Bankruptcy and Accident Insurance Proceeds

If you received proceeds due to an accident you were involved in, there are issues to consider that can affect their protection eligibility in a chapter 7 bankruptcy. Depending on when the accident took place and why the proceeds were paid, bankruptcy exemptions may protect proceeds from creditors.

An issue that will be under review includes when the accident occurred. If you are paid proceeds from an accident or personal injury that took place after your bankruptcy petition was filed they may not be considered part of your bankruptcy estate and are excluded. Even if the funds are considered exempted it is likely you’ll be able to keep them after your case is completed.  An important aspect of the situation includes the date the accident happened and not when the proceeds were paid.

If You Were in an Accident Before Your Bankruptcy Was Filed

If you were in an accident before your bankruptcy was filed, it will need to be determined if whether or not proceeds can be protected since they would be considered part of the bankruptcy estate. This includes understanding whether or not they are exempt. Each state has exemptions that offer protection of assets but they vary. The amount of the exemption may depend on why proceeds were paid (personal injury, wrongful death, etc.). There are also exemptions at the federal level that may offer additional protection.

Keep in mind protection may be available on proceeds made payable to you up to a certain amount. Protection may be available for proceeds paid to compensate for loss of future earnings, wrong death of a person you were considered a dependent to, and personal injury claims without losses that included pain and suffering.

Reference:  https://www.nolo.com/legal-encyclopedia/can-i-keep-insurance-proceeds-chapter-7-bankruptcy.html