It depends. In most cases, a personal injury settlement awarded to an injured party is not dischargeable when the person who owes the damages files for bankruptcy. If you’re the one who received a settlement and are filing for bankruptcy, your award may be considered an asset, but that doesn’t mean you’ll automatically lose it.
Understanding the relationship between bankruptcy and personal injury claims is complex. A personal injury attorney in Hawaii or elsewhere can help you protect your rights and explain how bankruptcy law might affect your case.
What happens if the person who caused my injury files for bankruptcy?
If the party that caused your injury files for bankruptcy before your lawsuit is resolved, the bankruptcy court may issue an automatic stay. This will temporarily halt collection efforts, including lawsuits. With that in mind, you may be able to request relief from the stay so your personal injury claim can continue.
Under Chapter 7 bankruptcy, debts stemming from willful or malicious acts (like intentional injury) are usually not dischargeable. If your case involves reckless behavior, like drunk driving or assault, the court might allow your personal injury lawsuit to proceed, denying the discharge of your claim.
If the injury was caused by negligence (rather than intentional harm), your ability to collect money may depend on how the bankruptcy court classifies the claim. If it’s considered an unsecured debt, it could be erased in a Chapter 7 (liquidation) case. In Chapter 13, the person who caused the injury might repay part of what they owe over time through a court-approved debt payment plan.
Will I lose my personal injury settlement if I file for bankruptcy?
If you are an injured party who receives a personal injury settlement and later files for bankruptcy, your award may be considered part of the bankruptcy estate. That means it could be used to pay creditors, but exemptions often apply.
In Hawaii, you may be able to exempt part or all of your personal injury settlement under Haw. Rev. Stat. § 651-121, which allows an exemption for certain compensation related to personal bodily injury. The specific amount you can protect may depend on how the award is structured and what it covers (e.g., medical bills or lost wages).
Are there exceptions for medical bills or pain and suffering?
Yes. Bankruptcy law treats various types of damages in a personal injury settlement differently. Medical bills you owe may be treated as regular unsecured debts and can often be discharged. Damages you’ve received for pain and suffering or future medical care might be considered exempt assets, depending on your state and bankruptcy chapter.
You may also be required to report the settlement to the bankruptcy trustee, who oversees your case. Full disclosure is important. Hiding or mischaracterizing a personal injury settlement can lead to dismissal of your case or even criminal penalties.
How do Chapter 7 and Chapter 13 affect personal injury settlements?
- In a Chapter 7 bankruptcy, the trustee may liquidate non-exempt assets (including some or all of your settlement) to pay creditors. You’ll need to use available exemptions to protect what you can.
- In Chapter 13 bankruptcy, you may be able to keep your settlement, but its value could affect how much you’re required to pay in your repayment plan.
The structure of your settlement, whether it’s paid out as a lump sum, structured settlement, or allocated across specific damages, can impact how it’s treated in bankruptcy court.
Talk to an experienced personal injury attorney about your rights
If you’re dealing with a personal injury claim and bankruptcy, whether it is yours or someone else’s, don’t try to face it alone. The attorneys at Shaheen & Gordon can help you communicate with the bankruptcy court and make sure your settlement is handled correctly. Call (800) 451-1002 or contact us online today to schedule a free consultation.
