Filing for bankruptcy during your personal injury claim could put the money from your personal injury case in the hands of the bankruptcy trustee. That is why it’s important to consult with your personal injury attorney before you file for bankruptcy. That way, your personal injury attorney can advise you of your options and work with your bankruptcy attorney to ensure that your rights are fully protected.
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When you file for bankruptcy, your personal injury claim becomes part of your bankruptcy estate. A bankruptcy estate consists of all of your property and property rights that the bankruptcy court has control over. Your personal injury claim becomes part of the bankruptcy estate. The bankruptcy trustee has the power to decide when and how your claim is resolved. This means, the proceeds from your settled case will likely be used to make payments to your creditors.
There are bankruptcy exemptions that affect your personal injury case found in 11 USC 522 (d). 11 USC 522 (d)(11) exempts crime victim reparations, wrongful death and life insurance in an amount reasonably necessary to support the debtor. That same section (11 USC 522 (d)(11)) gives a personal injury exemption of $21,625. There is also an exemption for loss of future earnings reasonably necessary to support the debtor. There is also a wild card exemption in 11 USC 522 (d)(5) for $1,225 and up to $10,825 of the unused homestead exemption.
As you can tell, the bankruptcy statute is complicated. It is best to contact your personal injury attorney prior to filing for bankruptcy to determine the best strategy for your situation.
What happens if the at-fault party files for bankruptcy?
If the at-fault party files for bankruptcy during your personal injury claim against them, this will cause the litigation processes to be stayed. This is called the automatic bankruptcy stay. The automatic bankruptcy stay prohibits most creditors from continuing with collection activities, but there are exceptions. It’s important to know what these exceptions are so that you can be ready for them. In most situations, you may still proceed with the claim if the at-fault party is insured. This is because you are actually collecting from the insurance company not the person who is filing for bankruptcy.