If you're involved in a personal injury claim or lawsuit that results from an event that happened before you filed for bankruptcy, any money you might receive will be a part of the bankruptcy case—regardless of whether you filed the claim or lawsuit before or after bankruptcy.
You'll likely be able to protect (exempt) some of the proceeds. If you can't claim the potential lawsuit recovery as exempt, the trustee will take the money you win in the personal injury lawsuit and pay your creditors in the bankruptcy.
You don't lose everything you own when you file for bankruptcy. In both a Chapter 7 or a Chapter 13 case, you can protect property your state believes you'll need for a fresh start. For instance, state exemptions usually allow you to protect things such as:
Some states allow you to choose the state or federal exemption set, whichever works best for you.
The exemptions available for personal injury recovery vary widely from state to state. A federal bankruptcy exemption is also available for proceeds from personal injury lawsuits, but like most state exemptions, it's for a limited amount.
You might have a wildcard exemption to exempt additional portions of the proceeds. A wildcard exemption can be used on any property of your choosing. For more information on exemptions, including how they work, see Bankruptcy Exemptions.
It doesn't matter whether you collect the funds before or after filing for bankruptcy. The key date is when the injury occurred. If the injury occurred before filing for bankruptcy, any settlement must be disclosed in Chapter 7, and you must be able to protect the settlement amount with an exemption to keep it. An injury that occurred after filing for Chapter 7 bankruptcy won't be part of the bankruptcy case.
Even if you can claim the proceeds as exempt, you must still list the personal injury judgment, lawsuit, or claim if the lawsuit has not been filed as you file for bankruptcy in your bankruptcy schedules.
To learn more about the bankruptcy schedules, see Completing the Bankruptcy Forms.
What will happen next will depend on the type of bankruptcy you file.
Find information on the role of bankruptcy trustees and bankruptcy trustee fees.