It depends on when the facts and circumstances giving rise to the lawsuit occurred, and what type of lawsuit it was.
If the facts and circumstances giving rise to the lawsuit occurred BEFORE the debtor's Chapter 7
case was originally filed, then technically the money the debtor recovered from the lawsuit is supposed to be reported to the Bankruptcy Court
, and the trustee
would likely take the funds to give to creditors UNLESS those funds happen to be exempt (i.e. protected by state law) for some reason, such as if they are workman's comp, social security, etc (and this depends on state law and varies from state to state). But, in most types of cases, if the events giving rise to the lawsuit happened before the bankruptcy was filed, the debtor will have to give the funds to the trustee to distribute to creditors.
If the facts and circumstances giving rise to the lawsuit occurred AFTER the Chapter 7 was originally filed, then most likely the money cannot be taken from the debtor to give to creditors UNLESS the facts and circumstances giving rise to the lawsuit occurred within 180 days after the bankruptcy case was originally filed AND are either for inheritance, property settlement agreement with a spouse in a divorce, or life insurance (see 11 U.S.C. 541, HERE
For example, if the debtor was injured in an automobile accident in 2010, filed Chapter 7 in 2011, and got money from a lawsuit regarding the accident in 2013, then that money would have to be turned over to the Bankruptcy Court since the accident occurred before the bankruptcy was filed.
In another example, if the debtor files Chapter 7 on January 1, 2011, then is injured in an automobile accident on January 2, 2011, the debtor will get to keep his or her lawsuit proceeds since the accident occurred after the bankruptcy was filed.
In another example, if the debtor files Chapter 7 on January 1, 2011, and then his or her mother passes away on May 15, 2011 (i.e. within 180 days after the Chapter 7 was filed), then anything the debtor inherits will have to be turned over to the bankruptcy trustee since inheritance is one of the three types of funds that the court can go after up to 180 days after a case is filed (with the other two types of funds being property settlements in divorce and life insurance).
In a final example, let's say the debtor is injured at work on January 1, 2011 and files bankruptcy on January 2, 2011. The debtor then recovers a workman's comp lawsuit settlement of $10,000 in February 2011. The debtor would get to keep the $10,000 even though the accident occurred before the bankruptcy was filed since the state in which the debtor filed bankruptcy has a law that says workman's comp claims are safe (exempt) in bankruptcy.
You should discuss the lawsuit with your bankruptcy attorney to see if you are required to report it to the Bankruptcy Court.
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