When you are financially unstable, and you are thinking of filing for bankruptcy, the most important thing you will ask yourself is how it will impact your personal injury case. This is important because, while bankruptcy law aims to safeguard your interests and those of your creditors, you want to know how it will impact your right to sue for recovery of damages for your injuries.
It is, therefore, critical to establish the effects of bankruptcy on your personal injury claim, whether you were injured before, during, or after filing for bankruptcy or even if the person who caused your injuries has declared bankruptcy.
Depending on whether the bankruptcy was Chapter 7 or Chapter 13, there will be a difference in the outcome of any settlement or judgment. Moreover, some bankruptcy exemptions can shield your injury compensation from being used to repay the creditors.
If you are in need of protecting your personal injury claim and you have anxiety about the consequences of bankruptcy, you should hire a professional and knowledgeable bankruptcy lawyer. The right attorney will assist you in knowing your rights and make sure that your compensation for the injury is shielded.
Types of California Bankruptcy Filings
In California, you can seek relief from your overwhelming debt by filing for two types of bankruptcy. Chapter 7 and Chapter 13 bankruptcy are similar in that they both involve the discharge of debts in bankruptcy. Both chapters of bankruptcy have varying impacts on personal injury claims, and thus, it is essential to understand the differences between these two filings before arriving at the right decision.
Chapter 7 Bankruptcy
Also known as ‘liquidation bankruptcy,’ Chapter 7 lets you eliminate most of your debts, including credit card balances and medical bills. In this type of bankruptcy, the bankruptcy trustee can pay creditors by selling certain non-exempt assets.
However, many personal injury claims or the proceeds received from them can be excluded under some circumstances, enabling you to keep part or all of the awarded money.
Chapter 13 Bankruptcy
Chapter 13 enables you to keep your property and make regular and fixed payments in three to five years to discharge the debts under a repayment plan approved by the court. Chapter 13 bankruptcy differs from Chapter 7 in that your personal injury settlement is part of your estate, and the court may compel you to use part of it to pay your creditors, though exemptions can be made.
Choosing between Chapter 7 and Chapter 13 may significantly affect your personal injury claim. This is why it is crucial to hire the services of a professional bankruptcy attorney who will help you obtain the maximum compensation for your personal injury claim.
Understanding How Filing for Bankruptcy Will Affect Your Personal Injury Claim
When you file for bankruptcy, your personal injury claim becomes part of your bankruptcy estate, and the trustee may have a right to claim it for the benefit of your creditors. The particular outcome is heavily influenced by the timing and type of bankruptcy you file.
Per California law, a bankruptcy estate comprises all your legal and equitable interests, including personal injury claims filed before the bankruptcy petition. Knowing how your claim is involved in the estate and when it could be used is essential.
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The Injury Occurred Before Filing the Bankruptcy Petition
When filing for bankruptcy, you are required to list your assets, including claims or lawsuits for damages, in the bankruptcy paperwork. In personal injury (PI) cases where the injury occurred before filing the bankruptcy petition, the claim will be included in the bankruptcy estate.
This means that the bankruptcy trustee can use your settlement or award to pay your creditors. However, an exemption under both state and federal law that can cover some or all of the proceeds is possible.
California Code of Civil Procedure, 703.140(b)(11)(D), addresses issues of exemption based on personal injury settlements to a certain amount. This assists in protecting some of the compensation from being utilized to pay debts in both Chapter 7 and Chapter 13 bankruptcy cases.
In Chapter 7 bankruptcy, the trustee may sell off non-exempt assets, such as a portion of your personal injury claim, while in Chapter 13, you can keep the money but must apply it toward your repayment plan.
For example, Mark was driving recklessly on May 31 and hit Judy’s car from behind, causing her to be injured and damaging her vehicle. On August 14, Judy, unable to go to work, filed for bankruptcy. Her personal injury claim against Mark will become an asset. To secure her claim, she must include it in her bankruptcy filing.
Listing a Personal Injury Claim in Your Bankruptcy Petition
In your bankruptcy petition, all your assets are to be declared. You must declare your personal injury claim as an asset on the documents you file for bankruptcy, including any pending or prospective claims for personal injury. If you fail to disclose a personal injury claim, there can be severe repercussions, such as losing the right to pursue the claim or even having your bankruptcy petition thrown out.
