What happens if you have a personal injury lawsuit when you file a Chapter 7 bankruptcy case?

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If you’re in a personal injury lawsuit but also facing mounting debt, you might be considering bankruptcy. Bankruptcy is often considered to be the last resort but is sometimes essential for a debtor. However, it’s important to know that already being in the process of a personal injury lawsuit can affect the filing process.

So, what does this mean? What happens when you look to file for Chapter 7 bankruptcy and are in a personal injury claim? Read more here on what to know about pursuing bankruptcy while in a personal injury lawsuit.

It’s best to file for bankruptcy after your claim is settled

While every case varies, usually it’s a good idea to wait until your personal injury claim is settled before filing for bankruptcy. If you do decide to file for bankruptcy while in a personal injury lawsuit, that claim must be disclosed. In that case, the claim is considered an asset that must be accounted for in the bankruptcy court.

A bankruptcy filing and personal injury lawsuits affect each other

A personal injury claim filed before bankruptcy is considered an asset. That asset has a value in dollars.  After your bankruptcy is filed, the trustee, who represents the creditors, can “take over” the lawsuit. When the lawsuit is settled, or if there is a court award, the money belongs to your creditors. If the personal injury claim is settled before your bankruptcy, the money must be disclosed, and the trustee is entitled to that money. In most cases, it is best to slowly spend the money before filing bankruptcy so that it is not available to the trustee. But this option depends on how much money and what it is spent on.  It is important to discuss this issue with an experienced bankruptcy lawyer before making any decisions.

Settlements and exemptions

Typically, money received in a personal injury, or any settlement is considered property in a bankruptcy case. However, in some cases and states, people can claim settlements as exempt in bankruptcy. In Florida, bankruptcy exemptions do not allow a debtor to keep the money from a personal injury claim. 

The Badgley Law Group is here for you

Being entangled in a personal injury lawsuit, on top of facing bankruptcy, can be taxing beyond belief. At the Badgley Law Group, our expert team specializes in both personal injury and bankruptcy law. We’re here to help you in your time of need, whether you’re pursuing a personal injury lawsuit, bankruptcy, or both.

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