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  • Writer's pictureRobert Schuerger II

Can the Bankruptcy Trustee Take Money I Win in a Personal Injury Lawsuit in Indiana?

A bankruptcy petition can play a role in the distribution of a personal injury settlement for both the plaintiff and the defendant. Although there are bankruptcy exemptions that can protect both parties involved, the process for filing bankruptcy during civil court proceedings is often complicated.


An experienced personal injury lawyer at Schuerger Shunnarah Trial Attorneys can help the affected parties get a maximum settlement so that they can keep some money despite the bankruptcy.


Injured victims in Indianapolis, Indiana, should reach out to them to discuss their claim or lawsuit and learn more about their rights.


Types of Bankruptcy

Types of Bankruptcy


There are two main types of bankruptcy, and these are as follows:


Chapter 7 Bankruptcy


Chapter 7 bankruptcy does not involve the filing of a repayment plan. The bankruptcy court assigns a trustee that sells the debtor's non-exempt assets to pay off the unsecured creditors in accordance with the rules of the bankruptcy code.


It's important to note that the trustee cannot access an individual's exempt assets, which means that federal law protects it from creditors.


After paying off the unsecured creditors by selling all of the non-exempt assets, the law discharges the remaining unsecured debt.


Chapter 13 Bankruptcy


Chapter 13 bankruptcy allows a debtor to keep their assets while paying debts over a period of three to five years.


If the debtor has a monthly income lower than the state median, the repayment plan is typically three years. However, if they earn more than the average, the repayment plan may extend to five years.


The court determines the monthly payment amount by deducting livable expenses from the debtor's average income calculated over the last six months. After receiving the payment, the court distributes it proportionally among the unsecured creditors.


Under Chapter 13 bankruptcy, the debtor must pay off priority debts, such as child or spousal support. However, it is not obligatory for them to pay off all of the non-priority obligations. Once the payment period finishes, the law discharges all of the remaining unsecured debt.


When a person suffers injuries in Indiana, they may be able to pursue a personal injury claim or lawsuit to recover compensatory damages. During this time, it could be possible for the defendant or plaintiff to also file for bankruptcy, which can have an impact on the settlement awarded.


What Happens When a Defendant Files for Bankruptcy During a Personal Injury Claim?


Typically, the defendant's insurance company will cover the damages incurred following an accident. However, if they don't have enough coverage, the injured party may sue the negligent individual, which can create a lot of financial hardships. This can prompt the defendant to file for bankruptcy. Schuerger Shunnarah Trial Attorneys has more information on the impact of bankruptcy on a personal injury claim.


When a defendant files for bankruptcy, it may relieve them from the legal responsibility to pay the plaintiff, depending on when they filed for bankruptcy.


A defendant may file for bankruptcy prior to the personal injury claim or lawsuit to avoid financial hardships if they believe that they may be responsible for the damages caused.


When the debtor files for bankruptcy, the law places an automatic stay on their assets, which means that the plaintiff cannot file a claim against them unless they obtain relief from the stay.


After the bankruptcy case finishes, the plaintiff may be able to file a personal injury claim depending on two factors, and these include the following:

  • Statute of limitations; and

  • Whether or not the court discharges the claim in the bankruptcy.


If the debtor files for Chapter 7 bankruptcy, there may be a possibility for the injured party to recover compensation, as these types of cases are often resolved quickly.


However, if the debtor decides to go for Chapter 13 bankruptcy, this can take anywhere between three to five years, meaning that the statute of limitations may have passed by the time the court resolves the bankruptcy case.


There may be a possibility that the defendant files for bankruptcy during the proceedings of a personal injury case. If that happens, the court issues an automatic stay that places a halt on the civil lawsuit.

In such situations, the plaintiff may be able to file for a motion to lift the automatic stay under two conditions and these include the following:

  • When the plaintiff successfully demonstrates that the defendant filed for bankruptcy to avoid paying the personal injury settlement or

  • When the plaintiff proves that the compensatory damages they are seeking fall within the limits of the defendant's insurance policy.


In cases where the defendant doesn't have sufficient insurance, the damages awarded can become unsecured debt in Chapter 7 or Chapter 13 bankruptcy cases after the personal injury lawsuit.

Under the provisions of Chapter 7 and Chapter 13 bankruptcy, the defendant can avoid paying a settlement from their own pocket unless, in certain circumstances, that prevents the personal injury damages from getting discharged. These include the following:

  • Wilful or malicious acts

  • Driving under the influence of drugs or alcohol (the incident caused injuries or wrongful death)


Can the Bankruptcy Trustee Take Money I Win in a Personal Injury Lawsuit?


When a plaintiff files for bankruptcy during the proceedings of a personal injury case, the lawsuit automatically becomes part of the bankruptcy estate managed by the trustee. The federal and state laws may offer exemptions.


Under Chapter 7 bankruptcy, there may be certain exemptions that could shield a portion of the settlement amount. It's crucial for the plaintiff to reach out to an experienced bankruptcy attorney to learn more about the implications of bankruptcy on their personal injury case and for questions like will I lose my personal injury settlement in chapter 7 bankruptcy?


The Bankruptcy Law Requires the Plaintiff to Disclose Their Personal Injury Award

The Bankruptcy Law Requires the Plaintiff to Disclose Their Personal Injury Award


Chapter 7 and Chapter 13 of the bankruptcy law treat a personal injury award as assets, which means that the plaintiff must disclose the details of their case if they filed for bankruptcy during the proceedings.


If the plaintiff fails to follow the bankruptcy laws or intentionally avoids disclosing the details of a personal injury case, it could lead to severe consequences. This may include preventing the injured party from making any recoveries and even a criminal prosecution.


However, the plaintiff is not under the legal obligation to disclose the details of their personal injury case if they filed for bankruptcy before their injuries.


Are There Exemptions That Allow the Plaintiff to Keep the Personal Injury Settlement?


The federal and state exemptions may apply to a personal injury case, which means that the plaintiff may be able to keep a portion of their settlement money.


However, this may vary depending on the situation. Injured victims must reach out to a bankruptcy attorney to discuss their case and seek legal advice before they decide to file bankruptcy.


Schuerger Shunnarah Trial Attorneys Can Help Maximize Settlements in Personal Injury Cases!


Those who have suffered injuries in Indianapolis, Indiana, due to another's negligence should call to schedule a free consultation with Schuerger Shunnarah Trial Attorneys.


Their skilled personal injury attorney can help assess personal injury claims and protect the rights of the injured victims by aggressively pursuing legal action.

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