Will You Lose Damages from a Personal Injury Claim in a Bankruptcy Proceeding?

Bankruptcy and Personal Injury Claims

Can You Keep Compensation Received in a Personal Injury Lawsuit?

Will You Lose Damages from a Personal Injury Claim in a Bankruptcy Proceeding?One of the common causes of bankruptcy is unanticipated and unreimbursed medical expenses, often as a result of an accident. When you file a personal injury lawsuit, it often can take months or years before you see any compensation. If you are unable to work because of your injury, and you face insurmountable debt, you can seek protection under Chapter 7, which allows you to permanently discharge certain debts.

But what happens if your personal injury claim is not resolved before you file for bankruptcy, or even before your bankruptcy is finalized? Can you keep the proceeds of a settlement or verdict? Will you have to relinquish some portion of the settlement or verdict to satisfy creditors?

Under Chapter 7, any damage award or settlement proceeds from a lawsuit filed before your bankruptcy is part of the bankruptcy estate, even if you receive the money after your bankruptcy proceeding is over. Accordingly, in Chapter 7, you can keep all proceeds from a personal injury claim if the injury occurred after you filed your bankruptcy petition.

If you had the right to file the claim prior to the initiation of your Chapter 7 bankruptcy, the award or settlement proceeds must be included in the bankruptcy estate even if you don’t file your personal injury claim until after your bankruptcy is closed. You can expect creditors’ counsel to monitor the status of your lawsuit and petition the bankruptcy court to reopen the bankruptcy in the event you receive a settlement or verdict.

In many states, you can claim a certain amount of the proceeds of a personal injury award as exempt from bankruptcy. Texas has no such exemption. There is, however, a federal exemption of up to $23,675. Accordingly, you may choose to take the federal exemption if you receive or expect to receive a personal injury award.

Chapter 13 filings are handled differently than Chapter 7. Under Chapter 13, a damage award is considered income and can lead to increased payments to creditors if the award exceeds the exemption amount and if the injury that led to the lawsuit occurred before the Chapter 13 bankruptcy is closed.

Contact an Experienced Rockwall, TX Bankruptcy Attorney

At the Law Offices of Carrie Weir, I offer a free initial consultation to all potential bankruptcy clients. Send me an e-mail or call my office at 972-772-3083 for a private meeting. I work with individuals throughout Rockwall County, Texas, including the cities of Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, and Rowlett.

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