How Bankruptcy Affects Personal Injury Settlements in Florida
Introduction
When a person is injured due to someone else’s negligence, they may receive a personal injury settlement to cover medical expenses, lost wages, and pain and suffering. However, if the injured party or the at-fault party is facing bankruptcy, it can complicate the settlement process.
This guide explains how bankruptcy affects personal injury settlements in Florida, whether settlements are protected from creditors, and what injury victims should do if the at-fault party files for bankruptcy.
Does Filing for Bankruptcy Affect a Personal Injury Settlement?
Bankruptcy can impact personal injury settlements in two primary ways:
- If the injury victim files for bankruptcy, creditors may attempt to claim the settlement funds.
- If the at-fault party files for bankruptcy, the ability to collect a settlement or judgment may be limited.
The effect of bankruptcy on a personal injury claim depends on the type of bankruptcy filed and whether exemptions apply.
What Happens If the Injury Victim Files for Bankruptcy?
If an injury victim files for bankruptcy before or after receiving a personal injury settlement, the settlement may be considered an asset that must be disclosed to the bankruptcy court. The extent to which the settlement is protected depends on the type of bankruptcy filed and whether exemptions apply.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, non-exempt assets are liquidated to pay creditors. Florida law allows certain exemptions that may protect personal injury settlements from being taken by the bankruptcy trustee.
Exemptions include:
- Compensation for medical expenses and future medical care
- Compensation for lost wages
- Compensation for pain and suffering, in some cases
However, compensation for property damage or non-essential financial losses may not be exempt and could be used to pay creditors.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, the debtor repays a portion of their debts through a structured repayment plan. A personal injury settlement may be factored into this plan, but the victim may be able to keep more of their compensation depending on their specific circumstances.
What Happens If the At-Fault Party Files for Bankruptcy?
If the person or business responsible for an accident files for bankruptcy, collecting a personal injury settlement can become more difficult. The automatic stay in bankruptcy halts legal actions against the debtor, meaning:
- Pending lawsuits may be paused
- Collections on existing judgments may be stopped
- Settlements that have not been finalized may be affected
However, there are exceptions. Certain types of personal injury claims, such as those involving drunk driving accidents, may not be discharged in bankruptcy, allowing the victim to still collect damages.
Are Personal Injury Settlements Protected in Florida Bankruptcy Cases?
Florida law provides several exemptions that may allow injury victims to keep their settlement money when filing for bankruptcy. Some of the key protections include:
- Homestead Exemption – If settlement funds are used to pay for a primary residence, they may be protected.
- Personal Injury Settlement Exemption – Portions of a settlement related to medical expenses and lost wages may be exempt.
- Public Benefits Exemption – If the settlement replaces lost wages and the victim is receiving public benefits, the funds may be protected from creditors.
To determine which parts of a settlement are exempt, injury victims should consult an attorney before filing for bankruptcy.
Steps to Take If Bankruptcy Is a Concern in a Personal Injury Case
If either the injury victim or the at-fault party is facing bankruptcy, taking the following steps can help protect settlement funds and legal rights:
- Disclose the Settlement to the Bankruptcy Court – Failing to disclose settlement funds could result in penalties or loss of the exemption.
- Consult with Both a Bankruptcy and Personal Injury Attorney – Legal guidance can help maximize exemptions and protect compensation.
- Determine If the At-Fault Party’s Bankruptcy Affects the Claim – Some personal injury judgments are not dischargeable in bankruptcy, meaning victims can still pursue compensation.
- Negotiate a Settlement Before the At-Fault Party Declares Bankruptcy – If the at-fault party is struggling financially, settling before bankruptcy is filed may prevent legal complications.
How a Personal Injury Attorney Can Help
An experienced personal injury attorney can assist injury victims by:
- Determining whether settlement funds are at risk in bankruptcy
- Negotiating structured settlements to protect assets
- Challenging bankruptcy filings that attempt to discharge liability for serious injuries
- Ensuring that the maximum amount of compensation is protected under Florida law
At Bonderud Law, we help injury victims navigate complex legal situations involving personal injury claims and bankruptcy concerns. If you have questions about how bankruptcy may affect your settlement, contact us today for a free consultation.
Conclusion
Bankruptcy can complicate personal injury settlements, whether it is filed by the injury victim or the at-fault party. Florida law provides certain exemptions that may protect settlement funds, but understanding the legal implications is essential for preserving compensation.
If you are dealing with a personal injury claim and facing bankruptcy-related concerns, consulting with an attorney can help ensure that your rights and financial recovery are protected.
