Okay, you either: (1) got your personal injury settlement and spent the money and now you need to file bankruptcy; or (2) you got injured before filing for bankruptcy and haven’t received your settlement yet; or (3) you got injured after you filed for bankruptcy and you’re not sure whether you should notify the Trustee in your bankruptcy case.
First, for issues 1 and 3 above, there’s nothing to worry about. That money was either collected and spent before you filed (as in 1 above), or because you were injured after your bankruptcy case was filed, the Trustee doesn’t need to be notified (as in 3 above). So, the real question is what happens when you get injured right before filing for bankruptcy? The short answer is … it depends (sorry!).
If you have a personal injury settlement coming during bankruptcy, you should have your skilled Tucson AZ bankruptcy attorney work with the insurance company or defendant to separate the total amount into the specific damages that the settlement is covering. There’s pain and suffering, medical bills, lost wages, and other forms of damages that your personal injury attorney will fill you in on. However, bankruptcy law also gives specific guidance on how to treat personal injury claims. First, in Bankruptcy Code 11 U.S.C. § 522(d)(11)(D), the first $23,675 of a settlement is exempted (like it doesn’t exist) in your bankruptcy case (this number increases to $47,350 if both spouses file bankruptcy and both spouses are plaintiffs in the injury case). However, the same statute goes on to state that this exemption does not include pain and suffering or compensation for monetary loss. Therefore, your medical bills do not count as an asset, but your pain and suffering and your lost wages are an asset. This is why the settlement should state what money is going where.
As an example, let’s say you collect $30,000 in a judgment and your attorney does a good job in breaking everything down for the Trustee. Typically, your attorney will take one third, or $10,000, leaving $20,000 left. Then, if you have $8,000 in medical bills and $12,000 in pain and suffering and lost wages or other economic losses, the Trustee will only consider the $12,000 as an asset. You’ll then have to work with your bankruptcy attorney to determine how that $12,000 works with your finances, or if there are other exemptions available to you as not all States allow for the federal “Wildcard” exemption that may exempt the rest of your settlement.
Thanks to our friends and contributors from Doug Newborn Law Firm PLLC for their insight the effects of personal injury awards on bankruptcy cases.