In bankruptcy in New York and elsewhere, not all assets are tangible property like items purchased with a credit card, or a house with a mortgage. Rather, income from third parties, such as a settlement from a personal injury settlement, also counts. Here are a few things you need to know about personal injury settlements in a New York bankruptcy:
- Federal exemptions protect up to $20,200 in personal injury claims, but they exclude noneconomic damages, e.g. pain and suffering. However, economic damages such as medical expenses and lost wages are covered.
- Also under the federal exemptions, up to $21,625 in a “wild card” exemption can be applied to a personal injury settlement.
- New York has its own personal injury exemption up to $7,500, but this also excludes pain and suffering. The federal and state exemptions cannot both be used, so the settlement is better protected under the federal exemptions.
- In theory personal injury settlements can be further protected in Chapter 7 proceedings if the creditors fail to file their “proof of claims” with the bankruptcy court before the deadline. If this happens, then they waive their rights to collect on non-exempt debts like the balance of a personal injury claim above the exempted amount.
There are two things to take from these points:
One, the amount that is exempt depends on whether the damages are characterized as economic or non-economic damages, which is a decision you and your personal injury lawyer will have to make when negotiating with the defendant. Thus, make sure your lawyer is a good negotiator who can foresee a bankruptcy filing in the future. This may be unlikely to occur, but anticipating future problems is a skill good lawyers have.
Two, an experienced New York bankruptcy attorney is vital to help you decide which set of exemptions is best for your case. In some situations the state exemptions may be best; others may be better off under the federal exemptions.