Much like automobiles, homes, furniture, and other personal property, a personal injury claim is considered an asset in a bankruptcy proceeding in Colorado.

It depends on the kind of bankruptcy being filed.

Bankruptcy is likely to affect a Colorado personal injury claim. But exactly how it will affect the claim depends on who is filing for bankruptcy and under which federal chapter relief is being sought. There are two types of bankruptcy that an individual debtor may file for.

  • Chapter 7 bankruptcy is also known as liquidation. This means that most of the debtor’s assets are sold to pay off their creditors. Chapter 7 is intended for those who fall below a certain income level.
  • Chapter 13 bankruptcy, intended for debtors with regular income, involves establishing a payment plan to allow the debtor to pay off his debts over a certain period of time, usually three to five years.

Chapter 7 Bankruptcy and Your Personal Injury Claim

In chapter 7 bankruptcy, certain types of legal actions are exempt, such as workers’ compensation claims. Otherwise, personal injury claims become the property of the bankruptcy trustee who represents the creditors in the bankruptcy. If your personal injury claim is pending, don’t file for chapter 7 bankruptcy unless you are ready to give up any entitlement you may have to future damages, such as payment for future medical expenses.

Chapter 13 Bankruptcy and Your Personal Injury Claim

If a plaintiff has a viable personal injury claim pending while he is being pursued by creditors, a chapter 13 bankruptcy may be the best option. Chapter 13 protects debtors from all collection efforts by means of an “automatic stay.” The stay halts various actions to collect the debt from you, impose a lien, take possession of your property, and so forth. In a chapter 13 bankruptcy, the debtor may retain certain assets, such as his primary home and vehicle. And the personal injury claim will not be turned over to the bankruptcy trustee as would be the case in a chapter 7 proceeding.

What if the defendant in a personal injury case files for bankruptcy?

If the person that you are suing files for bankruptcy, your lawsuit is subject to an automatic stay as soon as the bankruptcy petition is filed. This means that the lawsuit cannot be continued until the bankruptcy case is over. Once the bankruptcy is concluded, the personal injury lawsuit can pick up where it left off. When a proposed settlement is reached, the bankruptcy court must approve it as well as the attorney fees. The bankruptcy judge will then distribute the award between you and the bankruptcy estate.

You must make full disclosure.

Much like automobiles, homes, furniture, and other personal property, a personal injury claim is considered an asset in a bankruptcy proceeding. Failure to disclose the claim is regarded as bankruptcy fraud and may lead to the loss of any compensation received by the injured party. Ironically, claims lost because of a failure to disclose them would likely have been exempt if the debtor had simply reported them in the bankruptcy paperwork to begin with.

Federal and state governments have different laws regarding bankruptcy exemptions for personal injury claims. Decisions about whether to use federal or state exemptions depend on the debtor’s assets, whether he wants to protect those assets, and which set of exemptions will benefit him the most.

If you or a loved one has been injured in an accident, contact Dan Rosen at (303) 963-9906 or (800) ROSEN-911 to schedule a free initial consultation with an experienced personal injury attorney.

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