If you have a pending personal injury claim, there are some important things to think about before filing bankruptcy. It can be challenging to predict how filing bankruptcy may affect your award. Speaking with local bankruptcy attorney before you take any action is critical.
Defining Personal Injury
When another party or entity causes injury or wrongful death, the person or persons affected may be entitled to monetary compensation for their losses. For example, if a motorist rear-ends you and the accident causes whiplash, they may be responsible for your medical bills, lost wages, pain and suffering and other damages if they are found to be at fault. Personal injury settlements may range anywhere from a few thousand dollars to millions.
Disclosing Your Settlement is Key When Filing Bankruptcy
When going over your financials with your lawyer, make sure to disclose all of your assets, including any personal injury claims. You should also let your personal injury attorney know that you may be filing for bankruptcy so they can share information if necessary.
Regardless of whether you are filing Chapter 7 or Chapter 13 bankruptcy, failing to disclose your personal injury claim and potential settlement is a recipe for disaster. Although in some circumstances a personal injury settlement may be exempt from bankruptcy, if you fail to disclose the claim or do not speak with your lawyer about how to shield your settlement, you may lose it. Your attorney may advise you that bankruptcy might not be your best option if you are going to receive a very large settlement.
A personal injury settlement is considered an asset, just like your home, car and any other personal property. If you fail to disclose a potential claim in bankruptcy court, the funds may be directly distributed to your creditors when the settlement is paid. The court takes a hard line on failure to disclose assets. If you intentionally fail to list it as an asset you may be held criminally liable. If you’ve been injured and you are facing financial troubles, the last thing you want to have to do is hire a defense attorney because you failed to disclose a personal injury claim.
When is a Personal Injury Settlement Exempt?
Typically, the date the claim was filed (usually close to the date of injury) determines whether your personal injury award will be part of the bankruptcy estate. For example, if you were hurt before filing for bankruptcy but will not recover compensation until after the filing, it may not be considered part of the bankruptcy estate. However, you must still disclose the claim. It is also important to keep in mind that in Chapter 13, bankruptcy trustees often check court records after a bankruptcy case is closed. Although it is rare, your personal injury settlement can be seized years after your debts were discharged in bankruptcy.
Personal Injury Claim Exemptions
Bankruptcy exemptions may protect all or part of a personal injury settlement, depending on the type of bankruptcy you are filing. Each state has its own bankruptcy code and exemptions, however, federal exemptions are typically more generous and allow you to keep more. In addition, if your personal injury claim is over the amount allowed by an exception, the federal “wildcard” exemption can allow you to exempt more.
Figuring out exemptions is complex. All of these factors vary from case to case, so if you are considering filing for bankruptcy, having our experienced attorneys evaluate and handle your case is critical to achieving the best possible outcome.