If you are considering filing for bankruptcy and have the right to sue someone for a personal injury claim, you may be wondering whether the settlement proceeds, or award will be protected. The good news is that at least a portion of any personal injury settlement or award can be protected when filing for bankruptcy. However, how much you can exempt and keep depends on several important factors, particularly whether you choose state or federal bankruptcy exemptions.
An interest in a personal injury claim is a relatively common asset in bankruptcy. Many clients do not even appreciate that a personal injury claim is an asset since it is just the right to receive possible money in the future. In addition, personal injury cases often take years to resolve and often clients complain that they have not heard from their lawyers in some time, so assume their case may not be viable or have much value. Nevertheless, it is an asset that must be disclosed when filing for bankruptcy. In New York, there are exemptions that can protect either all or part of a debtor’s interest in a personal injury claim, depending upon the value of the case.
In this blog, we’ll explore how personal injury awards are treated in bankruptcy in New York, focusing on both the state and federal exemptions. We will also discuss some practical considerations, such as how claiming certain exemptions to keep a personal injury award interacts with protecting equity in a home.
Understanding Bankruptcy Exemptions
In bankruptcy, exemptions allow debtors to keep certain assets from being liquidated to pay the claims of creditors. These exemptions vary from state to state and can be claimed based on whether you file for Chapter 7 or Chapter 13 bankruptcy. New York law allows debtors to choose either state or federal exemptions. In most cases with a personal injury claim, a debtor will choose the federal exemptions since they are much more robust. However, if a debtor owns a home with equity, they will likely choose the New York State set of exemptions, because its homestead exemption is much more generous than the federal exemption. Since a debtor may only choose one set of exemptions, they must choose wisely to best protect their assets.
Federal Bankruptcy Exemptions: Personal Injury Award and Wild Card
Under federal bankruptcy law, there are specific exemptions that can help protect a personal injury award, with two of the most important exemptions being the personal injury award exemption and the wildcard exemption. The amounts for both exemptions were just recently updated as of April 2025.
- The Personal Injury Award Exemption – Under 11 U.S.C. § 522(d)(11)(D), a debtor can protect their right to receive, or property that is traceable up to $31,575 of their interest in a personal injury award.
- The Wildcard Exemption – The wildcard exemption under 11 U.S.C. § 522(d)(5) provides potential additional protection for personal claims. Specifically, the wildcard exemption can be used to protect personal injury claim proceeds that are above the limits set forth in the personal injury award exemption. The wildcard exemption allows you to protect up to $1,675 in any asset, with an additional $15,800 of any unused amount of the federal homestead exemption. In practice, the wildcard exemption can be a flexible tool that adds a layer of protection for debtors, particularly when trying to preserve assets outside of a primary residence. Combined with the federal personal injury award exemption this can protect up to $49,050 from a personal injury claim, provided the wildcard is not needed for the protection of another asset.
New York’s State Exemptions and Personal Injury Awards
Under New York Debtor & Creditor § 282(3)(iii), New York State provides a specific exemption for personal injury awards, allowing you to protect $10,250 in damages compensating you for a bodily injury. Compared with the Federal exemptions, New York’s state exemptions for protecting a personal injury action are quite meager. They are generally only used when a debtor wants to protect their real property, specifically when the equity in a primary residence exceeds the federal homestead exemption of $31,575. New York’s state exemption for a primary residence, known as the homestead exemption, is significantly higher than the federal exemption (for example, in Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, or Putnam County the homestead exemption is $204,825), but the state personal injury exemption is almost five times less than the federal personal injury exemption. Additionally, there is no state wildcard exemption for a debtor that is protecting real property. In most cases, protecting less of a personal injury award makes the most sense if by doing so it allows the debtor to best protect the equity in their home.
What Happens If You Omit Your Personal Injury Case from Your Schedules?
As mentioned above, some debtors do not even realize their personal injury claim is an asset in their bankruptcy case. They simply may not appreciate that the right to receive money from a settlement or jury award is an asset. In other cases, they forget about the claim or think the claim is no longer valid. Sometimes, they do not even know about it yet, such as a claim from a toxic tort, where the claim may have arisen years after the filing, even though the injury occurred prior to their bankruptcy. (Such as a claim from using the weed killer Roundup or the defective hernia mesh cases.) The fact is that sometimes a personal injury claim is omitted from a debtor’s schedules. After a bankruptcy case is filed, a debtor or their attorney may realize a personal injury claim wasn’t properly listed in a petition or the bankruptcy trustee assigned to the case may identify the claim at the mandatory 341 meeting. Some trustees even search state court dockets looking to see if the debtor may have a pending personal injury claim. While the bankruptcy case is pending, a debtor can typically amend their petition, disclose a personal injury claim, and claim the appropriate exemption. However, what happens if a bankruptcy case closes, and the personal injury claim is never listed?
Failure to disclose a personal injury claim in a bankruptcy proceeding can result in dismissal of the personal injury case. The debtor is precluded “from pursuing such claim on its own behalf inasmuch as the claim remains the property of the bankruptcy estate ” See Lightening Caption Holdings v. Erie Painting & Maint., 149 A.D.3d 1229 (3d Dept. 2017). As a result, the debtor “lacks standing to maintain an action” that was not listed in their bankruptcy schedules. See Chantal Jean-Paul v. 67-30 Dartmouth St. Owners, No. 12550/14 (N.Y. Sup. Ct. filed Dec. 14, 2017). To maintain a cause of action in any case, one must have the capacity to sue. See Weitz v. Lewin, 251 A.D.2d 402 (2d Dept. 1998). If a debtor neglects to disclose a personal injury claim, and their bankruptcy case closes they can potentially regain their standing for the personal action by reopening their bankruptcy case and properly listing the claim if the motion to reopen is approved by the court. At that point, the debtor may also be able to assert the proper exemptions as well. However, if the debtor “purposefully concealed” the personal injury action from the trustee, the Court may decide not to reopen the case and deny the debtor any surplus from the litigation. In re Watts, 21-10419 (MG), SDNY, August 25, 2023.
Contact the Law Offices of David I. Pankin, P.C.
Ultimately, balancing the protection of your personal injury award with other critical assets such as equity in a home requires strategic decision-making, and consulting with an experienced bankruptcy attorney to help ensure that you make the best choice for your particular situation. At the Law Offices of David I. Pankin, P.C., we have over 28 years of experience in handling both bankruptcy and personal injury matters. If you are seeking legal counsel in either of these areas of the law, please feel free to contact us to schedule a free consultation. We can be reached at (888) 529-9600 or by using our easy online contact form.
