Will I Lose My Injury Settlement in Bankruptcy?

You’ve been through enough already. An accident turned your life upside down—piling up medical bills, lost wages, and endless stress. You fought hard for your personal injury settlement, hoping it would finally bring some relief. But now, it feels like it’s still not enough to climb out of the financial hole, and bankruptcy is starting to feel like your only way forward. But what will happen to your settlement if you file? The thought of losing your settlement—the money you worked so hard to win—is terrifying.

At Whitten & Whitten, we’ve helped people from all walks of life navigate even the most complex financial situations and file for bankruptcy with confidence. Let’s break down how bankruptcy might affect your settlement and what options you have to keep moving forward.

How Are Personal Injury Settlements Treated in Bankruptcy?

When you file for bankruptcy, nearly all your assets are reviewed as part of your bankruptcy estate. A personal injury settlement, whether it’s already in your account or tied to an ongoing lawsuit, is typically classified as an asset. Here’s how it works:

Ongoing Personal Injury Lawsuits

If your personal injury case is still in progress when you file for bankruptcy, your right to pursue the claim, known as a “cause of action,” becomes part of your bankruptcy estate. This means the potential settlement or court award could be considered by creditors, depending on the type of bankruptcy you file.

Received Settlements

If you’ve already received funds from a settlement or court-awarded judgment before filing for bankruptcy, that money is also included in your bankruptcy estate unless exempted under applicable laws.

Timing Is Important

The moment your injury occurred is a critical factor. If you had the right to sue before you filed for bankruptcy, even if you haven’t begun the legal process, that right could be included as a bankruptcy asset, depending on how you file.

Chapter 7 vs. Chapter 13 Bankruptcy: A Key Difference in Settlement Treatment

The type of bankruptcy you file will significantly impact how your personal injury settlement is handled.

Chapter 7 Bankruptcy

• Asset Liquidation: Under Chapter 7, assets in your bankruptcy estate are reviewed, and non-exempt assets may be sold to repay creditors. If your personal injury settlement exceeds the allowed exemptions, the court could use the excess funds to pay off your debts.
• Post-Filing Injuries: If you receive a settlement for an injury that happened after you filed for Chapter 7 bankruptcy, that settlement typically stays with you and is not part of the bankruptcy estate.

Chapter 13 Bankruptcy

• Repayment Plan: Chapter 13 bankruptcy involves creating a structured repayment plan over three to five years. During this period, disposable income, including personal injury settlement funds, may be directed toward paying creditors.
• After-Acquired Property: Settlements received after filing for Chapter 13 but before completing the repayment plan are often included as part of the bankruptcy estate.

The rules surrounding personal injury settlements differ between Chapter 7 and Chapter 13 bankruptcies. Consulting a bankruptcy attorney is essential for understanding how your case will be handled and exploring options to protect your settlement.

The Role of Bankruptcy Exemptions in Protecting Your Settlement

Bankruptcy exemptions are crucial for individuals seeking to protect specific assets, such as personal injury settlements, from creditors.

Indiana Bankruptcy Exemptions for Personal Injury Settlements

Indiana law offers exemptions for compensation tied to personal bodily injuries, often up to a certain financial limit. Additionally, Indiana allows debtors to use a “wildcard exemption” to protect other assets beyond the standard exemptions. These exemptions can help reduce the portion of your settlement accessible to creditors.

Types of Damages Matter

The type of damages awarded in your personal injury settlement can impact how exemptions apply:

• Medical Expenses: Compensation for medical bills is often easier to exempt.
• Lost Wages: These may be partially or fully exempt, depending on state laws.
• Pain and Suffering: These damages might fall under more general legal exemptions.

A skilled bankruptcy attorney can evaluate your settlement and determine which exemptions are applicable, helping you retain the maximum amount possible.

Why Full Disclosure Is Crucial

Filing for bankruptcy can be daunting, but the temptation to omit assets, like an injury settlement or potential lawsuit, is a mistake you should avoid. Transparency is essential, and failure to disclose your settlement could lead to severe consequences:

• Bankruptcy Fraud: Omitting your settlement or ongoing lawsuit may be considered bankruptcy fraud, potentially resulting in criminal charges or the dismissal of your bankruptcy case.
• Impact on Your Lawsuit: If your personal injury lawsuit is ongoing, dishonesty in bankruptcy disclosures could weaken your legal standing, potentially reducing your settlement award.

By fully disclosing all potential claims and assets, you can ensure a smoother bankruptcy process while protecting your rights.

Let Whitten & Whitten Help You Proceed

The interplay between personal injury settlements and bankruptcy is complex. While any ongoing lawsuit or received settlement must be disclosed in your bankruptcy proceedings, it doesn’t necessarily mean you’ll lose everything you’ve worked for. By understanding the nuances of bankruptcy law and working with an experienced legal team, you can protect your assets, reduce your debt, and start fresh.

Reach out to Whitten & Whitten today to discuss your case. Together, we’ll build the roadmap to your financial stability.