Personal Injury Lawsuits and Bankruptcy

At The Sellers Law Firm, our Montgomery bankruptcy lawyers and Selma bankruptcy lawyers see many potential clients who tell us that they have a pending personal injury lawsuit or workers compensation claim that took place before they came to meet with us. Many are concerned that if they file bankruptcy that the trustee will somehow take their money. Some believe that if they wait and file the lawsuit after they file the Chapter 7 bankruptcy or Chapter 13 debt consolidation plan that they don’t have to disclose this to the bankruptcy trustee. This is not the case; if your claim occurred before the filing of the bankruptcy petition regardless of whether you have filed a lawsuit or not, then you must disclose it to the bankruptcy trustee. It is considered a potential asset which must be disclosed in your bankruptcy petitions.

Many people file a Chapter 7 bankruptcy or Chapter 13 debt consolidation because they have been seriously injured in an accident. The medical bills are piling up and a possible settlement or trial maybe years away. In order to protect their assets and their current income, many people are forced to file a bankruptcy in order to protect their income and their assets. Once the individual comes to meet with the bankruptcy attorney, the personal injury or workers comp case must be disclosed to the attorney, and the injury attorney must be listed in the petition filed on behalf of the client. After this is done there are very specific steps which must occur in order for the debtor to move forward with the potential lawsuit.

Any attorney who will represent the debtor in the personal injury lawsuit or workers comp claim must file an Application for Professional Services with the bankruptcy court. It must be approved by the bankruptcy judge. This application gives permission to the accident attorney to move forward with the lawsuit on behalf of the debtor. It also puts this attorney on notice that if he recovers any sums of money for the debtor through the lawsuit that he must notify the bankruptcy trustee. Once a settlement is reached in the accident case or a judgment is obtained through that case, the accident attorney must notify the bankruptcy trustee. The trustee must then take steps to determine what money will be paid to the bankruptcy estate and what money will be paid directly to the debtor.

In Alabama we have a $7,500 exemption limit for personal property. Personal property generally includes such items as cars, electronics, and household goods The $7,500 exemption limit would also apply to personal injury lawsuit proceeds. 
For a person who recovers more than $7,500 in a personal injury lawsuit, he would not be able to keep the full amount of the proceeds. If the award is for a worker’s compensation settlement or workers compensation judgement, there are specific statutes which may allow the debtor to keep a some much greater than the $7,500; however, no money can be distributed to the debtor directly by his accident attorney. It must be approved by the bankruptcy judge and be paid from the trustee to the debtor.

Sometimes in order to avoid turning the funds over to the trustee, a debtor may opt out of his Chapter 13 bankruptcy case. In this situation the debtor has decided to deal with his creditors directly. Before this is done our Montgomery bankruptcy lawyers and Selma bankruptcy lawyers strongly caution and advise the debtor on the pros and cons of such an action.

At The Sellers Law Firm, we can help you understand the implications of filing bankruptcy while also having a pending personal injury case. We have offices in Montgomery, Selma, Greenville, and Troy. All consultations are always free, and we can usually meet with you within 24 hours. You can set an appointment to meet one of our attorneys by calling or texting us at 334-LAWYERS (529-9377). Our phone lines are answered 24 hours a day! You may also reach us by using the Contact Form on our website or email us at bsellers@sellerslawfirm.com. Remember that doing nothing, changes nothing so call us today!