’s decisions.
So, for injured parties, a bankruptcy filing is a potentially frightening turn of events that can happen after you have received a favorable verdict from a jury.
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