Damage Award Lawsuit Be at Risk in Bankruptcy

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Can Damage Award Obtained from Lawsuit be at Risk in Bankruptcy?

Lawsuits are quite confusing. In case you have filed one for injustice against your employer or any other damage you sustained due to malpractice or any misfortune happening, you probably end up winning money as part of damages. What happens to this cash and your lawsuit with the potential award if you end up filing for bankruptcy? According to Dallas based bankruptcy law firm Recovery Law Group, it is important that when you file for bankruptcy, you list all your assets and debts. Any claim you have made (which may or may not have been converted into a cash award should also be listed as an asset). This is so because it has the potential to become a source of money which has to be included as part of your bankruptcy asset when you file.

Hiding your claim or failing to list any of them can be considered to be an act of fraud, which is not looked upon kindly by the bankruptcy court. Bankruptcy trustees generally ask about such claims. If you don’t acknowledge them you will be later held for perjury. In case you manage to withhold the information you could face dismissal of your case. “Collateral estoppel” stops you from bringing a claim in one court when you have denied its existence in another. Thus even if you get through bankruptcy without making anyone wiser about your claims and rewards, you will be unable to collect on them. Since insurance companies who defend as well as pay such claims in lawsuits often check the bankruptcy register, your lies will be caught if you haven’t mentioned the original lawsuit in your bankruptcy papers. Your case for damages can easily be dismissed by them on this basis.

Keeping your damage award safe

The procedure to keep it safe is simple. You need to include the claim in your bankruptcy papers to have access to it. The amount of money you can keep depends on which chapter of bankruptcy you are filing. In the case of chapter 7 bankruptcy, certain exemptions are available to protect the rights of the debtor. These include car, home, clothing, household goods, etc. The exemptions vary from state to state as well as the option to choose from state exemptions or federal exemptions. Some states like California offer two sets of exemptions and bankruptcy filer can choose either of the two. Individuals cannot opt for federal exemptions in California. These exemptions help protect any damages you win as a result of a lawsuit. Non-exempt property is used to pay off creditors.

Under system 1 of chapter 7 bankruptcy in California, any damages won in a personal injury case are fully exempted. But, if a creditor obtained a judgment against you prior to your bankruptcy filing can stake claim to some portion of the award. Under system 2, the damage award for personal injury is exempt up to $26,800 as per Section 703.140(b)(11)(D). Workers’ compensation claims are completely exempt under state (system 1) as well as federal law.

In the case of chapter 13 bankruptcy, your damages may or may not be safe. Since you are not surrendering your assets in this type of bankruptcy but using your disposable income and assets to pay off creditors over a 3-5 years repayment plan, your damage awards may or may not constitute a part of your income (depending on the timing of payment). In case you are expecting a damage award, while filing for bankruptcy, consult with bankruptcy attorneys regarding your options at 888-297-6203. An experienced local bankruptcy attorney can help you find out the best way of protecting your damage award. A significant margin of the amount can be retained if you get the timing of your bankruptcy right. Do not hesitate to consult a professional to find the best possible solution.