Personal injury Exemptions Under Georgia Bankruptcy law

Many Atlanta personal injury attorneys have called me expressing concern when their clients filed bankruptcy and also have a pending personal injury claim. Bankruptcy certainly does complicate the process of making a claim for personal injuries. A big issue for clients who have personal injury claims but are in bankruptcy is whether they get to keep the money recovered.

Personal Injury Claims as Assets in Bankruptcy

When you’re in bankruptcy, whether it be a Chapter 7 or a Chapter 13, your assets belong to the “estate,” which is basically a trustee stepping into your shoes to oversee your assets for the benefit of the creditors you owe. Thus, a personal injury claim can be an asset.

Personal Injury Exemptions in Bankruptcy

Luckily, there are exemptions under bankruptcy law that allow you to keep some property. An exemption (or a protection) is basically applied via a law that states creditors cannot take a an asset up to a certain dollar amount in bankruptcy. That is, property valued up to a certain amount is “exempt” from taking in bankruptcy. In Georgia, there is a $10,000.00 exemption pursuant to O.C.G.A. Section 44-13-100(1)(11) that is specific to personal injury claims. Thus, a debtor in bankruptcy who recovers a personal injury settlement may keep up to $10,000.00, depending on the type of bankruptcy case s/he has.

Further, pursuant to O.C.G.A. Section 44-13-100(a)(6), which is called the “wildcard” exemption, a debtor can take another $5,600.00 exemption (if s/he does not use his/her homestead exemption in full) on the personal injury claim.

Chapter 7 vs. Chapter 13

The analysis does not end at the exemption stage. To determine if you can keep your personal injury recovery, you need to look at whether you’re in a Chapter 7 or a Chapter 13.

Chapter 7:

  • an injury that happened BEFORE you filed the case belongs to the bankruptcy estate or to the trustee;
  • injuries occurring AFTER the case is filed belong to you;
  • if the claim is an asset of the Chapter 7 estate, you get to keep all exempt proceeds of the settlement.

Chapter 13

  • ALL claims, whether they arose before or after the filing of the case, belong to the estate so long as you are in an active Chapter 13 case; and,
  • although you may apply the personal injury and wildcard exemptions, you must also prove that you NEED the money for necessary and reasonable expenses in a Chapter 13 case.
Personal Injury Attorney’s Fees and Costs

You can still pay your personal injury attorney and costs of your case as agreed out of the settlement if you are in bankruptcy. That is you only have to worry about using the bankruptcy exemptions on the net amount due to you.

A Real-Life Example

Let’s say you are involved in a car accident and are injured on October 1, 2013 and file Chapter 7 bankruptcy on October 15, 2013. Because your wreck occurred before the case was filed, the personal injury claim is an asset of the bankruptcy estate. You hire a personal injury attorney to represent you; the attorney’s fees are 1/3 of the total amount recovered. Your attorney settles your case for a gross sum of $50,000.00. Here’s what the fees, costs, and net amount to you look like:

$50,000.00 gross settlement Attorney’s fees: 33.3% x $50,000.00=$16,667.00 Case costs: $500.00 Your net settlement: $32,833.00 O.C.G.A. Section 44-13-100(a)(11) exemption: $10,000.00 O.C.G.A. Section 44-13-100(a)(6) exemption: $5,600.00 You keep: $15,600.00 Settlement proceeds paid to Chapter 7 Trustee: $17,233.00

The same numbers would apply in a Chapter 13 case, except you would have to show that you needed to keep the $15,600.00 for necessary expenses.

Filing bankruptcy when you have a personal injury claim definitely makes it more difficult to recover a settlement and put it in your pocket. However, there are exemptions that will enable to you to keep some of the funds if you need them. Navigating the laws regarding personal injury claims in bankruptcy is complicated, so you’ll probably have to consult both your bankruptcy attorney and your personal injury attorney if you find yourself in that position. In fact, it is imperative you keep both attorneys informed about your situation so that the proper procedures can be taken to disclose your claim and exempt the claim.

For more information about how bankruptcy affects personal injury claims in Georgia, call me at 404.585.0040 for a free consultation.