Personal injuries and bankruptcy often intersect when a personal injury causes income loss and high medical bills. Imagine a scenario where you are injured in an auto accident, a slip-and-fall, or any other personal injury. You may miss work and you may have difficulty paying your debts. Imagine as well that you pursue compensation for your personal injuries. Your pursuit takes time and your debts pile up. What do you do? Filing a personal bankruptcy will help alleviate the debt, but will you lose any of your personal injury award or settlement if you file for bankruptcy? The answer can be complicated because the state and federal laws allowing you to protect a personal injury award or settlement will vary. This article examines the legal landscape in Pennsylvania and Maryland, where Mooney Law protects injured parties and represents debtors filing for bankruptcy.
The Bankruptcy Code, a federal law, treats personal injury awards and settlements as property. The Bankruptcy Code also allows debtors to use “exemptions” to protect property by placing it out of reach of their creditors and the Trustee in Bankruptcy. Common examples include exemptions for homes and vehicles. Less common exemptions include those to protect the awards or settlements from lawsuits, including personal injuries. Whether you can protect your personal injury award or settlement depends on the exemption scheme applicable in your bankruptcy case.
Exemption schemes operate under a hybrid model. That is, the Bankruptcy Code empowers individual states by allowing them to “opt-in” to use the federal exemptions or “opt-out” if they believe their state laws better protect their residents’ property. The Bankruptcy Code prescribes an exemption scheme based upon your past residency – a topic outside the scope of this article. First, we will discuss the federal bankruptcy exemptions.
We begin with the federal bankruptcy exemptions detailed in 11 U.S.C. § 522(d). Subsection (11)(D) allows a debtor to protect a certain amount of their personal injury award or settlement that is intended to compensate for personal bodily injury. Importantly, this exemption does not protect portions intended for pain and suffering or compensation for actual money loss. Say, for example, you lost a limb in an accident and pursue compensation for your injury. In a bankruptcy, you may protect some portion of your personal injury award or settlement intended to compensate you for losing that limb. You may not, however, protect any portion of the personal injury award or settlement intended to compensate you for medical expenses, pain and suffering from your injury, or any lost wages you suffered. Additionally, subsection (5) allows for a certain amount of “wildcard” exemption that you may use to protect any property, including personal injury settlements, without regard to the above restrictions. The amount of each exemption changes over time, so you should speak to a qualified attorney to determine the amount applicable in your case. Next, we will discuss Pennsylvania, which allows their residents to choose between two exemption schemes.
Pennsylvania, an opt-in state, allows debtors to choose between exemptions provided in Pennsylvania law or the federal bankruptcy exemptions. Pennsylvania exemptions allow debtors to protect crime victim’s compensation, worker’s compensation, and unemployment compensation, but not personal injury awards or settlements. The rare exception is for spouses who jointly share their personal injury claim because they both suffered an injury at the hands of a third party.
Think back to our lost limb example. A debtor who elects Pennsylvania exemptions may be unable to protect any amount of their personal injury award or settlement. Pennsylvania residents are often better served by utilizing the federal bankruptcy exemptions when they want to protect a personal injury award or settlement. Finally, we will discuss Maryland, which limits their residents to a single exemptions scheme.
Maryland, an opt-out state, only allows exemptions provided in Maryland state law. Md. Code Ann., Cts & Jud. Proc. § 11-504(b)(2) allows a full exemption of a personal injury award or settlement when it compensates for “injuries to the person.” Think again of our lost limb example. Maryland residents may fully exempt the portion of their personal injury award or settlement intended to compensate for pain and suffering associated with the lost limb and future money damages resulting from it. However, Maryland residents may not exempt any portion of their personal injury award or settlement intended to compensate for “property losses,” such as lost wages and medical expenses incurred prior to filing for bankruptcy. In our lost limb example, a Maryland debtor would not be able to exempt any portion of their personal injury award or settlement earmarked for their lost wages or medical bills from the accident. Additionally, Md. Code Ann., Cts & Jud. Proc. § 11-504(f)(1)(i)(1) allows for a certain amount of “wildcard” exemption to be used on any property, including personal injury settlements, without regard to the above restrictions.
In summary, personal injury and bankruptcy are both complex legal matters that impact many of your legal rights. As we have seen, the amount of your personal injury award or settlement that you may protect when filing for Bankruptcy will depend upon the exemption scheme in your case. While you very likely may protect some or all of your personal injury award or settlement if you seek Bankruptcy protection, every case is unique. You should consult an attorney to determine how to best protect your rights and your property.
Rely on the experienced, proven, and trusted bankruptcy and personal injury attorneys at Mooney Law stand ready to assist you and answer your questions. Consultations for bankruptcy are always free at Mooney Law. To schedule a FREE PHONE consultation, call us today at 833-MOONEYLAW or at 717-200-HELP. You can also visit the firm website at https://www.mooney4law.com.