Personal injury claims in bankruptcy present a challenge.
As with most challenges, knowing the landscape helps address the issue.
Bankruptcy laws require that all assets be identified and listed in the various petitions, statements and schedules that are part of the filing. This is because, if you’re filing a chapter 7, any asset that does not come under an exemption will be liquidated.
Assets include anything of value. Obvious examples include a car, a bank account, jewelry, even your household possessions count as assets. Anything and everything of value owned by the bankruptcy filer goes on the bankruptcy petition. Petition Schedule A/B lists numerous categories of assets, some of which you may or may not have thought about.
How Bankruptcy Law Views Personal Injury Claims
Schedule C requires those filing to claim a valid exemption if they want to go through the bankruptcy unscathed. Property not covered by a valid exemption faces administration by the Chapter 7 trustee. Liquidation means the trustee takes the item, sells it, then distributes any proceeds proportionately among your creditors.
A personal injury claim or even a potential personal injury claim represents a potential asset. It may not at the time have a given value. That does not happen until actual settlement or judgment. Nonetheless, the personal injury claim at any stage represents an asset. The personal injury claim requires disclosure.
Personal injury claims exist over a sometimes long timeline. Insurance companies take their time reviewing documents. Delays happen if there is a need for surgery. Court takes time if the claim has been placed into suit. The claim or potential claim represents an asset even if you haven’t pursued the case, if the statute of limitations hasn’t run.
It also doesn’t matter whether it’s a fender bender or a case with serious injuries. Injury claims, or any claim representing potential monetary value require disclosure when filing bankruptcy.
Disclose Personal Injury Claims in Bankruptcy
Even where the actual dollar amount of the ultimate settlement evades precise calculation at present, you disclose it. Failure to do so exposes the asset to potential problems with the trustee. Unlisted assets face potential liquidation or in the worst case scenario denial of the bankruptcy discharge which is the goal of filing. Unlisted assets existing at the time of filing can also lead to revocation of discharge even after the case is closed.
Bankruptcy Schedule A/B requires listing of all assets. The potential personal injury goes here, with the value listed as unknown.
Avoiding disclosure in bankruptcy is the wrong decision. The feds have resources and when they find out there was an undisclosed asset, they can take it away, object to the bankruptcy discharge, revoke the discharge and/or prosecute for bankruptcy fraud.
Exempt the Personal Injury Case
Various exemptions exist in bankruptcy law to potentially protect certain value in a personal injury claim. But, they’re limited.
State exemptions vary from state to state. Wildcard exemptions exist to cover pretty much anything and everything. Dollar amount limits apply to wildcard exemptions. At the same time, any available wildcard exemption applies to personal injury claims in bankruptcy. Depending on how much wildcard is available using the exemption is perfectly valid.
There are also federal exemptions available to apply to personal injury lawsuits, but they can be tricky to apply:
- A “wildcard” exemption at the time of this blog is $1,325 plus any unused portion of the federal homestead exemption up to $12,575. Married people filing jointly can double these amounts. But, this assumes you don’t need the exemption to protect home equity or other property. Also, whether federal exemptions are available depends on your state. Some state laws allow use of federal bankruptcy exemptions instead of your state exemptions, some don’t.
- Another federal exemption specifically for personal injury cases exempts a payment, not to exceed $25,150, on account of personal bodily injury not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent.
- And there’s the federal exemption covering a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
Who Controls Personal Injury Claims in Bankruptcy?
If you file for bankruptcy, your personal injury attorney must get permission from the Trustee to continue with the case. Sometimes the bankruptcy trustee would rather hire his or her own attorney to pursue the personal injury claim. This rests solely with the discretion of the trustee, who has authority over all assets after the bankruptcy is filed.
Chapter 7: If the personal injury case settles or goes to judgment for more than available exemptions, then the Chapter 7 trustee collects the money, pays the exempt amount to you, but the remainder is distributed to creditors. If there’s anything left after creditors are paid in full, it’s yours.
Chapter 13: In a Chapter 13 bankruptcy, when there’s a recovery, you must amend your plan if it did not provide for full payment to all creditors, turning over nonexempt funds to your creditors.
Filing Bankruptcy with a Personal Injury Case Outstanding
Other complications include the fact that if the personal injury claim is in court, it needs to be identified on another form, the ‘Statement of Financial Affairs”.
Any injury case representing potential monetary value requires disclosure. This includes car accidents, slip and fall injuries, medical malpractice, products liability, aviation injuries and other cases.
In order to legally protect as much as possible of a pending personal injury claim if a bankruptcy filing is necessary it’s wise to retain an experienced bankruptcy attorney to navigate through the rules and procedure of bankruptcy law.
For more on bankruptcy exemptions: click here.
This author of this article, Attorney Andrew D. Myers, represents bankruptcy clients in New Hampshire and Massachusetts. Consumers facing a debt load they can not handle may consider bankruptcy as an alternative. If you or a loved one face mounting debt and/or collections feel free to contact our office for a free initial consultation.
The Law Offices of Attorney Andrew D. Myers also represent personal injury clients in Massachusetts and New Hampshire.
Footnotes make a blog less reader friendly. But, the three federal bankruptcy exemptions noted above all fall under 11 U.S.C. 522 (d), sections (5), (11)(D), and 11(E) respectively.