What Happens to Personal Injury Damages in a Florida Bankruptcy?

Were you injured in a serious accident for which you sought compensation through a lawsuit? If so, you may have won a personal injury damages award or accepted a settlement from the at-fault party. If you decide to file for bankruptcy, what will happen to those personal injury damages? Whether or not you can keep the damages will depend on whether you are filing for Chapter 7 or Chapter 13 bankruptcy, as well as applicable exemptions.

 Exemptions for Personal Injury Damages Related to a Hazardous Occupation

If you are filing for personal bankruptcy in South Florida, it is essential to speak with a lawyer about how Florida’s bankruptcy exemptions will apply to your case. For any individual who is planning to file for Chapter 7 bankruptcy, exemptions will allow the debtor to keep exempt assets while non-exempt assets will be liquidated. In a Chapter 13 bankruptcy, relevant exemptions can allow a debtor to exclude the value of exempt assets from the calculation for their repayment plan. There is an exemption in the Florida Statutes for personal injury recovery, but only for a particular type.

Under Florida law, only “proceeds of recovery for injuries” linked to hazardous occupations are exempt. What this means is that, if you received a damages award or settlement for injuries you sustained in a hazardous occupation, that money is exempt. However, if you received any other type of personal injury damages — such as in a car accident lawsuit, for example, or a medical malpractice claim — those damages will not be exempt.

How to Keep Personal Injury Damages That Are Not Specifically Exempt 

If you received a payout associated with a personal injury claim, the only way you will likely be able to use an exemption to keep those assets is by applying the state’s wildcard exemption. Under Section 222.25 of the Florida Statutes, a debtor can exempt up to $4,000 in personal property of their choosing if they do not use Florida’s homestead exemption (to exempt equity in a home). If a debtor does use the homestead exemption, then they are only eligible for a wildcard exemption up to $1,000.

At the same time, you could be able to place assets from a personal injury award or settlement into a first-party special needs trust for yourself if you were disabled as a result of the injury for which you received those damages. Once assets are placed into an irrevocable trust, including a special needs trust, they cannot be reached by creditors (or by a trustee in a bankruptcy case) since they are not owned by the debtor. However, it is essential to know that a special needs trust would need to be established long before the bankruptcy filing. Under Section 726.105 of the Florida Statutes, transfers to trusts made up to four years prior to a debtor’s bankruptcy filing can be assessed by the trustee as a fraudulent transfer.

Contact a West Palm Beach Bankruptcy Attorney for Assistance Today 

If you have questions about exempting a damages award, you should seek advice from one of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller. Contact us today for assistance with your bankruptcy case.

Sources:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0769/Sections/0769.05.html

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/Sections/0222.25.html