A personal injury claim can be worth a lot of money. It’s a valuable asset. Unfortunately, it can take a long time to actually receive your claim. During that time, bills may be piling up.
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If you decide to file bankruptcy in Ohio, what will happen to your personal injury settlement? Below, we’ll review the types of bankruptcy, personal injury exemptions during bankruptcy proceedings, and the proper timing of personal injury lawsuits and bankruptcies.
Types of Bankruptcy
Personal injury claims and bankruptcy are both complex on their own. Together, the process can be very difficult to navigate. If you have a personal injury claim you should contact one of our experienced local personal injury attorneys to discuss how best to manage your claim. Consider discussing your financial situation with a local bankruptcy attorney to determine how best to handle your claim in bankruptcy.
What happens to your personal injury settlement depends on what type of bankruptcy you file. Most consumers file under either Chapter 7 or Chapter 13. Both types of bankruptcy can help you get rid of unsecured debts, such as medical and credit card debt. Both also come with the protection of the automatic stay. The automatic stay is a powerful legal tool that stops all collection actions when you file for bankruptcy. The automatic stay will stop foreclosures, wage garnishment, bank levies, repossessions, and collection lawsuits.
Here’s a little bit more about each of the most popular types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is commonly referred to as “liquidation” bankruptcy. In Chapter 7, you’ll need to work with your bankruptcy attorney to divide your assets into exempt and non-exempt groups. Your exempt assets are protected by state or federal law and your creditors won’t have any claim to them. Your non-exempt assets will be sold and used to repay your unsecured creditors. Most debtors are completely protected by exemptions and don’t have to give up any personal property. Once any non-exempt assets are used to repay unsecured creditors, the remaining unsecured debt is “discharged,” which means it is legally forgiven and you’re no longer obligated to pay it.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy, also called a “reorganization bankruptcy,” is basically a court-approved payment plan for your debts. The court will evaluate your average income over the last six months, then subtract certain expenses based on state and national standards. The remainder is your “disposable income.” That’s the amount you’ll pay to the court every month. The court will then disburse it proportionally among your unsecured creditors.
You can continue to make your regular mortgage and car payments through a Chapter 13 plan and you can also use the plan to make up any arrearages, or back payments, on those secured debts. Your payment plan will last 3-5 years, depending on your income. You must pay certain priority debts, such as child support and spousal support, in full. You will not have to pay off the full amount of your non-priority debts. After the plan is over, your remaining non-priority unsecured debts will be discharged.
In order to have a Chapter 13 plan approved, you need to show that your creditors will receive at least as much under your plan as they would if you filed under Chapter 7. So, if you have $10,000 of non-exempt property, the creditors would get $10,000 in a Chapter 7 bankruptcy. In order to be approved, your plan would need to include total payment of at least $10,000 to your creditors. If you won’t be able to pay that much over the course of your plan, you’ll need to file under Chapter 7.
Personal Injury Claim Bankruptcy Exemptions
What ends up happening to your personal injury claim in bankruptcy depends on whether it’s exempt. In Ohio, you must use the exemptions offered by the state. You may also use certain federal exemptions relating to federal benefits and programs. You can also double exemptions if you’re married and filing a joint bankruptcy.
Ohio exemptions protect a wide range of property. Note that exemptions refer to the amount of equity you own in the property. So, if you purchased a car for $10,000 and you still owe $7,000, you have $3,000 of equity in the car. Ohio law protects up to $3,675 of equity in a motor vehicle, so your car is safe.
So, what’s the exemption for personal injury claims?
Ohio law exempts $23,000 in personal injury claims. However, that’s just for bodily injury to yourself or a dependent. If part of that award is for pain and suffering, that portion is not exempt and will be considered part of your bankruptcy estate.
If part of the award is for lost wages, you may be able to exempt 75% of that portion. However, the language of the law regarding compensation for lost wages is vague and you should consult an experienced bankruptcy attorney to discuss how best to protect that portion of your award.
If part of the award is for property damage, it’s not exempt and will be included in your bankruptcy estate. For example, if you were injured in a car crash, the portion of the damages you received to repair your car would be included in your bankruptcy estate and used to repay creditors.
Finally, if part of your award covers lost future wages, you can exempt that part if you receive it within the year before you file and if you can show that you actually need it for support. Ohio Rev. Code § 2329.66(A)(13)(b).
Wrongful Death Suits
If you receive compensation in a wrongful death suit for a person upon whom you were dependent, you may exempt some or all of that compensation. In order for that money to be exempt, you must receive it within one year before filing your bankruptcy and you must show that you actually need that money to support yourself and your dependents. Ohio Rev. Code § 2329.66(A)(12)(b).
Ohio also offers two general exemptions that can help you protect more of your award. First, you can exempt up to $450 in cash or in a bank account. So, you can protect some of your personal injury compensation with this exemption if you’ve already received payment. Ohio Rev. Code § 2329.66(A)(3). Second, Ohio allows a “wild card” exemption of up to $1,225 which you can use to protect any asset, including a personal injury claim. Ohio Rev. Code § 2329.66(A)(18).
An expert tip from Doug Mann
Keep in mind that mixing the funds from your settlement with money from other sources can negate the exemptions. So, you should keep any compensation from a personal injury claim in its own account separate from your other money.
Bankruptcy Timing and the Personal Injury Lawsuit Process
The bankruptcy rules surrounding personal injury lawsuits don’t just cover compensation you’ve already received. They also cover compensation you may be entitled to, even if you haven’t yet filed a suit. In other words, if you’ve been injured and have a claim, that claim is part of your bankruptcy estate even if you haven’t yet filed a suit. You must always list potential claims in your bankruptcy filing papers.
The way the claim proceeds depends on the type of bankruptcy you file. Under Chapter 7, the bankruptcy trustee will decide what to do about your claim. If you’re likely to win more than the exempt amount, the trustee will likely take over your case. That means she’ll choose your attorney, decide how to proceed in the case, and determine whether and when to settle. Then she will pay you the exempt portion of the award and use the rest to pay your creditors.
If the trustee thinks you’ll win less than the exemption, you’ll be able to handle your own case. Under Chapter 13, you’ll be able to handle your own case. If you win compensation, you’ll need to amend your bankruptcy filing to ensure that your creditors will get as much of the award under your plan as they would under Chapter 7.
If you’re unsure of how to proceed, your safest bet is to reach out to one of our attorneys today. Our initial consultations are always free, and we’d be happy to help steer you in the right direction.