How Can I Protect My Personal Injury Claim in Bankruptcy?

How can you protect your personal injury claim in bankruptcy? The decision to file bankruptcy is not an easy one. And if you have recently been in an accident of some sort and have a pending personal injury claim, the decision gets even more difficult.

Will the bankruptcy court take my settlement if I get one? How much will they take? Is there a way to avoid losing the money I get from my accident if I file bankruptcy? These are complex questions of law that can either be answered at either the Federal or State level, and that requires the help of an experienced attorney to answer with any specificity regarding your individual case. But there are some general rules to consider while deciding what actions would be in your best interest.

It’s All in the Timing

Injury Prior to Bankruptcy

One variable that can make a huge difference in whether or not you are allowed to keep all of your recoveries from a personal injury case is the timing of the injury. If you were injured before filing for bankruptcy, then regardless of any other factor, you must disclose the injury and potential award in your bankruptcy filing. It does not matter if the case is not close to being resolved if there is a claim in progress, or if you are only contemplating a lawsuit against the person who harmed you, you really need to disclose this information.

Unfortunately, not many people know this. It can be tempting to remain silent about your potential lawsuit by reasoning that you don’t even know whether or not you will get a penny yet. That is not how the law sees it. You have an obligation to disclose all assets. The potential award from a personal injury case is considered an asset, even if you haven’t yet received any money.

Do Not Hide Assets

People in this situation are often tempted not to disclose their personal injury case. Don’t assume that your claim will go unnoticed. Bankruptcy trustees tend to be extremely diligent and have been known to track down awards that were granted years after the final discharge of debts. They routinely check public records for evidence of such cases. If they find proof that you did not disclose an asset to the court during personal injury proceedings, they will inform the judge.

If the court determines that you have been purposely hiding an asset, it is possible that he or she will take the proceeds from your award to pay off your creditors. The judge can do this even if the property that you hid (in this case, the personal injury claim) ends up being exempt from liquidation under relevant personal injury law.  Do not hide the fact that you have a pending personal injury claim when filing personal injury.

Injured after Filing Bankruptcy

Conversely, if you are injured after you have already filed for Chapter 7 bankruptcy then you are not required to disclose your case. In this situation, the assets from your personal injury claim are not considered to be part of the bankruptcy estate and are typically not subject to disbursement by the trustee.

Exemptions That Can Help

Washingtonians who are filing bankruptcy and want to retain some of their property enjoy a degree of choice that residents of other states do not have. In Washington, residents are allowed to look at both the Federal Bankruptcy Exemptions and the Washington State Exemptions and decide which laws would most benefit their circumstances.

Federal Law

As these laws relate to your personal injury claim, Federal law states that:

  • You can keep up to $23,675 of your personal injury claim. This amount is not subject to disbursement. And if you are married and both of you are plaintiffs, the amount that is exempted from confiscation doubles.
  • Wildcard Exemption: This exemption kicks in when the above amount does not cover the value of your personal injury claim. If your claim is for more than the allotted $23,675 per victim, then you can try to exempt more by using the wildcard exemption. This allows you to salvage some property by giving you $1,250 that you can stack on top of your award thus far. It also allows for up to $11,850 of any unused homestead exemption for a potential total of $13,100.00.
  • Crime Restitution: If you have been awarded an amount of money as restitution for a criminal act that was perpetrated against you, then you do not have to forfeit that money in personal injury.
  • $25,150 of equity in your home is exempt from disbursement.
  • $13,400 total for personal belongings such as bedding, clothes, appliances or furniture, etc. There is a maximum amount allowed per item of $625.
  • $4,000 is exempt for your personal vehicle.
  • $2,525 is allowed for business or professional tools.

State of Washington Law Exemptions

First off, our state allows married couples who file a joint bankruptcy to essentially double their exemptions. Each spouse (or each individual) is allowed to claim:

  • Wildcard Exemption: $3,000 per person with further specifications
  • Up to $125,000.00 of equity in your home
  • $3,250 for your personal car or vehicle
  • With personal property exemptions for things like clothes, household goods, electronics, etc., there are specific allotments for specific categories of property.

There are many more exemptions allowed in the state of Washington. But remember that you are not allowed to mix and match exemption laws – you must pick either Federal or State and follow only those laws. An experienced attorney will be able to help you determine whether it is in your best interests to pursue federal or state exemptions.

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