Tip of the Day for December 5, 2012: “Personal Injury and Other Claims in Bankruptcy”
When you file bankruptcy, you are allowed to keep some, but not necessarily all of your property. The property you are allowed to keep is called your exempt property. Property falls into different categories. Each type of property has a different exemption. Almost everything you can think of and a lot of things you can’t think of is considered “property” in bankruptcy. Many people don’t realize that a claim they have with their own insurance company or against another person’s insurance for an accident is considered property in bankruptcy. If your roof was damaged in a hail storm last summer and you haven’t collected from your homeowner’s insurance yet, the pending claim is considered an asset (property). Your bankruptcy trustee will try to take that claim away from you and use the money to pay your creditors instead of fixing your house. That is because the claim is a type of property called “intangible personal property” meaning it is property but it is the type of property you can’t hold in your hands or touch. In contrast, “tangible personal property” is things you can touch, like your car, furniture, clothes and jewelry. The exemption for intangible personal property in Indiana is only $350 for individuals and $700 for a married couple. That hail damage claim might be for $5,000. If you haven’t used your intangible property exemption for something else like your bank account, then the trustee will let you keep $350 but the rest of the $5,000 will go to the trustee and you’ll have to fix your leaky roof on your own.
It sounds unfair, but if you know about the problem, there is a simple way to avoid it. Wait. It’s all about timing. Get your roof fixed before your file bankruptcy. Pay the contractor promptly. Then file the bankruptcy. The added value to your home resulting from fixing the roof probably won’t be enough to affect the exemption you have for your homestead (that is, your personal residence). In Indiana, the homestead exemption is $17,600 or $35,200 for a married couple.
You would face the same type of issue if you have a claim for personal injuries from an accident which was someone else’s fault. Again, the strategy is to settle the claim before you file the bankruptcy. If it is a modest claim, you might be able to pay off your car or buy yourself a better car which would be subject to the tangible personal property exemption of $9,350 or $18,700 for a couple. If it is a larger claim, you might be able to buy the car and sock away $10,000 to $12,000 for retirement. If it’s a huge claim, then just pay off your debts and don’t file bankruptcy. You have to be careful and informed about how you spend the money. Some things are exempt, some aren’t.
What happens if you have already filed bankruptcy and you didn’t list the injury or damage claim as an asset on your bankruptcy schedules because you didn’t think of such a claim as property. It happens frequently. And it looks bad on the person who didn’t disclose the claim. Maybe some people who do this are trying to be sneaky and cheat the system. I think most people just don’t realize that a claim against someone else that hasn’t gone to court yet would be considered property. They don’t have the use of it. They can’t get their hands on it. So, they just don’t even think about it. The insurance company attorneys are looking for this. If you do have to file a lawsuit against the other driver in a car accident, he or she will be represented by an attorney hired by his or her insurance company. One of the first things the attorney will do is find out if you ever filed bankruptcy. If you have filed and didn’t list the claim against the other driver, the attorney will try to have your injury case thrown out of court claiming you lied on your bankruptcy and you are so dishonest that you shouldn’t be allowed to collect for your injury.
If you have questions about bankruptcy, your exemptions, or handling damage or injury claims in a bankruptcy, call me at 812.336.7293 or email my office at [email protected]
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