Chapter 7 allows the trustee to sell non-exempt property to discharge the debts, while Chapter 13 could use the claim to establish the repayment schedule. If you have not started filing a personal injury claim, you will list it as a right to recover PI claim. If you have just started the process, you will list it as a pending PI claim.
Also, if you have had talks with the party that injured you and there is no workable resolution, you will list it as a pending PI claim. However, if you have reached an agreement through settlement, you will list it as cash settlement proceeds, and if you have not received the settlement cash, you will list it as a right to collect your settlement proceeds.
How Bankruptcy Filing Can Affect My PI Proceeds
Whether or not you will lose the right to your personal injury proceeds in bankruptcy depends on the type of bankruptcy you want to file, the exemptions in your state, and the value of your injury claim.
If the personal injury settlement money exceeds the exemption limits, you may lose a part or all of it in Chapter 7 bankruptcy. The trustee can use any part of the proceeds that is not exempt to pay your creditors.
Some exemptions under California law enable you to safeguard some or all of the proceeds you get from your personal injury claim. For example, California Code of Civil Procedure 704.140 states that personal injury proceeds are necessary to maintain the debtor and their dependents will be exempted.
However, Chapter 13 bankruptcy works differently. Unlike Chapter 7, where you lose most of your property, Chapter 13 lets you keep most of your property, including personal injury proceeds, so long as you pay according to the plan formulated. Even the money you receive from a personal injury claim is included in the computation of your disposable income, determining how much you must pay your creditors.
PI Claim Bankruptcy Exemptions
Personal injury claim exemptions are essential when filing bankruptcy because they assist in safeguarding a part or the whole of your compensation from being seized by creditors. Exemptions are of two types, and the amount of exemptions you are eligible to claim differs depending on whether you choose to claim state or federal exemptions in your bankruptcy case.
According to California Code of Civil Procedure Section 703.140(b)(11)(D), the 703 system allows you to exempt up to a certain amount of personal injury compensation. This can be beneficial for protecting smaller settlements.
On the other hand, under California Code of Civil Procedure 704.140, personal injury proceedings that are essential for you and your dependent or for those dependent on you can be fully exempted. This is usually applied where the injury has a significant financial impact on your well-being.
How the Non-Exempt Part of Your PI Claim is Utilized
In a Chapter 7 bankruptcy, even if exemptions protect some assets, the nonexempt part of your personal injury claim may be liquidated to pay your creditors. The bankruptcy trustee, the person in charge of your estate, may take the nonexempt portion of the settlement to award and disburse it to creditors per the bankruptcy rules.
For example, if your personal injury claim settlement is $50,000 and the exemption allows you to protect $25,000, the remaining $25,000 will be nonexempt. The trustee would likely take control of the nonexempt portion to pay off your outstanding debts.
However, in Chapter 13 bankruptcy, things are different. If a part of your claim is nonexempt, you do not have to surrender the money. However, the nonexempt portion may cause an increase in the amount that you will be allowed to pay to the creditors under your repayment plan, which usually takes three to five years. The more nonexempt assets you have, the greater the amount of your monthly payments could be.
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The Injury Occurred After You Filed For Bankruptcy
If you were injured after filing for bankruptcy, how your personal injury claim is treated depends mostly on the kind of bankruptcy you have filed. Any asset you own after filing the bankruptcy petition is generally considered to be outside the scope of the bankruptcy estate, meaning timing is of the essence in bankruptcy cases.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, the property you own or the claims you have when filing for bankruptcy are the only ones considered as part of the bankruptcy estate. If your personal injury accident happens after filing, the resulting claim is a post-petition asset.
The claim is not part of your estate, so the bankruptcy trustee cannot take it. Consequently, you can preserve the whole of your settlement or judgment in the personal injury case. However, if, after your Chapter 7 case, you are expecting a large settlement, it is advisable to seek advice from your bankruptcy attorney on this matter since it may have some implications for your future financial responsibilities.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is more complicated. The objective of a Chapter 13 case is to allow your financial position to change over the repayment period, which can take up to three to five years. If you have an injury and file a personal injury claim after a bankruptcy case has started, then that claim can be regarded as your disposable income that can cause changes to your repayment plan.
