Q: Will my personal injury settlement be taken in Chapter 7 bankruptcy in Kentucky?
I'm considering filing for Chapter 7 bankruptcy in Kentucky, but I'm concerned because I'm expecting a settlement payment from a personal injury lawsuit related to a car wreck. I haven't started the bankruptcy filing process yet, and I'm supposed to receive the settlement within the next month. Will my settlement be taken in the bankruptcy?
A: The personal injurdy lawsuit exemption allows you to keep a small settlement of up to about $31,575.00. However, if the settlement is large, 100,0000, and you get it after filing, it is subject to the Trustee taking the settlement and paying off the creditors with it. If you wait to file bankruptcy after you get the settlement and use most of the award to do maintenance on the home and cars you can use most of it up and still keep the $31,575.00
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A:
Kentucky allows bankruptcy filers to choose between state and federal exemptions, which is beneficial since federal exemptions are often more generous than state statutes. Most Chapter 7 bankruptcy filers in Kentucky opt for federal exemptions. This choice will be important for protecting your personal injury settlement.
Under federal exemptions, you can protect up to $25,150 for personal injury awards, excluding compensation received for pain and suffering or monetary losses. The federal personal injury exemption allows you to keep a substantial portion of your settlement. However, this exemption typically does not cover awards for pain and suffering.
The timing of your settlement receipt and bankruptcy filing is critical. If you receive the injury payments before filing and have them in your bank account, the trustee will consider them part of the bankruptcy estate. When you file bankruptcy with a pending lawsuit, the trustee will include the expected value of your settlement and add the payment to the Chapter 7 estate when you receive it.
Given your situation, you might want to consider several options: (1) waiting to file bankruptcy until after receiving and appropriately planning for your settlement; (2) consulting with a bankruptcy attorney about maximizing your exemptions; or (3) exploring whether Chapter 13 might be more advantageous in your specific case.
Remember that bankruptcy law is complex, and maximizing protection of your settlement requires specialized knowledge of Kentucky and federal exemption laws.
Nick Curtis Thompson agrees with this answer
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