Personal injury and bankruptcy often go hand in hand. While a large personal injury settlement may eventually grant relief to a party who has lost their job or ability to work to the actions of a negligent party, the law governing bankruptcy and personal injury settlements is complicated.

Of course, most personal injury settlements do pay certain creditors first, such as medical providers and your personal injury lawyer. Nevertheless, it may be a bit galling to learn that the amount that remains may be up for grabs during a bankruptcy court case. 

Here’s what you need to know.

You must disclose the existence of the settlement. 

In 1992, a case known as the Matter of Yonikus went before the United States Seventh Circuit Court of Appeals. In this case, a bankruptcy trustee filed a complaint seeking a revocation of a borrower’s discharge and a judgment against the borrower for the borrower’s failure to report personal injury settlement proceeds.

The court ruled that “debtors have an absolute duty to report whatever interests they hold in property, even if they believe their assets are worthless or are unavailable to the bankruptcy estate.” 

The requirement to disclose is also covered under Section 521(a) of the Bankruptcy Code. If you fail to report the existence of the settlement, you can be charged with bankruptcy fraud. 

Your bankruptcy attorney may be able to protect a portion of your personal injury settlement.

New York State has a bankruptcy exemption for personal injury settlements. In a Chapter 7 bankruptcy, personal injury settlements can be protected with the wildcard exemption, which protects $1,225 and an additional $11,550 of any property, including personal injury settlements. While this may not cover your entire settlement, it may be enough to help you foster a fresh start as you restructure your life into something you can afford.

In a Chapter 13 case, the settlement may be exempt, but the specific amount that your bankruptcy lawyer can protect for you will depend on your repayment plan and the approval of both the courts and the trustees. 

This is a very good example of why it’s so important to work closely with a bankruptcy attorney rather than attempting to manage your case on your own. 

Get Help Today

Don’t try to do guesswork when it comes to your bankruptcy case.

If you need help, reach out to Haysom Law today. We can review your finances and your unique circumstances, and help you determine what your next steps should be.

See also: 

How Much Protection Does Chapter 13 Offer for a Retirement Plan? 

Can I Get a Cash Gift During Bankruptcy? 

What Will Your New York Chapter 13 Payment Look Like?