When you file for bankruptcy, your finances are very closely scrutinized. No matter what type of bankruptcy you file for, all your sources of income and debts must be considered in the process. When it comes to your income, this can mean anything from your normal job to money from a garage sale. Income you’ve gained from a lawsuit is no exception to this requirement, and in some cases, you may have to forfeit your lawsuit money. Behm Law Group, Ltd. can help you navigate through the process of determining how your lawsuit money is handled during a bankruptcy filing in Marshall, MN.
The two main types of bankruptcy—Chapter 7 and Chapter 13—treat your income differently. When you file for Chapter 13 bankruptcy, your income is considered in balance with your debts in order to determine a suitable repayment plan. This means that your lawsuit money is taken into account for your debt repayment, but it remains generally untouched. The process of Chapter 7 bankruptcy is when your lawsuit money really comes into question.
Lawsuit Money With Chapter 7
In Chapter 7 bankruptcy, your assets will be liquidated in order to repay your creditors and discharge your debts. While it’s almost always beneficial to Chapter 7 filers to have these debts discharged, they still have to sacrifice many of their property assets in the process.
Lawsuit money falls into the category of assets in a bankruptcy estate. This includes any money you have received/expect to receive/are entitled to receive from a lawsuit case. In some situations—for example, if you did not have many assets and were in a position to potentially file a lawsuit against a person or entity—your bankruptcy trustee has the right to pursue that claim on your behalf. However, the money from any lawsuit will be used to pay your creditors and discharge your debts unless you can use an exemption.
Exemptions can work to protect the income you’ve earned from a lawsuit. In Minnesota, you can exempt lawsuit money from liquidation if it’s protected under certain exemption laws. For example, Minnesota exemption laws protect lawsuit money from cases involving personal injury, wrongful death, and damaged exempt property (e.g. if your home is wrongfully damaged after it was protected with a Homestead Exemption.)
Federal exemption laws also protect lawsuit settlements involving wrongful death, personal injury, and future incomes lost. Depending on your financial situation, you may choose federal or Minnesota exemption laws to protect your lawsuit money.
Behm Law Group, Ltd. works with you through the process of filing for bankruptcy in Marshall, MN, to help you choose exemptions and protect your assets during Chapter 7 bankruptcy filings. For more information, contact us at (507) 387-7200 today.