Being injured because of the negligence of others is a devastating occurrence, and luckily one that our legal system will help individuals recover from through personal injury litigation. However, a pitfall that is often overlooked is how filing for Chapter 7 or Chapter 13 bankruptcy protection can affect your ability to recover under a personal injury cause of action.
One of the first steps when filing for bankruptcy involves the person declaring all their assets to the bankruptcy court for consideration in the proceedings. While it might seem counterintuitive, a personal injury claim, even before a judgment has been rendered or damages paid out to the injured parties, is considered to be a financial asset by the courts for the purposes of bankruptcy filings. Because of this, people have been penalized by the bankruptcy courts for failing to disclose that they have an ongoing personal injury lawsuit, or a potential personal injury lawsuit: it can be considered an attempt at hiding assets from the bankruptcy proceedings.
The federal government, as well as most states, however, allow exemptions for declared personal injury claims. These amounts vary from state to state, and can differ from the amounts allowed by the federal government, so it is prudent to discuss your options with the attorney or attorneys handling both your personal injury claim and bankruptcy matter as early on as possible so that they can plan how to maximize your potential recovery, and prevent any unpleasant surprises at a later time.
In the federal courts system, personal injury recoveries that are exempt from bankruptcy proceedings include:
- $22,975 for the actual injury, or double that for married couples filing jointly;
- Compensation for loss of future earnings;
- Compensation for being the victim of a crime;
- Compensation for bodily injuries; and
- Recovery needed for support by a dependent in a wrongful death case.
Bodily Injury or Pain and Suffering?
While bodily injuries are typically exempt from bankruptcy proceedings, awards for pain and suffering generally are not. The difference between the two can sometimes be a little unclear. Bodily injury is inclusive of physical injuries such as broken bones and scars, while pain and suffering is compensation for what the injured person experienced during and after the accident. In personal injury cases, settlements are often designated as a lump sum without differentiating how much goes for each type of harm, so it’s important to discuss this with your attorney; often they can argue the proportions in your favor.
When a personal injury claim is involved in a bankruptcy, the trustee assigned by the court will assume control of the personal injury claim. This has two major ramifications. First, the trustee must approve any settlement or other recovery in the personal injury case. In essence, this takes a lot of the control over the disposition of the case away from the injured person, and the attorney handling the personal injury case—there is now a third “man at the table” for the entire process. Second, if there is a recovery in the personal injury claim, the trustee (as the agent of the bankruptcy court) must approve how the funds that were recovered will be dispersed.
Contact a Personal Injury Attorney
If you have been injured because of the negligent acts of another, it is important to contact an experienced personal injury attorney as soon as possible to protect your rights and ensure you receive the compensation you deserve for the harms you have suffered.