Filing for bankruptcy is a challenging part in many people’s lives because it involves a substantial amount of paperwork and complicated emotions. Because bankruptcy law is particularly challenging, it can be difficult to determine what to do. The bankruptcy process can be made even more complicated if the person who has filed for bankruptcy expects to receive compensation from a personal injury claim.
The Role of a Bankruptcy Trustee
When a person files for a bankruptcy petition, it creates a bankruptcy estate that is administered by a bankruptcy trustee. After this estate is created, a person has an obligation to disclose all details about assets and properties to the estate. It is critical to disclose information about compensation received in a personal injury lawsuit to a trustee.
Discharging Debt in Bankruptcy
If you file for Chapter 7 bankruptcy, you will be allowed to clear most types of debt. The role of the bankruptcy trustee is to take your non-exempt assets and pay creditors using these proceeds before your debt can be discharged.
In cases in which a person files for Chapter 13 bankruptcy, however, the individual’s debts are reorganized. The bankruptcy trustee mediates negotiations between the debtor and creditor to find a mutually agreeable arrangement. Chapter 13 tends to offer more flexibility to the person who files for bankruptcy.
Both Chapter 7 and Chapter 13 bankruptcy allow individuals to protect personal injury claims through exemptions. During a bankruptcy proceeding, a debtor can claim up to $23,675 of compensation received for a bodily injury as exempt from the bankruptcy process. Compensation for emotional pain or suffering, however, can not be found exempt from bankruptcy. It is also possible for people who file for bankruptcy to use a “wildcard” exemption to protect up to $1,250 of a personal injury claim.
Personal Injury Compensation Received After Bankruptcy
If an injury occurs after filing for Chapter 7 bankruptcy, you do not need to disclose this information and are able to keep any amount of financial recovery. Chapter 13 bankruptcy, however, takes filings that occur after bankruptcy into consideration, which means that compensation in bankruptcy injuries must be disclosed.
In situations in which a person has not yet filed for bankruptcy and disclosed details about his or her injuries, it is critical to remember that failure to disclose this information can create criminal liability.
The Dangers of Commingling Funds
Avoid combining any amount won through a personal injury lawsuit with other funds. There is a risk that a co-mingling can result in trustees arguing that a person has made financial amounts indistinguishable from other types of compensation in an account. Keep any funds that are received from a personal injury lawsuit separate from other compensation.
Speak with a Knowledgeable Bankruptcy Attorney
If you have filed for bankruptcy, obtain the assistance of an experienced bankruptcy attorney. Attorney Jim A Lyon is dedicated to fighting for the results that clients deserve. Contact him today to schedule your free consultation.