Couple looking over personal injury settlement.

How Can a Personal Injury Settlement Affect My Bankruptcy?

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By Yosi Yahoudai
Founder and Managing Partner

If you have been injured in a California personal injury accident, you have the right to file a claim for damages against the negligent party. Any compensation awarded will help offset immediate and future expenses and lost wages.

However, personal injury claims take time to settle, leaving you burdened by unpaid debt and perhaps seeking bankruptcy relief. You may find yourself overwhelmed and wondering, “How can a personal injury settlement affect my bankruptcy”? 

If you are juggling a personal injury claim and bankruptcy, you must talk to your California personal injury attorney before making any final decisions. 

Do I Need to Disclose My Personal Injury Claim in a Bankruptcy? 

If you have a cause of action to file a claim against another party for damages, or if you have a pending lawsuit against another party, there is an expectation that you may receive some form of financial award for damages.  

The potential to receive monies from the claim renders the claim an asset and therefore, it must be disclosed at the time you file for bankruptcy.  

Why Do I Have to Report My Personal Injury Lawsuit or Settlement?

Under Chapter 7 bankruptcy, the majority of your assets become the property of your bankruptcy estate. Those assets include cash and physical property, as well as all intangible assets such as legal claims.  

The bankruptcy trustee decides which debts will be paid from your assets, and which will ultimately be discharged. The trustee can access and sell assets to repay your creditors, and how much remains for you to keep depends on how much you owe your creditors. 

Under Chapter 13 bankruptcy, you are asking to restructure your debt and allow the repayment of debt to your creditors at a reduced amount over time. The bankruptcy trustee will evaluate your current income, the value of your assets, and your total debt. 

Any settlements received before or during the repayment schedule are also included as assets to your bankruptcy estate. Unlike Chapter 7 bankruptcy, the trustee does not take your assets to repay your debt. However, you are obligated to repay your debt in an amount equal to the non-exempt assets you own. 

Will I Lose My Personal Injury Settlement in Bankruptcy?

While many states allow debtors to protect personal injury awards under some federal bankruptcy exemptions, California is not one of them.  Declaring bankruptcy in California, however, does not necessarily mean you will lose your settlement money. 

California offers two sets of exemptions for those declaring bankruptcy. A few of the California exemptions protecting personal injury settlements include:

  • 704.140 & 704.150 – Personal injury causes of action and wrongful death causes of action. Wrongful death and personal injury recoveries needed for support.
  • 703.140(b)(11) – Wrongful death recoveries needed for support.
  • 703.140(b) (11) – Personal injury recoveries up to $29,275

So, Am I Risking My Personal Injury Award by Filing Bankruptcy?  Ask Your California Personal Injury Attorney

Bankruptcy is already complicated. Add a personal injury claim and settlement money to the mix, and it’s even more so, especially in California. 

If you have a right to file a claim or have already received a personal injury award and are considering bankruptcy, you need the expert advice of a California personal injury attorney.  

The timing of your lawsuit and the structure of the award may significantly affect what is accessible by the bankruptcy trustees in offsetting debt obligations. 

To find out more about protecting your personal injury award and the rules in California, it is essential you contact our Los Angeles personal injury attorneys for guidance. Call today. 

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About the Author
Yosi Yahoudai is a founder and the managing partner of J&Y. His practice is comprised primarily of cases involving automobile and motorcycle accidents, but he also represents people in premises liability lawsuits, including suits alleging dangerous conditions of public property, third-party criminal conduct, and intentional torts. He also has expertise in cases involving product defects, dog bites, elder abuse, and sexual assault. He earned his Bachelor of Arts from the University of California and is admitted to practice in all California State Courts, and the United States District Court for the Southern District of California. If you have any questions about this article, you can contact Yosi by clicking here.