Asset Protection and Bankruptcy: Will You Lose Your Settlement Payments?

One thing that is of great concern to those who are receiving settlement payments because of a lawsuit for personal injury or as the result of a leveraged buyout from a company that filed bankruptcy is the status of those payments in a personal bankruptcy. Fortunately for people receiving settlement payments those payments fall under asset protection & bankruptcy regardless of the time the payments were received.

Illegal Transfer of Settlement Payments

It would be very difficult to claim illegal transfer since people who receive settlement payments, lump sum or monthly, would have no way to know with complete certainty when those payments will arrive. What happens if the person receives payments in a settlement and then places those funds into a mutual fund close to or after the recipient files bankruptcy?

Exempt and Non-Exempt Funds

The funds that are part of a settlement are always exempt from bankruptcy proceedings even if the recipient transfers the funds from a non-exempt source (checking or savings account) into an exempt fund or another non-exempt fund. In many cases settlements are the result of a personal injury lawsuit and as such as not subject to the bankruptcy law. One reason this may be the case is because quite often a traumatic accident can deplete a person’s personal assets while they are waiting for a settlement thus the settlement does nothing more than cover expenses a person could not have been able to cover otherwise.

Of course the law does not pertain to settlements such as those between a creditor and debtor in a debt management scheme. Those settlement arrangements are still subject to bankruptcy laws and can be adjusted in any way the court sees fit. The final decision is always up to the trustee of the court and as such do not fall under the same jurisdiction as incoming settlement arrangements that are part of a lawsuit or awarded by the court in another way. For instance, if you sue your former employer for discrimination or injury you suffered because of safety issues, those funds are exempt from a bankruptcy filing even if you file within three months of receiving those funds.

Obtaining Legal Advice

It can be very difficult to understand the bankruptcy laws and how they pertain to individual cases. You will need to hire a lawyer when you are ready to file bankruptcy, so it is a good idea to make a list of any questions you may have, especially those pertaining to any settlement payments you are receiving or might receive in the near future.