Verdicts and Settlements in Bankruptcy Proceedings

Can a Personal Injury Award Be Used to Satisfy Creditors?

When you can’t work due to an injury caused by someone else’s carelessness, you quickly can have significant problems meeting your financial obligations. In fact, it’s a frequent cause of personal bankruptcy filings. If you qualify for Chapter 7, you can permanently discharge some ofyour debts in exchange for turning over non-exempt assets to the bankruptcy court, to be used to satisfy your creditors. Does that apply to a settlement or judgment award you receive through a personal injury lawsuit? What if your injury claim is not resolved before the bankruptcy is finalized?

Under American bankruptcy law, damage awards (both verdicts and settlements) are included in a Chapter 7 bankruptcy estate, provided the injury occurred before bankruptcy was filed and the statute of limitations had not expired at the time of filing. Accordingly, under Chapter 7, you typically can keep all personal injury damage awards for injuries that occur after you file for bankruptcy.

Proceeds from a personal injury claim can be used to satisfy creditors even if the case is not resolved when the bankruptcy petition is closed. In fact, the proceeds can still be part of the bankruptcy estate even if you wait and file your lawsuit after your bankruptcy is closed, as long as you could have brought the legal action before you filed for bankruptcy. Counsel for your creditors may monitor the status of your lawsuit and, in the event you receive a damage award or settlement, petition the court to reopen your bankruptcy so the proceeds of the lawsuit can beused to satisfy creditors.

Under both New Jersey law and federal law, you can claim a certain amount of a personal injury award as exempt from the bankruptcy estate. The federal exemption is currently $23, 675 and the New Jersey exemption is $22,500.

Damage awards are handled differently in Chapter 13 proceedings. Compensation from personalinjury claims are treated as income, and may lead to increased payments to creditors, if the injury occurs before the Chapter 13 bankruptcy is closed and the award exceeds the amount you can claim as an exemption.

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we work closely with people who have questions about bankruptcy or are considering filing a bankruptcy petition. Contact our office online or call us at 856-424-6400 to see if you qualify for a free initial consultation (on selected cases). Evening and weekend appointments can be arranged upon request. We accept all major credit cards.

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