The court could adjust the plan to allow the use of a portion of the proceeds from the injury claim to pay off your creditors.
How My Personal Injury Claim Will Be Affected If the Perpetrator Files for a Bankruptcy Petition
When the party who has caused your suffering files for bankruptcy, it becomes a challenge to get compensation. However, bankruptcy does not always clear a debtor from their responsibilities, especially in some personal injury cases. The effect of your perpetrator’s bankruptcy on your claim depends on the type of claim and the applicable bankruptcy laws.
According to the U. S. bankruptcy laws, almost all the debts can be discharged. In other words, the debtor can no longer be compelled to pay the debt. This is particularly so when the person responsible for your suffering has declared their company or enterprise bankrupt.
However, some types of personal injury claims are excluded from discharge. It is, therefore, important to note that if your claim is based on intentional harm, malice, or the defendant’s negligent actions that led to your injury, then the defendant’s bankruptcy will not absolve them from their liability to pay you.
Discharge and Automatic Stay
The automatic stay is put into operation when a defendant has declared bankruptcy. This legal mechanism temporarily stops all collection activities, including lawsuit filings, and would imply that your personal injury case would most probably be on hold. The automatic stay should shield the debtor from collection while the bankruptcy proceeding is ongoing.
After the bankruptcy case is over, the court may order the discharge of the debtor’s obligations, including damages for a personal injury. However, some forms of personal injury claims, such as DUI or intentional harm, cannot be discharged. Therefore, the defendant will still be held responsible for the damages even after filing for bankruptcy.
Your Injury Happened after the Perpetrator Filed a Bankruptcy Petition
If you are injured after the defendant has filed for bankruptcy, your legal rights are limited by the automatic stay and other bankruptcy measures. The timing of the injury and bankruptcy filing is very important in determining how your PI claim will be handled.
Post-Petition Debt
If the party at fault for causing your injuries has already filed for bankruptcy, your claim could be considered a ‘post-petition’ claim, meaning that it is a claim that arises after filing the bankruptcy case.
Post-petition claims are not dischargeable in the current bankruptcy case, so the defendant may still be liable for your injury claim. This is especially the case where the injury happens after the defendant has filed for bankruptcy.
Your Injury Happened Before the Perpetrator Filed a Bankruptcy Petition
If you sustained an injury before the defendant filed for bankruptcy, your personal injury claim falls under his pre-bankruptcy claims. The defendant's bankruptcy is one factor that may slow down the process of your compensation recovery, but it does not terminate the case.
After the defendant has filed for bankruptcy, the automatic stay is implemented. This means that no legal action or attempt to collect the debt can be undertaken, such as filing a personal injury claim. Your case will be put on hold until you get a discharge from the automatic stay, allowing you to proceed with your claim.
However, depending on the type of bankruptcy the defendant filed, the outcome could vary:
- Chapter 7 bankruptcy allows the defendant to discharge many debts, including personal injury claims, except for certain non-dischargeable debts.
- In Chapter 13 bankruptcy, the defendant’s repayment schedule could also involve payment of personal injury claims, which would enable you to recover some of your losses over time.
Find a San Diego Bankruptcy Lawyer Near Me
Personal injury claims and bankruptcy can be overwhelming for anyone. Regardless of whether you want to shield your personal injury claim or whether you would like to understand what occurs when the person who was responsible for your accident files for bankruptcy, it is not easy to go through the process on your own. You do not want to be on the receiving end, stripped off your property, or dragged through the courts without adequate legal support.
That is why you need to hire a competent attorney in bankruptcy to assist in the process. If bankruptcy arises in a personal injury case, having an attorney who knows the laws will benefit you and allow you to get the most out of your case. At the San Diego Bankruptcy Attorney, we have lawyers willing to assist you through the process and explain it to you. Contact our law offices today at 619-488-6168 to book a consultation on how we can help you.
