How Does Bankruptcy Affect Personal Injury Settlements?

May 15, 2011. Paul Hixon

Bankruptcy is viewed by many people as a gray area where their knowledge wanes. Although most people know that it is an option for getting out from under large debt loads, many people do not realize the specifics of how bankruptcy works or which of their assets they will be able to keep after the bankruptcy is finished.

Although many bankruptcy laws vary by state, there are certain exemptions to bankruptcies that are mandated at the Federal level. Although many times it appears that these Federal exemptions are clear and will allow you to keep a great deal of your assets, there are a number of limitations and other legal loopholes that make it almost a necessary to hire a good Chicago bankruptcy attorney to represent you in bankruptcy court.

The Federal bankruptcy code allows for up to $20,000 in exemptions for personal injury recovery. This limit applies towards personal injury settlements, but not to settlements awarded due to pain and suffering or pecuniary loss. If you are not a home owner, you can claim an additional $21,000 on a wild card exemption. In other words, the type of injury you sustained is largely unimportant. The most important thing when it comes to the bankruptcy courts is the way that the insurance company and your personal injury attorney filed the paperwork.

When you file for bankruptcy and are receiving settlement money from a personal injury settlement, it is important to ensure that the that Chicago bankruptcy lawyer you have hired is aware of the details involved with your personal injury case to ensure that they can get the maximum exceptions allowed by Federal law. You will have worked too long and hard to win the personal injury settlement to have it all taken away just because you filed for bankruptcy.

Some states may have their own exemptions involving personal injury settlements. Your bankruptcy lawyer should know these exemptions. Which ones you choose to go after in bankruptcy courts will depend on the rules of the state. Sometimes the exemptions for the state will allow you to keep more of your personal injury settlement than federal exceptions would normally allow.

Updated May 15, 2011. Published April 30, 2011. Paul Hixon