Last year I was standing in the customer service area in the local hardware store when a large roll of tarpaper propped against the counter fell and broke my ankle. Since I'm a grocery clerk, I couldn't work and the bills stacked up fast.
I want to file for Chapter 7 bankruptcy, but I just settled my injury case with the hardware store for $75,000. Will I have to give up the settlement money if I file for bankruptcy?
Part of filing for bankruptcy is being bankrupt. That said, it depends on the laws of your state.
Since the injury occurred before you filed for bankruptcy, your $75,000 settlement is an asset of the bankruptcy estate. Even though you don't have to give up all of your assets when you file, the amount you can keep (exempt) will depend on state law.
Most people file for Chapter 7 bankruptcy rather than Chapter 13 if it wipes out most or all of their debt. In exchange for a debt discharge, the bankruptcy trustee will sell the property you can't exempt—your nonexempt assets—and use the proceeds to distribute to your creditors.
You don't have to give up everything, however. State and federal laws (called exemption laws) allow you to keep certain property. The idea is to make sure you have enough basics to make a fresh start.
Everything you own must be listed on the proper schedule in the bankruptcy petition you file with the court, including funds received to settle a lawsuit.
If you don't disclose the settlement, you could suffer significant consequences, such as not receiving your discharge. You could even be charged with fraud, and, if convicted, you could face fines, jail time, or both.
Whether it is a settlement, an arbitration award, or a trial judgment, all the money you receive to compensate you for an injury is part of the property in your bankruptcy estate. You'll include money from personal injury lawsuits, such as:
It also includes money you receive from other types of cases, for instance, contract disputes, real estate lawsuits, and discrimination cases.
Either way, if the money you received in your personal injury settlement is exempt under your state exemption laws, then you can keep it in Chapter 7 bankruptcy.
Here's how it works.
Find out the current amount of the federal bankruptcy exemptions.