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Will I Lose My Personal Injury Settlement in Bankruptcy?

It’s kind of incredible how quickly bills can pile up when someone suffers a personal injury. Emergency transportation, medical attention, a hospital stay, prescription medications, physical therapy, and more – bills related to these services can rapidly add up to an astonishing sum.

Combined with lost wages during recovery – or not being able to return to work at all – an injured person can find themselves staring at a mountain of debt with little to no way to pay for it. So, as many personal injury victims do, they may file a lawsuit to seek damages.

If successful, they may win monetary compensation that helps them offset their financial obligations, but what if they also filed for bankruptcy in the midst of all of this? Do personal injury settlements automatically go to the bankruptcy filer’s creditors, or is there a way to protect them? Read on to learn more about how both of these questions can be answered.

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Damage Awards Must Be Listed in Bankruptcy

When anyone files for bankruptcy, they must provide the court with a complete list of their assets and debts. This is to give the court a clear picture of the filer’s financial situation, which will direct the course of proceedings down the line.

If you earned an award for damages or settlement as a result of legal action for a personal injury, you must list this amount among your assets even if it hasn’t paid out yet. The court is interested in learning about personal injury awards and settlements, even those that are unpaid, because they represent a possible source of money that can be used to pay off your creditors.

What Happens If I Don’t List a Personal Injury Settlement among My Assets?

Failing to account for any assets during bankruptcy can be interpreted as attempting to hide them. This can result in a criminal charge for bankruptcy fraud, which is a federal crime punishable by up to five years in federal prison and a fine of up to $250,000.

Also, chances are the bankruptcy trustee assigned to your case will ask if you have any settlements or rewards. Lying or failing to mention your claim can also result in a perjury charge with other potentially severe consequences.

Is There Any Way to Protect My Personal Injury Settlement during Bankruptcy?

Obviously, lying or failing to disclose the existence of money from a paid or unpaid personal injury claim isn’t the right way to protect it. So, if you’re forced to disclose assets from a personal injury claim, is there any way to protect them? Maybe – and probably yes.

How to Protect Settlement Money

Depending upon how large or small the settlement or award is, and the type of bankruptcy you filed for, you can exempt all or a portion of these proceeds.

Exemption during Chapter 7

When you file for Chapter 7 bankruptcy in California, there are two sets of bankruptcy exemptions you can use. These are known as 703 and 704 exemptions, and each set is substantially different from the other.

If you are concerned about losing your personal injury award above all esle, you’ll want to consider the 704 exemptions series. This set specifically protects personal injury and workers’ compensation claims in their full amount if the money is necessary for support. If a creditor successfully sued you before you filed for bankruptcy, however, you may have to surrender a portion of your award.

The 703 exemptions series also provides a wildcard option that can exempt up to $30,825 worth of property – but only if the residence or burial plot exemption is applied toward the wildcard exemption. In other words, if you have a personal injury payout that’s less than $30,000, you can protect it under the 703 series if this set of exemptions makes more sense for your situation and you don’t have home equity you wish to protect.

Surrender Not Necessary in Chapter 13

Because Chapter 13 bankruptcy is about restructuring your debt, you’ll be paying it off in three to five years. This means that although your creditors aren’t directly seizing your personal injury claim money, you’ll probably have to use some or all of it to pay off your debt on time.

Need Assistance with Bankruptcy? We Can Help.

Nguyen Law Group can provide the legal support clients need when they wish to protect awards and settlements related to an injury they endured. We know that you need this money to afford your ongoing medical care and recovery, and losing it could adversely affect how you heal and move forward.

Rest assured that with guidance from Nguyen Law Group, you can increase your odds of successfully protecting what’s important to you most during bankruptcy.

For more information about our services, please contact us online.