Filing Bankruptcy After A Personal Injury Case

LA Personal Injury Lawyer

Bankruptcy lawyers sometimes have cases involving individuals who have just completed a personal injury action where they were the injured party. This type of bankruptcy case can include two predominant issues.  One issue addressed by the bankruptcy may be significant outstanding medical bills that were incurred as a result of the accident or claim.

Another issue is how much of the money received by the injured party is protected in the bankruptcy by what is known as an exemption.  Each person who files a bankruptcy case is entitled to keep so much of their property free and clear of a claim of the bankruptcy court’s trustee.  The trustee is the person appointed by the court to collect whatever non-exempt property he or she can from the debtor, sell it, and distribute the proceeds to the creditors of the debtor.  The amount of this property that is protected from seizure by the trustee is known as exempt property.  Each state, as does the federal government, has its own list of exempt property in specific dollar amounts.

Most bankruptcy lawyers are familiar with the dollar amount of exemption associated with a personal injury award that is established by the state.  In states like Illinois, the exemption allowed for a personal injury monetary award is $15,000.00.  This means that of the amount one receives from a personal injury case, he or she can exempt, or protect, from attachment by the bankruptcy trustee or by any other creditor, up to $15,000.00.

Personal injury awards, either received in settlement or following a trial, vary in amounts from extraordinarily large to minor.  In order for a debtor to protect the greatest portion of an award, it is advisable to meet with a bankruptcy lawyer to determine when and how to file a bankruptcy case if it becomes necessary.  Smith & Weer offers a free consultation where we meet with potential clients to discuss how to file their case in order to obtain the greatest benefit available to them and their family.

Many  people who are injured as a result of another’s wrongful actions are likely to incur what can be significant medical expenses.  Because of the injuries suffered, an injured party may be unable to work for a period of time.  Some who are injured may be unable to return to their regular job because of the injuries they suffer, or they may be laid off from their job because of a prolonged absence.  People who are injured and/or unable to return to work immediately are going to fall behind on their credit bills, car loans, and their mortgage or rent payments.

In cases such as these a major portion of any money received ultimately as a result of the personal injury case will be used to catch up on past due bills and loans.  This is to be expected and is normally acceptable by the bankruptcy trustee so long as the award is used to pay necessary living expenses, and to bring such items as car and home loans current.  This, of course, also results in the money that you received from your personal injury case being reduced.  This, in turn, results in your allowed exemption amount covering a larger percentage of the remaining balance of your personal injury monetary award.  In view of this scenario, and provided that an injured party is able to put off filing a bankruptcy, the best advice may be to wait as long as possible to file a bankruptcy case in order to make the maximum use of the money one receives from a personal injury case.  One caveat to keep in mind for anyone who receives a personal injury award:  you should segregate the money you are awarded in a separate account.  Do not commingle it with other money you may receive from wages or other sources.  If one were to commingle exempt property such as a personal injury award, or purchase, or invest it in non-exempt property, the personal injury money will lose its exemption and be available to the bankruptcy trustee or any other creditor.

As mentioned, many people involved in personal injury cases may have outstanding medical bills that were not paid from the final settlement of the case.  If your personal injury award is not sufficient to pay all your medical bills, a bankruptcy may very well be necessary to file.  Medical expenses are the number one reason that people file bankruptcy.

Most bankruptcy lawyers are familiar with the options available to a personal injury award recipient, and how best to obtain the greatest benefit of the award for themselves and their family.


Thanks to our friends and contributors at Smith & Weer, P.C.for their insight into the relationship between bankruptcy and personal injury practice.