AFFECT OF A PERSONAL INJURY CLAIM IN CHAPTER 7 BANKRUPTCY

What is the effect of a personal injury claim in bankruptcy law? A personal injury claim can arise before, during, or after you file a Chapter 7 or Chapter 13 bankruptcy. This article looks at the effect of a personal injury claim in a Chapter 7 bankruptcy.

WHAT IS A PERSONAL INJURY?

First, we must determine what is a personal injury. Personal injury is defined, in a negligence action, as any harm caused to a person, such as bodily injury. And, any invasion of a personal right, including mental suffering. In worker’s compensation, any harm that arises in the scope of employment. Black’s Law Dictionary 790 (7th ed. 1999). A personal injury claim is where you have a claim against a third party who negligently injured your person, or a claim against your employer for a workplace injury. Hopefully, the third party or your employer has insurance to pay the claim.

WHAT IF THE PERSONAL INJURY AWARD IS RECEIVED BEFORE FILING A CHAPTER 7 BANKRUPTCY?

Let’s say you obtained a personal injury award before you file bankruptcy. You are required to list the award, if any of it remains, as an asset in Schedule A/B of your bankruptcy petition. Critical to listing it as an asset in Schedule A/B is claiming an exemption in Schedule C. In Colorado, 100% of worker’s compensation benefits are exempt. 100% of personal injury negligence awards are exempt to the extent they are for personal injuries.

Lost wages or lost income that are recovered are not considered personal injury proceeds and are not exempt under the personal injury exemption. They may be partially exempt, however, under the Colorado wage exemption law. Also, recovery for medical benefits received as a result of the injury is not exempt.

To proetect the exemption, when you receive your award you must put the proceeds in a brand new account and not commingle the new account with any other source of funds.

WHAT IF THE PERSONAL INJURY CLAIM IS PENDING WHEN FILING A CHAPTER 7 BANKRUPTCY?

What if your personal injury claim is pending at the time you file a Chapter 7 bankruptcy? You must list it as an asset in Schedule A/B in your bankruptcy petition. If a pending workers compensation claim, you list it in Schedule A/B, Line 30. If a pending negligence claim, you list it in Schedule A/B, Line 33. Again, critical to listing it as an asset in Schedule A/B is claiming the exemption in Schedule C.

More importantly, the trustee can intervene and claim on behalf of the bankruptcy estate any portion of the future proceeds that are non-exempt. Such as attorney fees, non-exempt wages, and medical benefits. The failure to cooperate with the trustee can result in a non-discharge in the case.

It is not unusual for a debtor to “forget” to tell their bankruptcy attorney or list the personal injury claim in the bankruptcy petition. It will almost always be discovered anyway because the insurance attorney will check the court records to see if the debtor filed bankruptcy. Then, the Chapter 7 Trustee will be very unhappy.

WHAT IF THE PERSONAL INJURY CLAIM ARISES AFTER YOU FILE A CHAPTER 7 BANKRUPTCY?

What happens if the day after you file a Chapter 7 bankruptcy you are injured in a car wreck through the fault of someone else? Is the personal injury claim, post-filing, an asset of the bankruptcy estate? No.

Do you have a personal injury claim? Have your financial situation considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court? Call or contact Martin Long at LONG & LONG P.C.now at 303-832-2655, or www.denverbankruptcylawyer.net.

LONG & LONG P.C.