The Short Answer
Whether you need court permission to settle a workers' comp or personal injury claim during bankruptcy depends on which chapter you filed. In Chapter 13, you always need the bankruptcy court's approval before settling — even if you listed the claim on your original filing. In Chapter 7, it depends on whether your case is still active or has already been discharged; if your Chapter 7 is fully closed with a final decree, no court permission is needed. Either way, you must tell your bankruptcy attorney about any potential settlement before filing so it can be properly listed and protected.
If you have filed or will be filing a workers’ compensation or personal injury claim, be sure to tell your bankruptcy attorney so your potential settlement can be listed and protected in the bankruptcy. If it is not listed and protected in your bankruptcy, you could lose the money received in the settlement.
If you have lived in North Carolina for at least two consecutive years, North Carolina General Statutes allow the settlement, regardless of the dollar amount received, to be protected in bankruptcy. If you are required to use exemptions from another state or federal exemptions because you have not met the residency requirement as outlined in the bankruptcy code, you may not be able to fully protect the settlement in bankruptcy. The exemptions vary by state, therefore, it is very important to discuss the potential settlement with your bankruptcy attorney before filing bankruptcy.
If you are in a Chapter 13 bankruptcy, it is necessary for you to work with your bankruptcy attorney to obtain the bankruptcy court’s permission to settle your workers’ compensation or personal injury case. This is necessary even when you listed the potential settlement on your original bankruptcy filing. By filing the motion and obtaining an order from the bankruptcy court to settle the claim, the total settlement is protected from the bankruptcy Trustee and your creditors assuming you are able to use North Carolina exemptions. Therefore, the settlement is yours to assist you and your family with living expenses or to cover future medical expenses you may incur due to your injury.
If you file a Chapter 7 bankruptcy, you may or may not be required to file a motion to settle the injury claim. If the settlement is offered while you are in an active Chapter 7, you should contact your bankruptcy attorney to determine if it will be necessary to file a motion with the court. If the settlement occurs after your Chapter 7 bankruptcy is discharged and final decree is issued, it is not necessary to obtain the bankruptcy court’s permission to settle the claim.
As previously mentioned, it is extremely important to speak with your bankruptcy attorney about your potential workers’ compensation or personal injury settlement prior to filing your bankruptcy. If the settlement is not protected correctly in the bankruptcy, you could lose your settlement.
Key Takeaways
- In Chapter 13 bankruptcy, you must file a motion and get a court order before settling any workers' comp or personal injury claim, regardless of the settlement amount.
- In an active Chapter 7, contact your bankruptcy attorney immediately upon receiving a settlement offer — a motion may or may not be required depending on your case status.
- If your Chapter 7 has been fully discharged and a final decree issued, you can settle without the bankruptcy court's permission.
- North Carolina law protects workers' comp and personal injury settlements of any dollar amount in bankruptcy — but only if you have lived in NC for at least two consecutive years.
- If you haven't met NC's residency requirement, you may be limited to another state's or federal exemptions, which may not fully protect your settlement.
- Failing to list and properly exempt a settlement in your bankruptcy filing can result in losing the settlement money to the trustee or your creditors.
Attorney Insight
The mistake I see most often is a client who receives a workers' comp or personal injury settlement while in Chapter 13 and assumes that listing it on the original petition was enough — it isn't. Without a court-approved motion to settle, the trustee can treat that money as available to creditors, even if the settlement would otherwise be fully exempt under NC law. North Carolina's exemption for these settlements is genuinely strong — there's no dollar cap if you meet the two-year residency requirement — but the protection only kicks in when the procedural steps are followed correctly. A phone call to your attorney before you sign anything can be the difference between keeping every dollar and losing it entirely.
