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Go bankrupt? Go bare?
Bankruptcy won't affect your liability exposure if you have adequate insurance.
State laws vary widely on what assets are protected in bankruptcy.
Going bare is a very risky way to avoid a judgment.
Q: Recent business failures and losses in the stock market have brought me to the point where I'm thinking about declaring bankruptcy. In fact, to cut my expenses, I'm also thinking about going bare. What effect would those actions have on my potential liability exposure?
A: In general, as long as you have adequate malpractice insurance coverage, personal bankruptcy should have little effect on your exposure, since most claims against you would still be defended and paid by your carrier. Although that might not apply to judgments in excess of your coverage, if a plaintiffs' attorney knows that your personal assets are protected by bankruptcy, he may be more willing to settle for your policy limit, or more likely to go after your co-defendants.
If you're serious about declaring bankruptcy to protect your assets, don't wait until you're sued. If a judge finds that you did so after a claim was filed or anticipated, he's likely to invalidate the asset transfer as a "fraudulent conveyance."
Some courts have refused to allow physicians to escape judgments via bankruptcy if the negligence involved was "willful and malicious." If a doctor has grossly misrepresented his qualifications, for example, or concealed the fact that his hospital privileges had been revoked, he could still be obligated to pay his share of a judgment.
State laws vary widely on what assets are protected by bankruptcy, or by joint ownership with or transfer to a spouse. If the jury award exceeds your coverage, some of those assets could still be at risk. The court could garnish your future earnings, or attach any new assets you acquire until the debt is paid.
Declaring bankruptcy is usually a poor solution. Even if you succeed in avoiding your responsibility to the patient, bankruptcy can destroy your credit rating and ability to borrow money for years to come.
Going bare is an even riskier way to avoid liability. Unless you have almost no affiliations with other physicians or health care facilities, it could effectively put you out of business. In most states, hospitals require malpractice coverage as a prerequisite for staff privileges, and HMOs require it for all panel members.
If you're bare, other physicians may refuse to work with you because you pose a financial threat to them if you're named as their co-defendant. In states with "joint-and-several liability" laws, even if they're not found personally liable, they would be obligated to pay your share of a malpractice judgment if you're uninsured.
Finally, going bare could be a poor gamble because you could be risking the loss of your license to practice. In some states, if you fail to pay your share of a malpractice judgment, the state medical board can suspend or revoke your license. My advice is to purchase adequate malpractice insurance even if you have to borrow the money for the premium.
Lee Johnson. Malpractice Consult: Go bankrupt? Medical Economics Jun. 6, 2003;80:106.