An accident, illness, or injury can be the event that forces a New York resident to seriously consider filing for bankruptcy. One's sudden loss of income combined with expensive medical bills can quickly throw a stable financial situation into one of struggling to stay above water. In some cases a harmed individual may have rights to seek compensation for their losses. But, that person might not receive a judgment in time to satisfy their financial needs and prevent the need to seek bankruptcy relief for a perilous financial situation.
When a person files for consumer bankruptcy with a pending legal proceeding open against another party, it is often the case that the potential settlement or judgment will be included in the debtor's bankruptcy estate. While state and federal laws can vary depending upon the exemptions permitted by the different jurisdictions for legal judgments and settlements, in general a party must declare any received and pending legal judgments and settlements when pursuing Chapter 7 bankruptcy.
While it might not seem fair that injury settlements can be liquidated in a bankruptcy proceeding, any money that a party receives as a result of a lawsuit becomes that person's property when it is awarded by a court or agreed to through negotiations. As Chapter 7 bankruptcy collects the property of a debtor before liquidating it and paying off creditors, it is possible that settlement and judgment property can also be included in those steps.
Different people will use the bankruptcy exemptions that better serve their needs. Knowing whether New York or federal exemptions are more beneficial to one's personal situation can usually be determined through consultation with a bankruptcy attorney. Lawyers who work with bankruptcy clients can provide information and guidance to individuals who need support in understanding the role of exemptions in the greater consumer bankruptcy process.