Personal Injury Compensation while Bankrupt
- 26 Oct 2021
If you receive personal injury compensation while bankrupt it is a windfall. Whether you can keep it or not depends on the reason it was paid.
Included in this article:
- Can you keep Injury Compensation paid while Bankrupt?
- What if your compensation is paid after discharge?
- Should you wait to claim until after you are discharged?
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Can you keep Personal Injury Compensation paid while you are Bankrupt?
As a general rule all windfalls you receive while you are bankrupt must be paid to the Official Receiver. This includes things like lottery wins, inheritance payments and compensation.
Having said that compensation for personal injury is a unique type of windfall. This is because the money is normally paid for two different reasons: Loss of Earnings and Pain and Suffering.
If you have been awarded a payment to compensate you for loss of earnings this is a windfall and will have to be handed over. However money awarded for pain and suffering you can keep.
You will have to ask your insurance company to provide a breakdown clearly showing what part of the payment received is for pain and suffering.
What if you are paid Personal Injury Compensation after you are Discharged?
Under the rules of bankruptcy you can keep any windfall you are awarded as a result of injuries that occur after the date you are discharged.
However if the accident happened BEFORE the date of your discharge any subsequent compensation for loss of earnings is regarded as an asset of your bankruptcy estate. As such it has to be handed to the Official Receiver. This is the case even the payment itself is made after your discharge date.
Claims for loss of earnings compensation will only be yours to keep after you are discharged if the accident itself happened after the discharge date. This is the case even if you are still paying an IPA.
If your accident happened prior to the date you were discharged any compensation paid for loss of earnings must be handed to the OR even if it is paid after you are discharged.
Should you wait to claim for Personal Injury Compensation until after you are Discharged?
You may think you will be able to keep compensation you are awarded for personal injury if you wait until after you have been discharged to make your claim. However if the accident happened before or during your bankruptcy then waiting will not protect you.
Any compensation for loss of earnings eventually awarded is still an asset of your bankruptcy. This is because the opportunity to claim existed while you were Bankrupt. The fact that you waited to claim until after you discharge is simply a matter of timing.
If you wait until after you are discharged and then make your claim it is possible that any compensation awarded will be paid to you. However it is then your responsibility to inform your old OR. If you do not inform them and they do find out about the payment they could start legal action against you to recover the money.
Hi if I was to make a personal injury claim witch I have been advised by solicitors it could be worth hundreds of thousands and thats mostly made up by future loss of earnings etc. My accident happend before I made my bankruptcy application im discharged now and have been for 2 years.
My bankruptcy debt was actually only for 12,300 pounds if I were to go ahead and claim for this injury how much of my loss of earnings would go to the trustee would it just be the money I owed at the time and then would I grt to keep the rest?
Thanks
Hi Gary
Given the accident happened before you went bankrupt, any compensation now received for loss of earnings is still an asset of your bankruptcy and would be payable to the official receiver.
The maximum amount the OR can claim is the total amount of debt you owed when you went bankrupt (less any assets already realised or payments made by way of an IPA) plus the OR’s costs and fees. As a rule of thumb the costs will be between £6000-£10,000. I believe the OR is also able to charge an element of interest on the debt from the date of the bankruptcy which would be 8% pa.
Of course anything you receive over and above these figures will be yours to keep.
I was made bankrupt in 2014 and discharged a year later. At that time I had started proceedings against two banks in relation to Interest Rate Swap Agreements. I had a substantial property portfolio and due to increased IRSA payments and increased interest rates and monthly charges by one of those banks I was unable to remain solvent.
In any event my trustee took legal advice and discontinued the actions although he received £480,000 by way of direct losses following the FSA findings on mis-sold IRSA. There is/ or is to be a compensation fund set up by the FCA for up to £150,000. The question is – can I make a claim?
Hi Sam
The issue here revolves around what are known as after acquired assets. Basically these are assets or funds that you acquire after you are discharged from bankruptcy because of an event that happened before you went bankrupt (or while you were bankrupt). Any such funds still have to be paid in full to the official receiver.
Because the mis selling against you happened before you went bankrupt, any compensation you are awarded now as a result of this is an after acquired asset. As such it would have to be handed to the OR. As such there would be very little point in making the claim.