Law Office of Judith A. Descalso Law Office of Judith A. Descalso

How do personal injury settlements fit into a bankruptcy filing?

Most of our Escondido readers are probably familiar with the saying "when it rains it pours." The meaning of this saying is generally to convey that when someone is facing difficulties in life, it seems like it is one thing after another going wrong. Each year hundreds of thousands of people throughout the country file for bankruptcy as a way to address their financial problems. And, millions more are involved in personal injury incidents that leave them dealing with health problems and then filing a lawsuit against a negligent party. If a person is facing both of these issues at the same time, the results can probably be maddening.

But can these two legal actions become intertwined? What becomes of a personal injury lawsuit - and the potential compensation involved - once a person files for bankruptcy?

It may surprise our readers to learn that a personal injury claim is considered an asset in a bankruptcy filing. The claim, along with the potential recover being sought, must be disclosed and detailed to the bankruptcy trustee during the bankruptcy process. Creditors who submit claims against the bankruptcy estate will be able to receive any funds recovered if the personal injury lawsuit is successful.

In fact, in many cases the attorney who is handling the personal injury lawsuit actually goes from having the individual as a client to having the bankruptcy estate as the client. The personal injury attorney must proceed in a manner that will end in the best result for the case and the bankruptcy estate, whether that means taking the case to trial or reaching an injury settlement.

Source: thelawdictionary.org, "Can an Injury Settlement be Taken by Creditors if You Have Filed Bankruptcy?," accessed on Feb. 7, 2015

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