Can an Injury Settlement be Taken by Creditors if You Have Filed Bankruptcy?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

Dealing with a personal injury or bankruptcy is stressful enough. When you combine both situations, you are probably struggling with your health AND your finances. Bankruptcy is supposed to relieve people of their debts but what if they expect to receive a personal injury settlement? What happens to that money?

First, you should retain both a personal injury and bankruptcy attorney. Sorting this out yourself is not a good idea as this is a complex legal issue. You want to protect your rights and your assets as much as possible. In a bankruptcy, any previous, current, or future personal injury settlement is considered an asset. As an asset, the bankruptcy trustee may take the funds and apply them to your debts.

Second, attorneys can explain the applicable state and federal laws to you. These laws decide how much of your personal injury settlement you can keep. Your attorney can also advise you whether a Chapter 7 or a Chapter 13 bankruptcy is a better option for you regarding retaining as much of your settlement as possible.

Third, the settlement must be revealed to the bankruptcy judge and trustee. Your attorney will assist you in preparing the proper document to report the personal injury settlement. If you do not know what the size of the settlement will be, you must still list it as an asset and write "unknown" as the value of the asset.

Fourth, if a creditor does not submit a proof of claim stating how much money you owe them, that creditor gives up the right to collect money from you. The value of assets you get to keep relates to how much money you owe. If not all of your assets need to be liquidated to pay your creditors, the remaining assets are all yours.

Finally, list any asset you want to keep. So, if you want to retain your personal injury settlement, simply add it to the schedule of assets. It is important to list any asset you want to keep. Any asset not listed can be liquidated to pay your creditors.

Unless you are an attorney yourself, you are probably not familiar with the laws applicable to personal injury or bankruptcy. In order to avoid any charges of bankruptcy fraud and avoid losing valuable assets, it is in your best interests to hire the proper attorneys to advise you.

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