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Philadelphia Bankruptcy Attorney Dan Mueller of Harborstone Law Group represents consumers in bankruptcy and debt negotiation matters throughout Philadelphia, Montgomery County, Delaware County, and Bucks County in Pennsylvania.

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

Personal Injury in BankruptcyPersonal injury claims that are exempt in Chapter 7 and Chapter 13 bankruptcy are sometimes lost because the debtor failed to disclose the claim or did not know how to protect it. It is bad enough to be injured in an accident, but to lose your claim for compensation can be devastating. Fortunately, there are steps you can take to preserve your claim in bankruptcy.

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. Under the personal injury exemption of bankruptcy code, you can keep up to $22,975 from a personal injury award or settlement, not including pain and suffering or compensation for monetary losses. 11 U.S.C. 522(d)(11)(D). This number is doubled to $45,950.00 for a couple. (As a Pennsylvania bankruptcy lawyer, I generally advise using the federal exemptions, which are larger than our state exemptions.)

Although this exemption is limited and does not exempt compensation for pain and suffering and actual pecuniary (monetary or actual losses), there are often other ways to protect your claim.

Stacking Exemptions.

In addition to the personal injury exemption, if your claim is over the amount allowed by the personal injury exception, you can apply the federal “wild card” exemption, which will allow you to exempt more. The wild card exemption includes a basic exemption of $1225 plus up to $11,500 of any unused homestead exemption. Thus, if you do not use all of your homestead exemption, the potential total wildcard exemption is $12,725, which you can apply 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, by “stacking” the personal injury exemption of $21,625, the wild card of $1225, and the unused homestead exemption of $11,500, you have a total exemption of $34,350. Again, these numbers are doubled for a married couple filing together.

Other Exemptions.
Although they do not apply in all cases, some additional exemptions may be available. For example:
Crime Restitution. If the injury resulted from a crime, any award from a crime victim reparation fund is exempt. 11 U.S.C. 522(d)(11)(A)
Wrongful Death. Payments for wrongful death of someone upon whom the debtor was a dependent  are exempt “to the extent reasonably necessary” to support the debtor and the debtor’s dependents. 11 U.S.C. 522(d)(B)
Life Insurance Benefits. Life Insurance benefits are exempt if the debtor was a dependent of the insured and the funds are reasonably necessary to support the debtor and the dependents of the debtor.11 U.S.C. 522(d)(C)
Loss of Future Earnings. If the payment is for loss of future earnings of the debtor or someone on whom the debtor was a dependent, the award is exempt provided that the payment is reasonably necessary to support the debtor and the debtor’s dependents.  11 U.S.C. 522(d)(11)(E)

Quick 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. As you can see from the above, how an award or settlement agreement characterizes the damages can impact whether the funds are exempt. 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.

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