If you have an ongoing personal injury lawsuit, or a potential personal injury lawsuit, you must disclose it when filing your bankruptcy. This does not mean you will lose the personal injury awards in bankruptcy. If your injury occurs after filing your bankruptcy, generally the lawsuit and any award you may receive from it are exempted from the bankruptcy estate and the proceeds are yours to keep.
Compensation and Filing of Bankruptcy
Compensation Received Prior To Filing—If you’ve received compensation for your personal injury prior to filing your bankruptcy, your compensation is part of the bankruptcy estate and must be disclosed. Your bankruptcy attorney may be able to exempt or protect some or all of the compensation.
Compensation Received After Filing—You must disclose the existence of the personal injury claim or potential claim when filing your bankruptcy. Depending upon the facts, likelihood of recovery, and ability to value the claim, the Trustee will then make a determination as to whether to pursue the claim on your behalf, work with your existing personal injury attorney, or abandon the claim from the estate altogether.
Disclosure Is Key
In any case, if your injury took place prior to the filing of the bankruptcy, you must either disclose the compensation you have received, or in the alternative, disclose the potential for compensation. This puts the Trustee on notice and keeps you in compliance with the federal rules of bankruptcy. You’ll work with your bankruptcy attorney when filing your petition, and when preparing to discuss the claim with the Trustee.
If you have any questions about bankruptcy or personal injury awards in bankruptcy, please feel free to call me at 704.749.7747.