Personal Injury Awards and Settlements in Bankruptcy

Debt Relief Lawyer Assisting Alabama Residents

When you file for Chapter 7 or Chapter 13 bankruptcy, you will need to repay some of your creditors. Generally, less is paid back when you file for Chapter 7. It is not uncommon for people to suffer financially after being seriously injured, due to hospital bills and lost income. Unfortunately, even an accident victim’s personal injury award or settlement may be made part of his or her bankruptcy estate and used to repay creditors. Whether you can keep your personal injury award or settlement in a Chapter 7 bankruptcy depends on whether these proceeds are exempt. Consult an Alabama bankruptcy attorney at Grainger Legal Services about the exemptions you can potentially use.

Personal Injury Awards and Settlements in Bankruptcy

When you file for Chapter 7 bankruptcy, you can discharge many of your debts. In exchange, the person who administers your case will require you to put some of your property and assets in a bankruptcy estate to be sold. The funds are then distributed to creditors to repay all or some of your debts. In your bankruptcy petition, you will need to disclose your interest in legal claims, including a personal injury claim if you have one. Your bankruptcy trustee has the right to proceed with the lawsuit on your behalf and will also have the right to decide whether to settle the claim or go to trial.

Certain property can be exempted from being sold to pay your creditors. In some states, you can choose between the federal or state exemption systems. In Alabama, however, you must use Alabama’s state exemptions.

Whether you can keep your personal injury award or settlement in Alabama depends on whether it fits within an exemption. There is no specific exemption for personal injury awards or settlements under state law, but there is a “wildcard exemption.” This can be used to protect up to $7,500 of the value in any property, including your award or settlement. There is an exception, however, in that the exemption cannot be used to protect your award or settlement to the extent that it is compensation for lost wages.

If you and your spouse file for joint bankruptcy, each of you can claim an exemption in property, which means you can double the exemption amounts to protect more of the award or settlement. However, you cannot double the exemption for the award or settlement if it is property that belongs to both of you, as is the case if you were both plaintiffs in the lawsuit. One other thing to know is that you may not be able to protect your award or settlement if you have mixed the funds with other funds in a bank account.

Protect Your Rights by Enlisting a Bankruptcy Attorney in Alabama

Many people go into bankruptcy specifically because they are seriously hurt in an accident. It is important to be aware of the consequences of filing a personal injury lawsuit on your bankruptcy proceeding. At Grainger Legal Services, Alabama bankruptcy lawyer Charles E. Grainger can counsel you on personal injury awards and settlements in bankruptcy. We maintain offices in Prattville, Montgomery, and Troy. Call us at (334) 260-0500 or contact us online to schedule a free consultation with a skilled debt relief attorney.