bankruptcy attorney in biloxi mississipi

Can I Lose my Personal Injury Settlement if I go Bankrupt?

The financial problems caused by the COVID-19 pandemic have resulted in a lot of families in Mississippi and throughout the country considering bankruptcy. Filing for Chapter 7 bankruptcy allows individuals to discharge most types of debts, giving them a fresh start financially. For many Americans, seeking bankruptcy protections is the most sensible way to dig out of the financial hole created by this situation.

While filing for bankruptcy offers many advantages, it also puts any net assets you may have that do not qualify for an exemption at risk. This could create a sticky situation for someone who is in the middle of a personal injury claim at the time that they enter a bankruptcy petition.

If you or someone close to you suffered injury because of the negligence or recklessness of another party, you deserve to receive compensation to make you whole from the injury. This does not mean you are really financially benefiting from your personal injury claim; but rather, you are simply getting financially compensated to whatever extent that monetary compensation can make up for your losses.

When you look at it this way, it does not seem fair that your personal injury settlement would be at risk if you file for bankruptcy. But unfortunately, the legal system does not see it the same way.

Protecting your Personal Injury Claim during Bankruptcy

When you file for bankruptcy, you must list the personal injury judgment, lawsuit, or claim (if you have not filed a lawsuit yet and/or you are in the middle of settlement negotiations) in your bankruptcy schedule. But the good news is that you should be able to exempt at least some of the proceeds from your personal injury claim for yourself. How much you will be able to keep depends on the state in which you file in.

In Mississippi, bankruptcy filers are allowed to exempt up to $10,000 in personal injury proceeds, and this amount can be doubled to $20,000 if you are filing (for bankruptcy) jointly with your spouse. Mississippi also has a wildcard exemption of $50,000 which can be used for any type of property but with one major catch. The wildcard exemption is only available to residents of the state who are over 70 years of age.

What if I Already Spent my Personal Injury Proceeds?

Maybe you have already received your personal injury settlement or judgment award and spent the money. Can the bankruptcy trustee take it back from you? The answer to this question is, it depends.

If you spent the money on ordinary everyday living expenses like food, rent, transportation, and insurance, then the bankruptcy trustee is not likely to try to get it back. If, however, you use the money in a suspicious manner, such as withdrawing large chunks of it in cash without accounting for where it went or transferring it to a friend or family member, then the trustee may be able to recover it back from you.

On a related note, if your personal injury proceeds have been co-mingled with other funds, the trustee may argue that it is indistinguishable, and you can no longer claim any type of exemption on it.

What if My Personal Injury Happened after I Filed for Bankruptcy?

If you got injured after the date in which you filed your Chapter 7 bankruptcy petition, then you are allowed to keep any personal injury proceeds that you recover and there is no need to disclose your claim to the bankruptcy court. Chapter 13 bankruptcy does not work the same way, however.

Chapter 13 is essentially a court-supervised debt consolidation and repayment plan, and the proceeding continues for the duration of the repayment program, usually three to five years. For this reason, any financial activities that occur after the filing must be disclosed to the court and considered in the repayment plan.

Have Further Bankruptcy or Personal Injury Questions? Gardner Law Firm is Here to Help

Bankruptcy and personal injury are two separate areas of the law that sometimes intersect. And when they do, it can be very confusing for individuals who are caught in the middle of this type of situation. For skilled legal guidance with personal injury claims and bankruptcy filings in Mississippi, contact the Gardner Law Firm for assistance.

To schedule a consultation with one of our attorneys, message us online or call our office today at (228) 900-9618. We look forward to serving you!