Does Bankruptcy Affect Liens?

While Johnson and Johnson’s Talcum Powder Bankruptcy has apparently failed (as of January 30, 2023), many other bankruptcy and personal injury/mass tort cases remain. What does that mean for liens and subrogation?


Not much.


First, remember that when we use the term “lien,” we are using an adopted, legally incomplete term. We’re generally focusing on subrogation and/or reimbursement rights for health insurers.


Then, we need to remember that these rights are based on different laws. Medicare liens are based on the Medicare Secondary Payer Act (42 USC 1395y). That act talks about primary and secondary payers. If a bankruptcy occurs, then that trust becomes the primary payer under Medicare. The bankruptcy does not change Medicare’s rights or process.


For Medicaid, we look at fifty states’ laws. Those generally look at a plaintiff or claimant receiving funds as a result of injuries. Those funds exist in and out of bankruptcy. So, bankruptcy again doesn’t change the process.


Finally, we tend to group all remaining health insurers together as “private liens.” Those plans mostly rely on contracts that we refer to as plan language. Most contracts have language similar to Medicaid laws, like, “if the beneficiary/plaintiff receives money from any source… the plan should be paid back.” The bankruptcy trust is a source just like a defendant’s regular bank account.


So far, no major challenges have been made to so-called health insurance lien rights in bankruptcy. Nevertheless, this topic and field continues to grow. As a result of that growth, the AAJ has formed a Bankruptcy Litigation Group, which MASSIVE is proud to sponsor. Please join us at the AAJ’s Winter Convention, February 3 – 7, 2023, and find us at the Bankruptcy Litigation Group meeting.