Is My Personal Injury Settlement Protected in Bankruptcy?

A personal injury settlement in Michigan may be protected in bankruptcy in a number of different ways depending upon the classification of the settlement funds.

Personal injury settlements may be awarded by Michigan district or circuit courts for different purposes: lost wage replacement, medical expense damages, caretaker or nursing services, and punitive damages, to name a few settlement categorizations. Depending upon which of these categorizations applies to a specific sum of settlement funds, the settlement may or may not be protectible in bankruptcy.

First, what does it mean to be “protected” in bankruptcy? I have discussed the process of exemption of personal assets in a number of different posts on this blog. To be “protected,” particularly in a Chapter 7 bankruptcy, means that the value of the asset is not so much that the “exemptions” provided for in the Bankruptcy Code are not insufficient to remove that value entirely from the legal “bankruptcy estate” that is created upon the filing of a bankruptcy petition so that the bankruptcy trustee assigned to the case by the Bankruptcy Court does not have jurisdiction to seize and liquidate it.

In other words, certain types of property up to certain dollar-amount values are protected from the seizure-and-liquidation power. Everything else in a Chapter 7 bankruptcy is subject to being seized and sold off by the bankruptcy trustee for the benefit of the creditors whose debts are to be discharged.

With regard to personal injury settlements, the Bankruptcy Code includes an exemption of $21, 625.00. This exemption may be used to protect any of the settlement categories described above—but only to a maximum of that amount. A $30,000.00 pain and suffering compensation settlement amount would thus be unprotected to the extent of $8,375.00.

Additional exemptions apply specifically to other categories and only to those categories. For example, there is a no-ceiling exemption that applies to compensation in replacement of lost future wages (also useful for the protection of worker’s compensation settlements). If an overall personal injury settlement of, for example, $100,000.00 included a lost wages replacement of $50,000.00 only, this exemption would protect only the $50,000.00.

In addition, successful application of these and other exemptions and protections may be significantly easier to execute if the bankruptcy is filed while the claim is still just that—a claim—rather than afterward, when it is a liquid lump sum of cash sitting in a bank account.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or to schedule a free, initial consultation.

One response to “Is My Personal Injury Settlement Protected in Bankruptcy?

  1. Pingback: Bankruptcy and the Cost of Oil » Brooklyn Tax Attorney Information

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