Personal Injury & Bankruptcy

Creation of Bankruptcy Estate

• When you file for bankruptcy, a separate estate is created called the bankruptcy estate, and a trustee is appointed to administer it. This estate consists of any assets subject to the bankruptcy estate as described in Title 11, Section 541 of the U.S. Code. These assets potentially include some of the future awards from your personal injury case.
  
  

Exemptions

• A debtor may claim property as exempt from the bankruptcy estate, including future awards from a current personal injury case. The debtor must claim the personal injury award as an exemption along with the required schedules and forms with the bankruptcy petition or within 14 days after filing the petition, according to Rule 4003 of the Federal Rules of Bankruptcy Procedure. The debtor may exempt up to $15,000 awarded for a personal injury claim, according to Title 11, Section 522 of the U.S. Code.
  
  

When Defendant Files for Bankruptcy

• When the defendant in a personal injury case files for bankruptcy, an automatic stay of judicial proceedings in civil suits is imposed. If you are the defendant, this means you can potentially be exempt from judgments against your assets or estate, according to Super Bankruptcy Pros. However, the plaintiff can overcome the stay in a few ways: He may petition for relief from the stay and continue with the personal injury action, wait until your bankruptcy is completed and restart judicial proceedings or move the personal injury suit to bankruptcy court.
  
  

When Plaintiff Files for Bankruptcy

• If you are the plaintiff in a personal injury lawsuit, filing for bankruptcy complicates your legal situation. The trustee may garnish awards from your personal injury action, but in most cases you can list awards of up to $15,000 from your lawsuit as an exemption when petitioning for bankruptcy.
  
  

Authority to Settle

• After filing for bankruptcy, the plaintiff gives up the right to accept or reject settlement offers from the defendant. The trustee, after consultation with the plaintiff on the trial specifics, has the right to accept or reject settlement offers. After accepting the settlement offer, the trustee will file a motion with the court as required by Rule 9019 (a) of the Federal Rules of Bankruptcy Procedure. The court may also authorize a final and binding arbitration on the personal injury action, according to Rule 9109 (c) of the Federal Rules of Bankruptcy Procedure.