I Received an Insurance Settlement: Can I Still File for Bankruptcy?


If you recently received a substantial insurance pay-out, you were undoubtedly involved in some kind of accident. Perhaps you had a car accident, obtained an injury at work, or were hurt during a mishap that took place on the privately owned property of an individual or business. If your injuries were significant enough to file a lawsuit, it’s likely that you were unable to work very much (or at all) after your accident or injury.

Assuming that your injuries have prevented you from generating enough income to satisfy your bills, you may have quite a few overdue utility payments, car payments and/or past due mortgage or rent payment(s). Waiting for an insurance settlement can feel interminable and never-ending during the waiting process. Trying to get by on next-to-nothing is not only highly stressful; it’s usually virtually impossible.

As your situation deteriorates more and more, you may begin to contemplate filing for bankruptcy. After all, you have no idea how long it will be before you receive a settlement check from your insurance company, and your creditors are getting very impatient! Learning about filing for New Jersey bankruptcy, you may start to feel that it is the best option for a fresh start, eliminating many of the debts that are preventing you from being able to live any kind of normal life.

You’ve done your due diligence in making an appointment with a NJ bankruptcy attorney and have gathered all of the necessary financial paperwork. Essentially, you’re ready to open your bankruptcy case when….. you receive your insurance settlement money.

A rush of mixed emotions – should I use the insurance money to catch up on late bills and cancel my bankruptcy case?

Most debtors who are so deep in debt simply because they were injured are afraid to file for bankruptcy for fear of losing the insurance settlement money they received. For example, if you were injured at a local store when a heavy item fell, crushing your foot and eliminating your ability to work at your cashier job, can you still file for bankruptcy if and when you receive the insurance pay-out that you actually deserve?

New Jersey will allow you to decide whether to use the state or federal exemption laws to protect your settlement. You must choose one or the other, though, and cannot piecemeal an exemption plan that uses both state and federal exemption laws.

If you take a look at the NJ exemption that would help you protect your settlement money, you’d be looking at the New Jersey wildcard exemption, which allows debtors to keep up to $1,000 of any property or settlement money.

Conversely, the federal bankruptcy exemptions are much more beneficial when it comes to protecting settlement funds. If you decide to use federal exemption laws, you’ll be entitled to keep up to $22,975* in personal injury settlement payments. Additionally, you’ll be able to protect damages for lost wages, wrongful death awards and can use a federal wildcard exemption that protects any property or money of your choosing up to $1,225*.

There are many more details involved in filing for NJ bankruptcy when you’ve been injured and are anticipating an insurance settlement or other financial windfall. As every bankruptcy case varies so widely, you should direct case-specific questions to a local bankruptcy attorney who is willing to discuss your case with you free of charge.

Image credit: Christian Eberle

*As these numbers are subject to changes, please clarify specific exemption amounts with your attorney.

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