Bankruptcy & Personal Injury Claims

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A personal injury claim is filed by an injured party against the negligent party who caused the injury. Financial compensation includes medical expenses, lost income, property damage, as well as pain and suffering. 

But what happens if an injured party also files for bankruptcy? Will the award or settlement become part of the bankruptcy estate? 

If your injury and/or the injury compensation occurred after you filed for Chapter 7 bankruptcy, you can keep the compensation. When it comes to Chapter 13 bankruptcy, on the other hand, you have an affirmative duty to disclose any claim that occurred after filing for bankruptcy, and the award or settlement will be considered income or windfalls. 

if your injury and/or the injury compensation happened before you filed for bankruptcy or during your pending bankruptcy case, the award or settlement will be part of your estate. Fortunately, Pennsylvania and federal bankruptcy exemptions are available for monetary losses stemming from a personal injury lawsuit.  

Keep in mind, federal exemptions are much larger than our state exemptions. According to the personal injury exemption of the bankruptcy code, debtors may retain a maximum of $25,150 – as of April 1, 2019 – from a personal injury award or settlement (not including pain and suffering). 

Furthermore, you can also apply the federal “wild card” exemption if your claim is over the amount set by the personal injury exemption. This exemption includes a basic exemption of $1,325 plus a maximum of $12,575 of any unused portion of the federal homestead exemption. Therefore, if you do not use all your homestead exemption, you can potentially use up to $13,900 to apply to any personal property, such as a personal injury claim. 

The truth is that you can actually “stack” the personal injury exemption, the wildcard exemption, and the unused homestead exemption to add up a total exemption to use for a personal injury claim. Based on the current amounts, the total exemption is worth up to $39,050. 

While married couples can generally double up on bankruptcy exemptions, Pennsylvania bankruptcy courts have ruled that a debtor needs to have an interest in the property to claim an exemption. Since a personal injury claim is specific to one injured party, only that spouse can claim the exemption. 

If you are interested in filing for bankruptcy in Harrisburg, contact Dethlefs, Pykosh & Murphy Law today at (717) 559-0271 for a free initial consultation. Nearly a decade of bankruptcy court experience! 

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