I was recently asked, “My wife is hoping to settle her personal injury lawsuit. If I file bankruptcy individually will her settlement be safe?”
It is common to see bills pile up when one member of the family is seriously injured, resulting in large medical bills and often loss of income due to inability to work.
My first piece of advice is to keep any settlement proceeds in an entirely separate bank account in your wife’s name only. The money should not be commingled with any joint funds, nor should you be a joint holder of the account or have any rights to access to the money.
If most or all of debts are in your name only, it may make sense for you to file individually. However, if you have signed as the responsible party for some of your wife’s debts, such as her medical bills, or if you have joint accounts, you may be relieved of the debts, but she may still remain liable, in which case filing bankruptcy may not be as much help as you would like.
If your wife is also responsible for significant debt, such as her medical bills or joint liability for your home mortgage, filing individual bankruptcy may not resolve your problems. While your creditors may not be able to get at your wife’s settlement proceeds, the question of the extent to which her creditors can gain access to them is a question of state law. Many states have laws protecting such funds from attachment by creditors. (This is another reason to keep those funds separate.) Also, depending on state law, your wife’s medical insurance carrier or health providers may have legal claims with respect to proceeds from the lawsuit. You should ask her personal injury attorney about this.
Whether or not you decide to file, bankruptcy, separately or jointly, you would be well served to consult with a bankruptcy attorney on how to best protect the proceeds of the lawsuit.