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Can a Personal Injury Settlement Affect My Bankruptcy?

By Butler Prather LLP on February 1, 2021

If you have been injured due to the careless or negligent actions of somebody else, you are likely entitled to compensation for your medical bills, lost income, and other losses you may have sustained due to the incident. Often, injury victims are able to recover compensation from an insurance settlement or as a result of a successful personal injury civil lawsuit. However, what happens if you are going through bankruptcy at the time when you receive an injury settlement? Here, we want to discuss whether or not a personal injury settlement can affect your bankruptcy filing.

Bankruptcy requires complete disclosure of assets

When a person is in a financially difficult spot and has to file for bankruptcy, they will be required to disclose all of their assets to the court. However, this does not mean that they will lose all of their assets during the process. Bankruptcy generally allows the person filing to keep some of their property. In most states, a person will generally be allowed to keep the following:

  • Their home
  • A modest vehicle
  • ERISA-qualified retirement accounts
  • Furniture, bedding, kitchenware
  • Clothing
  • Tools of the trade needed for work
  • A small amount of jewelry

If you have a cause of action against another party as a result of an injury, or if you have an ongoing lawsuit against another party, then there is an expectation that you will receive some sort of financial compensation for damages. This potential to receive compensation from the claim will qualify as an asset, and therefore must be disclosed when you file for bankruptcy.

Why do you have to report your personal injury settlement or lawsuit?

When you file for Chapter 7 bankruptcy, most of your assets will become the property of the bankruptcy estate. This includes cash, physical property, as well as intangible assets like a legal claim. The trustee of the bankruptcy case will decide which debts will be paid from your assets and which debts will ultimately be discharged.

Under Chapter 13 bankruptcy, a person is asking to restructure their debts to allow for the repayment of creditors and a reduced amount over a longer period of time. The bankruptcy trustee determines the current value of your assets and your current debt when making these decisions.

Will you lose your personal injury settlement in the bankruptcy process?

Some states allow those filing for bankruptcy to use federal exemptions for various assets. Georgia does not do this. However, there are three potential exemptions written into Georgia law that a person could use to keep some of the proceeds from a personal injury claim. This includes the following:

  • A person may claim up to $10,000 for a personal injury claim for compensation for a pecuniary loss for themselves.
  • A person may be able to claim up to $1,200 under a bankruptcy “wildcard” exemption.
  • A person may be able to exempt compensation for a loss of future earnings to the extent that the earnings are necessary for their support.

It is very important that any person going through the bankruptcy and personal injury process at the same time work with attorneys for each situation. A Georgia bankruptcy lawyer will be able to advise you about what assets you will be able to exempt. A personal injury lawyer will be the one to fight on your behalf against any other party involved in the injury claim so that you receive full compensation.

Posted in: Personal Injury

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