Will bankruptcy affect my right to recover for injuries I previously suffered in an accident?
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UPDATED: Jul 16, 2021
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If you were involved in an accident, you can still pursue your usual remedies to recover damages for any injuries. The main concern of the bankruptcy court will be what the eventual nature of any settlement is and how much goes to pay off your debts in bankruptcy. Subject to some exceptions, your right to recover damages for personal injury is part of your estate. Subject to the exemption rules, therefore, any money you end up recovering will go to pay off your creditors.
It is crucial that you claim the injury as property and must list it as such in the bankruptcy petition; otherwise you will be judicially stopped from bringing that lawsuit after you are out of bankruptcy.
If you were injured on the job, you probably have a worker’s compensation claim under state law or a like claim under federal law. Your right to receive compensation under these laws is fully exempt. Any right you might have to recover against a third party, however, would be part of your bankruptcy estate.
Similarly, your right to recover under laws that compensate victims of crime would be fully exempt.
Personal injury damages, not including damages for pain and suffering, are exempt to the extent of $25,150 if you elect the federal exemptions (and if your state even allows you to elect the federal exemptions). (This dollar amount is adjusted every three years to take into account CPI changes, with the next revision April 1, 2022.) Damages for pain and suffering will not be exempt and will be included as part of the bankruptcy estate to pay creditors.
Note that what matters is when the injury occurred, not when you file suit. If you were injured in an accident yesterday, your bankruptcy estate owns your right to recover for those injuries if you file for bankruptcy today and file a personal injury lawsuit tomorrow.
General sound advice is to let your personal injury lawyer know that you are considering bankruptcy. They may be able to structure settlement agreements in a way to help you in your bankruptcy. Also advise your bankruptcy attorney that you do have a personal injury claim. To best protect your interest, the two lawyers need to communicate about the status of the two suits, the bankruptcy and personal injury suit, so that they can best protect your present and future financial interests.