When you file a Chapter 7 bankruptcy in Ohio, you may have to give up some or all of the money you receive (or may receive) from a lawsuit. Whether you can keep a lawsuit award or settlement (or one you get in the future) depends on Ohio laws called “exemptions.” If your lawsuit proceeds are exempt, they are safe in your bankruptcy.
Keep reading to learn how exemptions laws work in bankruptcy to protect your property and what type of lawsuit or settlement proceeds are protected under Ohio’s exemption laws.
What Happens to Property and Assets in Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, you can discharge, or wipe out, many or all of your debts. In exchange for your discharge, the bankruptcy trustee (the person appointed to administer your case) may require that you turn over some of the property in your “bankruptcy estate.” The trustee will sell that property and distribute it to your creditors to repay all or part of your debt.
If, however, state or federal law “exempts” a particular piece of property in your bankruptcy estate, you can keep it in bankruptcy. (Learn how exemptions help you protect property in bankruptcy.) Most Chapter 7 bankruptcy filers are able to keep much, or all, of their property using bankruptcy exemptions.
Lawsuit Proceeds and Your Bankruptcy Estate
Money you got, or might get, from a lawsuit or legal claim belongs to your bankruptcy estate. This includes:
- money that you have received from a lawsuit
- money you have not yet received from a lawsuit, and
- money you might be entitled to receive, even if you have not yet filed a lawsuit.
In your bankruptcy papers, you must disclose your interest in any legal claim, even if you don’t wish to file a lawsuit. (Learn more about disclosing possible claims in bankruptcy even if you were not injured.) If you fail to disclose a claim you have in a settlement or lawsuit, it can lead to serious consequences (To learn more, read Do I Have to List Possible Legal Claims in My Bankruptcy?)
The Bankruptcy Trustee’s Right to Pursue Claims for Damages
The bankruptcy trustee has a unique right to step into your shoes if you have a claim against someone. That means that if you were injured in any way and may have a claim for damages, the trustee can decide for you whether to proceed with a lawsuit. The trustee can also select the attorney who will represent you in the lawsuit, and decide when to (or not to) settle the claim.
For example, say you are involved in a fender bender while you are preparing to file a Chapter 7 bankruptcy. The damages are minimal, and you do not wish to pursue a claim against the other driver. Nonetheless, you must disclose the potential claim in your bankruptcy papers, and the bankruptcy trustee may choose to pursue the claim on behalf of the bankruptcy estate by filing a lawsuit or making a claim against the other’s driver’s car insurance.
Using Exemptions to Keep Lawsuit Money
You can keep money you get (or will get) from a lawsuit award or settlement if that money is exempt under state or federal laws. (To learn more, see Can I Keep a Lawsuit Award or Settlement If I File for Chapter 7 Bankruptcy?)
Ohio Exemptions That Specifically Cover Lawsuit Awards and Settlements
Ohio’s exemption laws protect money you get from certain types of lawsuits or for particular types of damages that you might receive from a lawsuit. Ohio also has some more general exemptions that you can use to protect money you receive, or will receive, from a lawsuit. Below are the exemption laws most commonly used to protect lawsuit or settlement proceeds in Ohio. (For a more comprehensive list of the exemptions in Ohio, see Ohio Bankruptcy Exemptions.)
Damages for Bodily Injury in Personal Injury Lawsuits
Under Ohio law, you can protect up to $23,000 of an award or settlement that is meant to compensate you for bodily injury that either you or someone upon whom you are dependent suffered. In order to use this exemption, your settlement or lawsuit award must specifically indicate that the money is compensation for bodily injury. Money you get to compensate you for pain and suffering is not exempt under this law. (Ohio Rev. Code § (A)(12)(c).)
Money you receive for property damage is not protected under any of Ohio's lawsuit exemptions. You can use Ohio's cash or wildcard exemptions (discussed below) to protect money for property damage. If you were involved in a motor vehicle accident and are going to receive money to repair your car, the trustee can take that money and give it to your creditors.
Damages for Lost Wages or Future Earnings
Up to 75% of your wages are protected under Ohio law; however, the bankruptcy trustee may successfully argue that an award for lost wages or future earnings are not protected under the language of this exemption law. You should consult a bankruptcy attorney if you have a claim for lost wages or future earnings. Ohio Rev. Code § 2329.66(A)(13)(b).
Damages for Wrongful Death
You can protect money received for the wrongful death of a person upon whom you depended for support, but only if you received that money in the 12 months before you filed bankruptcy, and only to the extent that you need the money to support yourself and your dependents. For example, if you receive a large award for the wrongful death of your spouse, the bankruptcy trustee could argue that part of the money is not protected because it is more than what you need to take care of yourself and your family. Ohio Rev. Code § 2329.66(A)(12)(b).
Lost Future Earnings
You can protect lost future earnings that you receive to compensate you or a person upon whom you depend for support, but only if the money is received in the 12 months before you file bankruptcy. Like the wrongful death exemption, you can only protect the amount that would be reasonably necessary to support yourself and your dependents. The bankruptcy trustee could argue that a large award is more than you need for support, and that part of it should be turned over to repay your creditors. Ohio Rev. Code § 2329.66(A)(12)(d).
General Ohio Exemptions That You Can Use to Protect Money From a Lawsuit
Ohio also has a few exemptions that, while not specific to lawsuits, you can apply towards your lawsuit award.
If you file for bankruptcy in Ohio, you can protect up to $450 in cash on hand or in a bank account. (Ohio Rev. Code § 2329.66(A)(3).) If your lawsuit money is reduced to cash or is in your bank account, you could protect a small amount of it using this exemption. (Ohio Rev. Code § 2329.66(A)(3).)
Ohio’s wildcard exemption allows you to protect up to $1,225 worth of any property that you own, including lawsuit or settlement proceeds that you have received or may receive. (Ohio Rev. Code § 2329.66(A)(18).) (Learn more about using wildcard exemptions in bankruptcy.)
Exemptions May Not Apply to Commingled Funds
Ohio’s exemption laws may not protect your lawsuit settlement or proceeds if you commingle, or mix, the funds with other money. If you deposit money from a lawsuit or settlement into an account with money from another source, the bankruptcy trustee could argue that Ohio’s exemption laws no longer apply.