If you’re considering bankruptcy and have a personal injury claim, these two parts of your life will come together. The bankruptcy court needs to see the full picture of your finances, including any money you might get from an injury case. This article will help explain why you must disclose the information to the bankruptcy court and how bankruptcy could impact your personal injury settlement.
Why You Must Disclose Your Injury Claim (Or Settlement)
In bankruptcy cases, the court considers almost anything of value an “asset,” including personal injury claims, whether pending, expected, or already settled. If the accident occurred before you file, the claim generally becomes part of your bankruptcy estate unless the court says otherwise. Not listing it can cause serious issues, such as challenges to your case or restrictions on pursuing your injury claim later on.
Being transparent about everything helps protect your rights and allows you to apply the law to keep as much of your recovery as possible.
Personal Injury Settlement in Chapter 7 vs. Chapter 13 bankruptcy
In Chapter 7 bankruptcy, a court trustee reviews your assets and can seize non-exempt property to settle debts, including part of your settlement funds. Exemptions allow you to keep certain property up to specified dollar amounts. Many states include an exemption for personal injury recoveries. Some states allow a “wildcard” exemption that applies to any property, including portions of a settlement. Exemptions may not protect every dollar in a large recovery, but they could shield a meaningful portion of it.
In Chapter 13 bankruptcy, you repay your creditors over three to five years. Rather than being “taken,” a settlement may increase what you’re expected to pay through your plan if it’s considered disposable income. With careful planning and effective coordination, you can structure the case so that you can complete your plan and keep protected funds for your household.
Timing and Open Cases
Timing is very important when deciding the best moment to file. If you file for bankruptcy before your injury case concludes, the trustee could get involved in your claim, and the bankruptcy court may need to approve any settlement. However, if you wait until you’ve received your funds, the court trustee may still review those funds to see which ones are protected and which aren’t.
There’s no single answer that works for everyone.The best approach depends on factors such as the settlement value, the types of damages involved, exemption limits, and your overall financial situation.
Managing bankruptcy and injury cases through a coordinated plan is helpful. Your personal injury lawyer advocates for fair compensation, while your bankruptcy lawyer safeguards your assets. Working together, they can maximize recovery and protect your financial future.
Brock & Stout handles both personal injury claims and bankruptcy cases, so our lawyers could work together to achieve the best possible outcome for you. You can contact us for a free evaluation to see you we can help you get the compensation you deserve and a fresh financial start.