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Can I Keep Money I Receive from a Personal Injury Lawsuit in Bankruptcy?

On Behalf of | Jan 18, 2020 | Bankruptcy Basics

Many clients ask us if they can keep money that they get from a personal injury they suffered if they file bankruptcy.

This blog will explain what a personal injury claim is, when it must be disclosed and how much money you can keep if you file bankruptcy.

When a person in debt (debtor) files a bankruptcy petition, it creates a new legal entity called the bankruptcy estate, which is administered by a bankruptcy trustee. The debtor is legally required to set forth in the petition all properties and assets that they own (including a personal injury claim).
If you have the right to file a lawsuit against someone, whether or not it has been filed, that right is considered an asset.

What is a Personal Injury Claim?
A personal injury claim is any claim that you may have, whether or not you have brought a lawsuit, against a person, business or anyone else because of a personal bodily injury that you suffered. Examples include claims from a car accident, slip and fall, and medical malpractice.

It is Important to Disclose the Personal Injury Claims in Bankruptcy

There is a requirement when bankruptcy is filed that the debtor list all the property and assets they own. Failure to disclose, even if not intentional can constitute bankruptcy fraud.

A personal injury claim is an asset- just like physical assets such as your car, your home and other personal property. It is the date that the claim arose (which is usually the date you were injured or had the accident) and not the date you filed the lawsuit or received the award or settlement that determines whether it is an asset of your bankruptcy estate. You must list your lawsuit, or your potential cause of accident if no lawsuit has been filed, on your bankruptcy petition.

It is critical that you advise your bankruptcy attorney of any claims, whether or not you have hired a lawyer or brought a lawsuit.

If you were injured before you filed for bankruptcy you must disclose the cause of action whether or not you started a lawsuit or will not get the monies until after the bankruptcy is filed. If you do not list it you can lose the right to exempt the asset and will not get to keep the award. Instead of compensating you for your injuries, the monies you receive would then go entirely to your creditors.

Exempting a Personal Injury Claim

Just because you are required to list your lawsuit or claim does not automatically mean you will lose the money if you file bankruptcy. As with all assets, the question to ask is whether an exemption is available to protect the assets.

Federal bankruptcy exemptions protect up to $25,150.00 received as the result of a personal bodily injury award or settlement with some exceptions. Federal bankruptcy exemptions also protect:

• Payments you receive to compensate you for lost future earnings, at least to the extent necessary to support you;
• Payments you receive due to the wrongful death of certain individuals, to the extent necessary to support you; and
• All payments you are entitled to receive under a victim’s reparation law.

The exemption amount is doubled for a married couple filing together only if both spouses were injured. If your claim is over the amount allowed by the personal injury exemption, you can also apply the “wild card” exemption which will allow you to exempt more. The amount you will have to apply from the wildcard exemption will depend upon whether you need it for other assets or to protect equity in your home.

The exemption amounts are adjusted every three years.

If you have already won or settled your lawsuit and received money from it before filing your bankruptcy that is a different situation. In that case the monies themselves are the asset and whether you get to keep them depends on whether there is an available exemption.

Post Filing Personal Injury

If you are injured after your Chapter 7 bankruptcy has been filed, you do not need to disclose the claim and can keep all of the money you receive from the lawsuit or settlement.

In Chapter 13, you must advise the Trustee if you have a personal injury claim that occurred after you filed your bankruptcy. Property of the estate in Chapter 13 bankruptcy includes any settlements or property you acquire during your case, which lasts generally 3 to 5 years. If you receive a nonexempt settlement during Chapter 13 bankruptcy, you will probably have to pay more towards your unsecured debts in your repayment plan. However, unlike a Chapter 7, you can dismiss a Chapter 13 at any time.

The Attorneys at Levitt and Slafkes will Advocate for You
If you have been injured and are facing bankruptcy, contact the experienced attorneys at Levitt & Slafkes, P.C., at 973-323-2953 or contact us online. We are strong and committed advocates for our clients and we use all available resources to secure the compensation that they need.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.