Understanding the Impact of Car Accidents on Bankruptcy Filing

Unfortunately, car accidents happen. However, they can affect your bankruptcy filing, whether you caused the crash and are getting sued or someone crashed into you. This is regardless if you are represented by a personal injury attorney or a car accident lawyer. Let’s review the different scenarios and likely outcomes when your petition is filed and the steps the bankruptcy trustee might take.

What Happens When There’s a Car Crash

It can be aggravating and time-consuming to deal with all the issues that present themselves after you’ve been involved in an auto accident.

First, you have to deal with the aggravations of the car insurance company. Your car also has to be removed from the towing company’s property. Then, your car sits at the auto repair shop. Of course, there’s missing time from work to deal with physical therapy.

Throughout this time, your personal injury attorney is working with your car insurance company and that of the other party.

The settlement funds are distributed once your car accident attorney has settled the case with the auto insurance company and paid the medical bills.

• Handling Medical Debt. How to Protect Your Finances

Now, it’s important to repeat what I’ve mentioned numerous times in my blog and YouTube videos. The top three reasons people file for bankruptcy are as follows:

1. Medical bills;

2. Health-related issues, and

3. Divorce.

The Personal Injury Settlement from the Car Accident and the Bankruptcy Trustee

Once the case settles, what happens if you file for bankruptcy?

If the personal injury proceeds were not enough to pay for all the medical bills, then Chapter 7 or 13 bankruptcy would wipe out that debt.

But what happens if there are funds left over from the personal injury settlement and you file for bankruptcy? Then, depending on your state’s exemptions, the personal injury settlement proceeds may not be exempt and belong to the bankruptcy estate. When it rains, it pours.

Other Scenarios with Bankruptcy, the Bankruptcy Trustee, and Car Accidents

What if the car accident occurred well before the bankruptcy filing? For example, what if the car accident took place a few years ago, you completed your physical therapy, and now your accident lawyer is still working to settle the medical bills?

• How Bankruptcy Influences Divorce Settlements

In that case, not only does the car accident have to be listed in the petition, but the bankruptcy trustee would also have an interest in the proceeds.

But what about if it is something beyond your control? For example, you filed for bankruptcy and attended the 341 meeting of creditors. A couple of weeks later, there was a car accident.

Surely, there is no way of knowing you would get into a car accident after filing for bankruptcy. If you did know that in advance, please e-mail me the Powerball numbers for next week.

Unfortunately, the result is the same. The personal injury settlement funds belong to the estate, and the trustee would use those funds to distribute to your creditors.

The bankruptcy estate exists up to six months after the filing. That’s why, at the 341 meeting, trustees ask if debtors are beneficiaries of a life insurance policy. If the answer is yes, they will ask further questions to ensure you are not about to receive the funds from that policy. I know, morbid.

On a positive note, who cares about paying back some debt if you win the Powerball? One day, I might find the inspiration to write about a client who won the Lotto a few days after his divorce was granted.

Okay, I decided to write about that story. Below is the post on X/Twitter.

Now, let’s continue with what-ifs. What if you’re involved in a car accident while going to court to attend your 341 meeting of creditors?

If you were at fault in the car accident, the bankruptcy petition should be amended to add the insurance company and the party you crashed into since they are both creditors.

But, what if you were crashed into and are hoping to cash in? Sorry. Unfortunately, if you’re looking for empathy from the bankruptcy trustee, you won’t find it.

Any future lawsuits belong to the trustee. If it’s a past lawsuit and you haven’t collected the funds, the trustee can make a claim pending bankruptcy regardless of when that case settles.

Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.

What to Do if Involved in a Car Accident and Considering Bankruptcy

Since a car accident can affect your bankruptcy, meet with an experienced bankruptcy lawyer, as the information on this site is for educational purposes only.

Don’t hold back with your attorney. Explain everything to your bankruptcy lawyer, who will likely advise you to delay filing bankruptcy or maybe file Chapter 13 bankruptcy if it is to your financial benefit.

Be safe, and I’m sending you good vibes with the lotto!

Below are different categories if you need additional information:

• Bankruptcy
• Your Wallet

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link. Archives can be found via this link.

Updated March 17, 2025.