How are Personal Injury Proceeds Handled in Bankruptcy?
When considering whether to file bankruptcy, many debtors question whether they will be required to turn over to the Trustee their personal property.  In most cases, personal property will not be confiscated by the Trustee (the person who oversees the bankruptcy case).  In certain circumstances, the Trustee will require certain property be turned over if there are no available exemptions to cover the personal property.  Some people who consider filing bankruptcy may have personal injury or workman’s compensation claims pending.  Personal injury cases can take quite some time to settle or go to trial because of the discovery and negotiation process.  Some debtors may need to file bankruptcy immediately to discharge their debts or save their property from repossession or foreclosure and do not have time to wait for the personal injury or workman’s compensation claim to settle or go to trial.  Debtors who have a pending claim may be concerned that they may lose their award through the bankruptcy.
When debtors have personal injury or workman’s compensation claims pending, it is essential they disclose this information.  If the information is not disclosed at the time of the bankruptcy filing, the Trustee might think the debtor was intentionally trying to hide the claim.  If the Trustee finds out the debtor intentionally hid the claim, the FBI can investigate and prosecute the debtors accordingly.  In some instances, the personal injury claims may never settle or may only settle for enough to pay back medical providers, hospital bills, emergency vehicle bills, etc.  In some cases, a settlement or judgment in favor of the debtor may be awarded. 
In a bankruptcy, workman’s compensation claims are exempt, which means the debtor is entitled to keep any proceeds they receive, and the Trustee will not require the proceeds be turned over.  It is important to still disclose these claims.  If a personal injury case is pending at the time of the bankruptcy filing, it is likely the Trustee will keep the bankruptcy case open until the claim is either dismissed or settles.  If an award is granted, the debtor has an obligation to alert the Trustee or their attorney.  At that time, the Trustee will decide how much they will disperse to the unsecured creditors and how much they will allow the debtor to retain.  This will vary depending on the Trustee assigned to the case.  The debtor often still gets to retain some of the personal injury award, and there are exemptions their attorney can apply for retention of a portion of the award.  For more information, please contact a St. Louis or St. Charles bankruptcy attorney.