What happens to my personal injury lawsuit or settlement when I file bankruptcy?


(Last week I went to lunch with a personal injury attorney. He paid, because I do poverty law. I wanted to be well-versed in the intersection of personal injury law and bankruptcy law, so I went to my own blog from 2014 and then did some research to see if anything had changed. Nothing has changed. The old blog post is here: https://robertspaynelaw.com/myutahbankruptcyblog/2014/01/23/what-happens-to-my-personal-injury-suit-or-settlement-when-i-go-bankruptcy/ )

At least, nothing will  happen to it if you do it right.  Under the Utah Exemptions Act, you can exempt (protect)

proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.

What this means is that if you are already receiving a personal injury settlement payment each month, or a lump sum settlement, that money is protected from creditors and from the bankruptcy trustee demanding turnover, so long as the damages you’re being paid for are compensatory in nature.  In other words, if the settlement’s terms state that it is to compensate you for pain and suffering or compensate you for something, then the money is safe.  On the other hand, if the money coming to you is a result of punitive damages, that is bad.  It is not exempt, and you will lose it.

Compensatory = good.   Punitive = bad.

Now what happens if you’re involved in a personal injury suit that hasn’t been settled yet and you have to file bankruptcy?  The trustee may allow your attorney to stay on the case but will want updates on how the settlement is going.  There is a very tiny chance that the trustee will want you to use a different attorney, and he will appoint a different attorney to your case.  This is very rare.

But, if the case eventually settles for compensatory damages, then you’re okay.