How Bankruptcy Affects Your Personal Injury Case

Suffering from an injury and financial losses is already a strenuous and terrible experience for one to endure, but filing for bankruptcy on top of this adds more adversity to one’s financial and personal situation. Unfortunately, bankruptcy is a fairly common occurrence for those who have experienced detrimental injuries. If you are in the process of seeking claims in a personal injury case and are forced to file for bankruptcy in the process, this can certainly impact your case. What if any of the personal injury proceeds you may personally receive will be determined by the Bankruptcy Court.

A bankrupt plaintiff may continue to pursue their claims, however, bankruptcy strips control over a personal injury case from the plaintiff and instead grants it to a party referred to as the bankruptcy trustee, who acts on behalf of the creditors. The bankruptcy trustee essentially takes the plaintiff’s place in the suit and is able to harness a high level of control over the litigation and negotiations in the case. Furthermore, in certain situations, the original party loses control over settlement agreements. Many times, if the recovery in the personal injury case, does not exceed the size of the Bankruptcy, the injured party may not have much input on any settlement. While previously the original plaintiff grasped full authority over settlement negotiations, after filing bankruptcy, they are left powerless in this pursuit and have no guarantees that they will receive any sort of surplus of funds after the creditors obtain their debt, and the bankruptcy trustee is solely acting on behalf of the creditors’ needs and therefore has no obligation or motivation to pursue a claim higher than one that would satisfy the debts.

In Alabama, the majority of federal bankruptcy exemptions do not apply, and Alabama does not have its own exemptions that specifically target personal injury claims, however, there is one particular exemption that can be used to exempt part of one’s personal injury claim from the bankruptcy estate. According to AL Code § 6-10-6 (2016), bankrupt persons can exempt up to $7500 of personal property, and this personal property may include settlements from a personal injury claim. However, this is the maximum amount that one can still claim from their settlement. The rest of the settlement money would likely go towards their debts.

Both bankruptcy and instances of serious personal injury are tragic occurrences in one’s life, and if experienced together, they become even more horrific for victims. If you have a personal injury claim and are contemplating filing bankruptcy it’s important to advise your personal injury attorney of this fact and to advise your bankruptcy attorney of your personal injury claim.