What happens to proceeds from settlement in Ch. 7?

[CeeCee]

I have a large amount of debt incurred years ago due to serious health issues, and in the last few months I've been thinking of filing for Ch. 7 BK. The thing is, I was injured more than a year ago, and I'm expecting to receive a cash settlement from the insurance company to finally get the medical procedures I need to get back on my feet. An attorney that I consulted told me that the settlement money from the insurance company could be protected as long as it is put in a separate bank account to be opened to deposit the settlement check.

My questions are:
If I file Ch. 7 BK, and get the settlement money protected by putting it in a separate bank account, Is that money restricted to be be used only for medical expenses? Will the Trustee control or oversee how that money is used?
If my medical expenses are less than the total settlement amount, What happens to the money leftover?

[bcohen]

Whether or not you can exempt funds from a personal injury lawsuit depends on the laws of your state, as not all states allow you to do this. Unless you are absolutely certain that your state will allow you to exempt the personal injury settlement--in its entirety, bankruptcy would be huge mistake. Is there any reason why you are in a hurry to file? Remember, if you don't declare bankruptcy, you can spend the money as you see fit, even without paying your existing debts. You can always file later, when your health has improved, and the funds have been spent.

[LadyInTheRed]

I agree with bcohen. Whether you can exempt the settlement depends on state law. If you file BK before receiving and spending the settlement, you need to be certain it an be exempted. If you can't wait to file, I would consult with a couple more bankruptcy attorneys in your state to be certain.

[CeeCee]

Thank you both.
The reason I think I need to file Ch.7 BK is that I already have a judgement against me, and the creditor is trying to collect. And I have several other creditors that I'm guessing it's just a matter of time before they too decide to sue me.
The settlement money will be the only money I have and I need that to pay my future medical expenses and to live on for a few months until full recovery from the procedure(s).

To help me decide what to do, do you guys have any insight on what I asked?
Again:
If I file Ch. 7 BK, and get the settlement money protected, 1) Is that money restricted to be used only for medical expenses?
2) Will the Trustee control or oversee how that money is used?
3) If my medical expenses are less than the total settlement amount, What happens to the money leftover?

[despritfreya]

To help me decide what to do, do you guys have any insight on what I asked?
Again: If I file Ch. 7 BK, and get the settlement money protected, 1) Is that money restricted to be used only for medical expenses?
2) Will the Trustee control or oversee how that money is used? 3) If my medical expenses are less than the total settlement amount, What happens to the money leftover?

There is no way to answer these questions since the answers probably turn of what state you are in and whether or not you use state or federal exemptions. Please tell us this information.

Des.

[CeeCee]

It's an Oklahoma state exemption



Title 31. Homestead and Exemptions

A. Except as otherwise provided in this title and notwithstanding subsection B of this section, the following property shall be reserved to every person residing in the state, exempt from attachment or execution and every other species of forced sale for the payment of debts, except as herein provided:
.
.
.

21. Such person's interest in a claim for personal bodily injury, death or workers' compensation claim, for a net amount not in excess of Fifty Thousand Dollars ($50,000.00), but not including any claim for exemplary or punitive damages;

[despritfreya]

It's an Oklahoma state exemption Title 31. Homestead and Exemptions
A. Except as otherwise provided in this title and notwithstanding subsection B of this section, the following property shall be reserved to every person residing in the state, exempt from attachment or execution and every other species of forced sale for the payment of debts, except as herein provided: 21. Such person's interest in a claim for personal bodily injury, death or workers' compensation claim, for a net amount not in excess of Fifty Thousand Dollars ($50,000.00), but not including any claim for exemplary or punitive damages;

Unless there is some other statute that limits the amount of time one can hold such funds, it appears that so long as you segregate the PI proceeds (never commingle with any other $$$) the funds will remain traceable to the PI claim and will remain exempt up to $50k. Further, the exemption statute does not state how the funds are to be subsequently used so, unless there is another statute that applies or Oklahoma case law limiting its use, I see no requirement to use the money for future medical issues.

My recommendation and assuming this corresponds with the suggestions of a local bk attny - if you file bk make sure the PI proceeds are clearly traceable to one bank account and, if you use the funds keep detailed records of how the $$ is spent. Do not use the money to pay a family member or gift the money in any way. Funds should be used for your necessary living expenses.

Des.