Protecting Money from Exempt Sources in Bankruptcy

Protecting Your Injury Settlement from Creditors and the Bankruptcy Court – Applies to Other Exempt Assets Too

Have you received a personal injury or workers’ compensation settlement, or do you anticipate receiving one, then you are going to have a problem if you have creditors coming after you. But there is good news. You can protect the entire settlement in Maryland in and out of bankruptcy.

Under MD Courts and Judicial Proceedings section 11-504(b)(2), Marylanders can exempt all monies received pursuant to a personal injury action or illness. Therefore, if you a creditor garnishment your bank account you can file a motion to quash the garnishment in state court. If you are in bankruptcy then you can list the funds as an assets and exempt it in schedule C as a personal injury or illness award. If you do either one of these things, creditors can’t take money from your account, and, if you receive a discharge in bankruptcy, you get it to keep it all while getting rid of your dischargeable debt.

Steps to Ensure you Protect Your Personal Injury Settlement or Other Exempts Funds

  1. Always Use a Separate Account

Your injury settlement or exempt funds such as a social security disability award should be place in a separate account. Never deposit any other monies in that account. Deposit of other monies are known as commingling and could result in the loss of your exemption. Commingling allows creditors to argue that the injury settlement has lost its status because non-exempt funds were place in the account and spent. Therefore, you have a harder time arguing what dollar traces back to the exempt funds and what dollar does not. monies in a segregated, separate bank account. Do not mix up any other money with your settlement monies. No pay check, gambling winnings or cash from grandma should go into this account.

  1. Use a Prepaid Debit Card

One judgments are entered, creditors can issue a write o garnishment on your bank accounts freezing them and the money in them. This can be a nightmare for anyone who has to go a month or more without access to their account. Hence, one trick is to use a prepaid card which is a lot harder to garnish than a traditional bank. Obviously, there are costs such as monthly fees and usage fees, but this may keep creditors at bay while you reorganize and plan your response