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Personal injury awards in a New York bankruptcy

If you’re considering filing for bankruptcy in New York and have recently received an award or settlement in a personal injury case, then you may be wondering if it could be forfeited. The answer is: it depends.

Any money you have, whether it was received as part of a personal injury settlement or awarded at trial, is regarded as an asset, and therefore part of your bankruptcy estate. This means that it could be forfeited unless the injury occurred after you filed for Chapter 7 or 13, but how much you must surrender will depend on a few factors.

Bankruptcy exemptions

Federal exemptions allow you to keep up to $20,200 from a personal injury award, but only for economic damages such as lost wages and medical costs. Noneconomic damages such as pain and suffering are not exempt. Federal exemptions also permit you to have a “wild card” exemption that can be applied to a personal injury award or settlement.

New York has a state exemption of up to $7,500 for personal injury proceeds but, like its federal counterpart, it excludes money received for pain and suffering. All told, such settlements are better covered under the federal exemptions.

In theory, additional protection is offered to personal injury settlements in a  bankruptcy filing if your creditors fail to file their proof of claim documentation with the bankruptcy court before a specified deadline. Should this happen, they have essentially waived their rights to collect their share of non-exempt assets such as personal injury proceeds that exceed the exempted amount.

Even if you intend to claim the award/settlement as exempt, it must still be listed in your bankruptcy schedules. Should your personal injury claim still be in the litigation stage at the time you file, and you have opted for Chapter 7, your trustee will assume control if the lawsuit. Once the money has been awarded, they will provide the exempt portion to you and distribute the remainder to your creditors. Any funds remaining after all of the creditors are paid in full will be returned to you. In a Chapter 13 bankruptcy you may retain control of the lawsuit itself, but once you receive a settlement or award, all nonexempt funds must go to your creditors.

An experienced New York bankruptcy attorney can help you decide which exemptions to use to preserve as much of your personal injury money as possible. Under most conditions, the federal exemptions offer better protection, while in some situations the state exemptions may be better. Your attorney will give the information you need to make the best decision for your individual situation. Jayson Lutzky is a Bronx, NY bankruptcy lawyer offering free in-person consultations. He has more than 33 years of legal experience and can be reached at 718-329-9500 and at www.MyNewYorkCityLawyer.com.

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