What Happens to a Personal Injury Settlement in a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy allows a filer to discharge their debts and move forward on a solid financial foundation. During this legal process, the appointed trustee might sell some of the filer’s assets and use the proceeds to pay part of what they owe to creditors. This is referred to as liquidation. However, certain types of assets are protected from liquidation through various exemptions under federal and state law. For example, if you’ve received, or expect to receive, a payment from a personal injury claim, you should consult with a qualified attorney as to how those funds would be treated. 

First, it’s important to understand that if your injury occurred before you filed for bankruptcy, any settlement or award related to that injury becomes part of the bankruptcy estate. This means the bankruptcy trustee may have a claim to those funds, subject to any available exemptions. However, if the injury occurred after you filed for bankruptcy, the settlement belongs to you and is not part of the bankruptcy estate. 

Under Georgia law, you can exempt up to $10.000 of a personal injury award or settlement, provider that the payment stems from a bodily injury, rather than pain and suffering. Additionally, Georgia’s “wildcard” exemption allows you to protect up to $11,200 more if you have not fully used your homestead exemption. This can be applied to your personal injury claim, giving you a total potential exemption of $21,200.

For Chapter 7 bankruptcy cases, if the personal injury claim is part of the bankruptcy estate, you are entitled to keep all proceeds of the settlement that fall within the exempt amounts. Any non-exempt portion, however, may be used by the trustee to pay creditors.

At Jeff Field & Associates, we understand the complexities of state and federal laws pertaining to Chapter 7 bankruptcy. After reviewing your circumstances thoroughly, we’ll advise you regarding potential exemptions so that you have a full understanding of what your financial situation will look like following your bankruptcy proceeding. From offices in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Scottdale, our firm is determined to capitalize on all available exemptions for Georgians, including the personal injury payment exemption. For a consultation, please call 404-381-1278 or contact us online.