Unfortunately, due to financial hardships, it is sometimes necessary for an individual to file for bankruptcy. The question is how does the filing of a bankruptcy effect a personal injury claim.
There are two types of bankruptcy that an individual can file. There is a Chapter 7 bankruptcy which basically discharges or clears away any of your unsecured debt such as credit cards, medical bills or utility bills. You are usually able to keep items of necessity such as your home, car, furniture and clothing. Any property you own that is not exempt (of necessity) can be sold by the Bankruptcy Court to pay off your debt. Any remaining debt will be discharged-meaning you do not have to pay the bills. Most Chapter 7 bankruptcies are no-asset because the filer does not own anything other than their necessities.
The second type of bankruptcy an individual can file is a Chapter 13. This type allows the filer having sufficient income to keep all their property be entering into an affordable payment plan over a period of time without a creditor foreclosing or repossessing your property.
Whether you file a Chapter 7 or a Chapter 13, if the personal injury claim occurred before the filing date, you must disclose the claim to the Bankruptcy Court. The claim then becomes the property of the Bankruptcy Court and you must have permission to settle. In some instances, depending on the settlement amount, you may be able to keep some or all of the settlement proceeds.
If the personal injury claim occurs after the filing of the bankruptcy and the bankruptcy is still pending with the Court, you are required to disclose it to the Court and the Court will decide how the proceeds are to be paid.
As stated above, filing for bankruptcy can have numerous and complicated effects on a personal injury claim. It is important to speak with an experienced attorney before making any decisions about filing.