Personal injury case and bankruptcy? Here's what you need to know
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Occasionally, consumers will have a personal injury lawsuit going at the same time that they need to pursue bankruptcy relief. But since a judgment in a court case means cash in your pocket, will you lose your personal injury settlement in your Greensboro bankruptcy case? The quick answer is that it depends on what the money was paid out for, as specified in the settlement.
If your bankruptcy was caused, in part, by the event that triggered the personal injury claim, that complicates things. For those who choose Chapter 7 bankruptcy, you can usually discharge medical bills in full, but if a portion of the payout in the personal injury settlement was to cover doctor bills, there is a carve-out to deal with this occurrence.
Greensboro bankruptcy basics
With Chapter 7 bankruptcy, most unsecured debt is eligible for discharge including credit cards and medical bills. With Chapter 13 bankruptcy, you get on a repayment plan to catch up on secured debt like your mortgage and auto loan and see a reduction (often as low as pennies on the dollar) on your unsecured debt.
The bankruptcy Trustee assigned to your case examines your income, assets, and debts to decide what you can afford to pay in Chapter 13 and whether you qualify for debt relief in Chapter 7. One of the things you must disclose to your Greensboro bankruptcy attorney is whether you’re embroiled in a personal injury lawsuit.
Income is part of the bankruptcy estate
While in bankruptcy, income and assets are considered part of the estate surrounding your case and the Trustee and court determine if your creditors are entitled to some of your income or assets and if so, how much. Assets include equity in your home or vehicles and potential settlements in personal injury lawsuits, among other things.
If you are awarded a personal injury verdict or settlement during your bankruptcy or if the claim is already underway when you file bankruptcy, the court will evaluate the monies you receive and decide whether the cash goes in your pocket or to your creditors. What matters is the reason you were paid the money.
North Carolina bankruptcy and personal injury
Under North Carolina law, your personal injury settlement or award may be exempted, by law, from your bankruptcy proceedings under certain conditions. There is no dollar cap on the amount that can be shielded if the cash was awarded for loss of wages, loss of the use of a limb, or another specific compensatory damage.
However, if the money awarded was for medical debt, you haven’t paid the bills, and the medical bills are part of your Greensboro bankruptcy petition, that amount would be part of the estate. If any of the money you were awarded was attributed to pain and suffering, it would not be protected in your case because it isn’t making up for a tangible monetary loss. Depending on the fine print on your settlement, you may be able to keep a significant portion of the proceeds.
Does it matter when you settle the personal injury claim?
It shouldn’t matter when your personal injury claim settles so long as you properly disclosed it to your Greensboro bankruptcy attorney. If the personal injury case settles after your bankruptcy discharge, follow up with your lawyer to let him know and see what you need to do before you start spending any of the money to make sure you’re within the bounds of the law. You don’t want to wind up accused of bankruptcy fraud or concealing information from the court.
To find out more about the benefits of bankruptcy, contact the Law Offices of John T. Orcutt. Read reviews from satisfied clients then call +1-919-646-2654 to schedule a free Greensboro bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.