Filing Bankruptcy And Personal Injury Claims


Often, a specific event in your life leads to the filing of a bankruptcy. If the event gives rise to loss of work, you’re unable to pay our bills. If the event gives rise to insurmountable bills, you may be unable to maintain your monthly debts no matter how hard you work. In the case of a personal injury, quite often both are true: you are faced with medical bills and you’re unable to work. A pending personal injury claim doesn’t mean you can’t file bankruptcy, or that you will necessarily lose the award if you win your claim.

When you file bankruptcy, a ‘bankruptcy estate’ is created. It consists of all the property you own. At the time of filing, the potential award from a personal injury claim—whether filed or not—is considered property for the purpose of the bankruptcy estate.

Will The Bankruptcy Court Take My Award?

In a bankruptcy, federal and state laws allow for certain types and amounts of property to be exempt from claims by the trustee and creditors. Once the debtor has filed for bankruptcy, the debtor no longer owns that cause of action: the claim has become property of the bankruptcy estate. Sometimes, the trustee in effect steps into the shoes of the debtor and will hire an attorney to handle claim. The relationship that the trustee has with the personal injury attorney is a standard attorney-client relationship, including the customary contingency fee arrangement in a personal injury case. Other times, the bankruptcy trustee abandons the claim if he decides there is nothing in it for your creditors. At that time, you can pursue your own claim with your chosen attorney.

Regardless, the award must be disclosed to the bankruptcy court. Once damages have been awarded, they get apportioned in the following order: the personal injury attorney subtracts his fees, the exempted amount goes to the debtor, the trustee (potentially) takes his percentage of the award, and the creditors who have submitted proofs of claims get their portion. Any remaining money goes back to the debtor.
Different Damages Are Treated Differently

The amount of money from the settlement that you’re able to keep depends on the character of the award. Pain and suffering, disability and mental anguish are treated differently from financial losses suffered due to the injury, like medical expenses, damaged property, or lost wages. Your attorney will choose federal or state exemptions for you depending upon which choice is going to result in you retaining more of the award.

In Conclusion

If you’re facing overwhelming financial stress and you’re putting off bankruptcy because you fear you will lose your personal injury award, speak to an attorney today. The bankruptcy court is a court of equity and the goal is not to take all of your assets. You attorney can assist in proper disclosure of the claim and further assist in choosing the exemptions which are most suited to helping you retain more of your award due to the injury.

Call 704.749.7749 today or email me HERE , to speak to me about bankruptcy, personal injury, or any other financial concerns you may have. There are options. I’m here to assist you in determining those options, and to help you move forward productively.