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The federal bankruptcy exemption for personal injury awards

On Behalf of | Jul 19, 2021 | Consumer bankruptcy |

Personal injuries can result in sky-high medical bills, job loss and extreme financial strain. Because of this, personal injury and bankruptcy often go hand-in-hand.

Individuals often wonder if they must list their personal injury awards or pending settlements on their bankruptcy schedules. The answer is yes. However, the good news is exemptions do exist for both Arkansas and Tennessee residents that protect pending or previously awarded settlements.

The federal bankruptcy exemption

According to UpSolve, residents of Arkansas and 18 other states may use the federal bankruptcy exemption to protect personal injury awards and settlements. Per the section of the law that specifically applies to funds acquired as the result of personal bodily injury, injured individuals may be exempt up to $25,150 of the award. Federal law also protects payments for lost future earnings, to the extent necessary to support the plaintiff; payments awarded under crime reparation laws; and payments for wrongful death, to the extent necessary to support the aggrieved loved one.

Tennessee’s state-specific exemptions

The majority of states are what federal law considers “opt-out” states. In opt-out states, individuals may not use the federal exemptions. Tennessee is one of the 31 opt-out states. However, it does have its own set of laws that protect portions of personal injury settlements in bankruptcy.

According to FindLaw, Tennessee residents may be exempt up to $7,500 of payments for personal bodily injury. This exemption does not include compensation for pain and suffering or actual pecuniary loss. Individuals may also be exempt up to $10,000 for awards for wrongful death, and up to $5,000 for compensation awarded under crime reparation laws. The total aggregate amount a person may be exempt from awards that fall into any of these categories is $15,000.

Tennessee residents may also be exempt from payments for future loss of earnings. Like with federal exemptions, however, they may only do so to the extent necessary for support.