Bankruptcy laws are clear in stating that any property acquired within a specific period, usually 180 days, after filing for bankruptcy must be included as personal assets. In the case of a personal injury settlement, you may need to surrender some of the money awarded to you even if you don't actually receive it until after the 180 period and the case is closed.
How Can a Settlement That You Haven't Yet Received be Included in a Bankruptcy Case?
Bankruptcy law considers the date that you are awarded the settlement, rather than the day that you actually receive the funds, to be the date of entitlement, so if this day falls within the 180 day limit after the filing, the settlement funds become part of the debtor's estate.
This rule prevents a debtor from filing for bankruptcy in anticipation of a settlement in an attempt to avoid repaying their creditors with the awarded funds. Bankruptcy is intended for individuals who are unable to repay their debts.
How are Settlement Funds Handled in a Chapter 7 Bankruptcy Case?
Any funds that are not eligible for exemption under state of federal exemptions must be surrendered to the trustee of the court, who will distribute them among various creditors according debts owed. Settlement funds are treated just like any other asset in a Chapter 7 filing, which requires liquidation of all assets not protected by exemptions in exchange for elimination of all debts owed by the individual filer.
How are the Funds Handled in a Chapter 13 Bankruptcy Case?
While assets are not technically seized in a Chapter 13 Bankruptcy, the debtor must pay to the trustee handling the case any portion of the funds not protected by federal or state exemptions. They will then be distributed among creditors in monthly payments for a period of either 3 or 5 years, depending on the income level of the filer.
Can You Use Both Federal And State Exemptions to Protect Your Settlement Funds in a Bankruptcy Filing?
Unfortunately, you can't use both state and federal exemptions. Some states allow you to choose between that state's exemptions and the federal exemptions, while other states disallow the federal exemptions and require the filer to use the exemptions for their state.
While there are specific federal exemptions for personal injury settlements in the federal list of exemptions, some states don't provide them. There are also various "wild card" and miscellaneous types of exemptions that may allow you to keep more of your settlement funds in bankruptcy.
It's always a good idea to hire an attorney that is familiar with the latest updates in bankruptcy law, especially if you expect to receive a settlement from a lawsuit. You may be able to save much more of the money that you'll need to rebuild your financial stability after bankruptcy.
Share15 August 2017
Hello, my name is Neil Gamford. Welcome to my site about bankruptcy proceedings. After my divorce, I was left near penniless and without a place to stay. I was paying all of my income to alimony and my remaining debts. Although I had a solid payment plan in place, it was getting difficult to cover my financial obligations without a home. Luckily, I met with a bankruptcy attorney, who helped me find a way to discharge my debts and start over. I hope to share the information I learned throughout that process with you through this site. Please feel free to visit anytime.
