Money Proceeds from a personal injury case are exempt up to certain amounts even if you file bankruptcy. For example, if you have a pending personal injury case and have to file bankruptcy, the federal bankruptcy exemptions provide for an exemption of $21,625 to cover those proceeds. You also may be entitled to apply your wild card exemption to cover additional amounts recovered. Only the net award should be considered so that attorney fees and other costs incurred in recovering monies should not be considered part of your recovery.
Exemptions for Proceeds from Personal Injury Lawsuit
You also want to discuss with a bankruptcy lawyer whether the State or Federal Exemptions should be used to protect that award or settlement. This can make a big difference depending on the type of award. Furthermore, if the accident occurred after the bankruptcy was filed they may not be considered part of your estate and therefore potentially protected in full.
The current federal exemption bankruptcy statute that would primarily cover personal injury awards is 11 U.S.C. Section 522(d)(11), which provides:
(11) The debtor's right to receive, or property that is traceable to--
(A) an award under a crime victim's reparation law;
(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(D) a payment, not to exceed $21,625, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
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Please also keep in mind that your given state may also provide for broader protection depending on the State in which you reside. For example, in New Jersey a workers' compensation award is completely exempt in a Chapter 7 bankruptcy.
Some other issues that must be considered in determining whether the money recovered is protected is whether the proceeds are from a workers' compensation award, a car accident case, and personal injury claims without losses that included pain and suffering. If you have a personal injury claim and are considering the filing of a bankruptcy, the issue on whether the money is exempt and to what extent should be explored in detail with an attorney in your state.