Personal Injury Awards and Bankruptcy

filing for bankruptcy and a settlement claimFiling for Chapter 7 bankruptcy allows you as an individual to cancel out many, and sometimes all, of your debts.  When you file for bankruptcy, you will be asked to inform the court of any property you own (both land and personal property, such as clothing and jewelry), your income, your living expenses, your debts, and two years’ worth of expenses and information on the sale or exchange of property.

People filing for Chapter 7 bankruptcy often wonder if they are required to disclose money won in a lawsuit as part of their personal property.  The answer is yes.  Any award or settlement won in a lawsuit is considered to be part of your property for the purposes for filing for bankruptcy, and you must legally disclose it.  However, this does not necessarily mean that the state will seize these particular assets.  In some states, lawsuit awards qualify for an exemption to Chapter 7 bankruptcy.  The following are some exemption examples.

  • In many states, money won as the result of a personal injury case is exempt from your bankruptcy claim in some form.  Some states will allow you to keep your entire award, and others allow you to keep only the amount the state deems you need to continue to support yourself and your family.
  • Some states exempt money awarded from a wrongful death lawsuit from Chapter 7 Bankruptcy, especially in cases where the person filing was a dependent of the deceased living off of their income.
  • Several states allow what is called a “wildcard exemption.”  With this exemption, you can request to have a specific item of your property, such as your lawsuit award, exempted up to a dollar amount pre-determined by the state.
  • There are some states which allow you to choose between their own exemption rules and those of the federal government.  Federal law allows you to keep up to $22,975 won in a personal injury lawsuit or claim, as long as that money was not awarded for pain and suffering or reimbursement for something with a specific dollar value, such as lost wages.

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