Ouch! Protecting the Debtor’s Personal Injury Claim in Bankruptcy

By Philadelphia Bankruptcy Attorney, Dan Mueller, on December 1st, 2010

It is bad enough to be injured in an accident, but to lose your claim for compensation could be devastating. However, that is exactly what might happen, if you fail to disclose your personal injury claim in your bankruptcy schedules. Fortunately, there are steps you can take to preserve your claim.

Disclose, Disclose, Disclose.

All personal injury claims are assets, just like your car, furniture, and other items of personal property and must be disclosed in your schedules. Failing to disclose a claim may lead to loss of any recovery to which you might be entitled. Even if the failure to disclose is unintentional, it may not save your claim. Instead of compensating you for your injury, the funds will be distributed among your creditors. In addition, intentionally failing to list an asset can leave you open to criminal liability.

Ironically, many claims lost for failure to disclose would have been exempt anyway, had the debtors listed them. By attempting to protect the claim by not disclosing it, the debtors in such cases lost out. (The courts have taken a hard line of late on undisclosed assets, even in cases where the entire claim would have been exempt had it been reported.)

Exempting a Personal Injury Claim.

There are exemptions that can protect all or part of the proceeds of a damages award or a settlement. However, if you do not list the claim, you cannot use these exemptions to protect it. Under the personal injury exemption of bankruptcy code, you can keep up to $21,625 from a personal injury award or settlement, not including pain and suffering or compensation for monetary losses. (As a Pennsylvania bankruptcy lawyer, I generally advise using the federal exemptions, which are larger than our state exemptions.)

In addition, if your claim is over the amount allowed by the personal injury exception, you can apply the federal “wild card” exemption, which allows you to exempt more. Under, the wild card exemption you may apply up to $11,200 (which includes a portion of any unused homestead exemption) to any personal property, including a personal injury claim or award. The wild card exemption can be used in addition to other exemptions. For example, the personal injury exemption of $21,625 + the wild card of $11,200 gives you a total exemption of $32,825.

Although they do not apply in all cases, some additional exemptions may be available. For example, if the injury resulted from a crime, any award from a crime victim reparation fund is exempt. If the payment is for the wrongful death of someone on whom the debtor was a dependent, the award is exempt “to the extent reasonably necessary” to support the debtor and the debtor’s dependents. Similarly, there are exemptions for life and some other insurance proceeds.

Note: In Pennsylvania, a child’s claim is generally not the property of the parent and is, therefore, not part of the bankruptcy estate (although you should note it in the Statement of Financial Affairs). In cases involving an injured child, the language of the settlement is particularly important.

Don’t lose your right to compensation for an accident. If you have been injured in a car accident or other incident, it is critically important to (1) tell your bankruptcy lawyer about any potential claim you may have, and (2) tell your personal injury lawyer that you are considering filing for bankruptcy. Your attorneys can work together to reach the best possible outcome for you.

Philadelphia Bankruptcy Attorney Dan Mueller of Harborstone Law Group, PLLC helps individuals and small businesses in the Greater Philadelphia area resolve debt problems and regain control of their finances. You can reach him at 215-248-0989.