Money Advice, Debt Advice & Debt Help
What happens to a personal injury payment if I am Bankrupt?

What happens to a personal injury payment if I am Bankrupt?

You will be required to give up any lump sums or windfalls that you receive during the time you are Bankrupt.  Windfalls are things like bonus payments from your employer, inheritance payments and lottery wins.

The definition of a windfall also includes compensation pay outs. However if you get one of these because you were injured whether you can keep some or all of the award will depend on what the compensation you have been given is for and also when you made the claim.

When I am bankrupt can I keep any part of my personal injury compensation?

The overriding definition of a compensation payment in bankruptcy is that it is a windfall and therefore you will have to hand it over to Official Receiver (OR) so it can be used to pay towards your debts.

Nevertheless personal injury compensation awarded after you have been in an accident is treated differently because such a payment is normally made based on two different reasons. One of these is for any earnings you lost due to the accident and the other is for any pain and suffering you were caused by the accident.

If you get compensation because of lost earnings then this is a windfall under the bankruptcy definition and you will normally have to hand it over. On the other hand any compensation you get because of the pain and suffering you should be allowed to keep because it is assumed that you will need this money to pay for rehabilitation and your reduced quality of life.

BMD Tip: If you receive or are due to receive a compensation award for an injury claim during your bankruptcy you must make sure you ask the insurer to break down the reason for the award into these two categories so that the reason any money you receive can be clearly explained to your OR.

Do you want help to go Bankrupt? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Can I wait to make a personal injury claim until after I am discharged?

If you are in a position to make a personal injury claim while you are Bankrupt you will not usually be forced to do so. The reason for this is largely because the OR will not know that you are entitled to any such claim but even if they did it would be unusual for them to make such a request.

Given this it is best to wait until after you are discharged before starting any claims.  This way there will very little risk that you will lose any of your payout if you are successful.

BMD Tip: If you have already made your claim at the point when you apply for Bankruptcy you must inform the OR. In fact there is a specific question in the application form which asks if you are currently involved in any legal proceedings. You must give details of any personal injury claims in this section.

Will I always keep a personal injury payout received after I am discharged?

If you have already been discharged when you receive your personal injury compensation you may think that you will be entitled to keep the whole amount that you have been awarded. However this is not actually the case. Whether or not you can keep the payment will depend on when the claim itself was made.

If your claim was made before or while you were bankrupt then any compensation you get from it due to loss of earnings will still be seen as a windfall which must be paid to your old Official Receiver.  This is because it is treated as an unrealised asset of your Bankruptcy and your creditors should not have to lose out simply because it took a long time to receive the payout.

In fact the solicitor dealing with your claim will probably not even pay you the award directly but will make the payment directly to your OR.

BMD Tip: If you make your claim after you are discharged then you will be entitled to keep all of the compensation you eventually get. This is because the claim and therefore the potential payment did not exist at the time you were bankrupt.

Will a personal injury payment mean I am discharged from Bankruptcy early?

If you receive a windfall while you are bankrupt then there is always a possibility that it will help you to become discharged early. However it this will depend on how much the payment is.

If the payment that you receive is large enough to repay the entire amount of debt that you owed on the date of your bankruptcy plus the fees that the OR has charged and any statutory interest then after this there is no reason for you to remain bankrupt and you will be discharged.

However if the payment is not large enough to cover your debts and the ORs costs in full then you will remain bankrupt until your normal discharge date.

Arrange a call with a Bankruptcy Expert

    Need help with the bankruptcy process?


    Privacy Policy
    Your information will be held in strictest confidence and used to contact you by our internal team only. We will never share your details with any third party without your permission.

    2 thoughts on “What happens to a personal injury payment if I am Bankrupt?

    1. Gareth says:

      Hi

      An insurance company are chasing me for money. They paid out in damages and personal injury. I did not cause the incident, someone else had my car who was not insured but the insurance company are coming after me for the money.

      During my research I came across certain debts which cannot be included in bankruptcy and one of them is personal injury. Would this be considered an insurance debt and be written off? I’m worried that they will argue I cannot.

      1. Hi Gareth

        If an insurance company makes a claim against you personally for money they have paid out then this debt can be included in bankruptcy.

        I think the information you have read may be in regard to the receipt of a compensation payment for personal injury while you are bankrupt. If this were to happen then in theory the money received would be a windfall and payable to the Official receiver. However as discussed in the article above any money paid to you for “pain and suffering” is yours to keep and would not have to be paid to the OR.

    Leave a Reply

    Your email address will not be published.

    Learn how your comment data is processed.