What Happens to Your Structured Settlement if you File for Bankruptcy?

When you file for bankruptcy, whether your structured settlement is affected depends on the type of bankruptcy you file and the laws of your jurisdiction. In general, structured settlements are designed to provide long-term financial security and are often considered exempt or protected assets in bankruptcy proceedings. However, it's important to consult with a bankruptcy attorney or a financial professional to get accurate and up-to-date advice based on your specific circumstances and local laws.

Here are some key points to consider regarding structured settlements and bankruptcy:

What is Chapter 7 Bankruptcy?

In Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets may be sold to repay your creditors. However, many jurisdictions have exemptions that protect certain assets, including structured settlements, up to a certain value. This means that if your structured settlement falls within the exemption limits, it may be protected from liquidation.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy involves creating a repayment plan to pay off your debts over a three to five-year period. Generally, structured settlements are considered income and are included in the calculation of your repayment plan. However, because structured settlements are often intended to provide ongoing support and may be necessary for your basic needs, the bankruptcy court may allow you to exclude the structured settlement payments from the repayment plan calculation.

State Bankruptcy Laws

State laws play a significant role in bankruptcy proceedings, including the treatment of structured settlements. Each state has its own set of exemptions and rules regarding bankruptcy, and some states may provide stronger protection for structured settlements than others.

Bruce W. Akerly, a bankruptcy attorney in Lewisville Texas, with the law firm of Akerly Law PLLC, points out that  because they do not own the annuity or have sold and/or assigned payments under an annuity, many debtors will not list, or forget to list, their annuity payment streams in bankruptcy.

Akerly says that "when preparing a schedule of assets for a bankruptcy filing, structured settlement payment rights must be properly and completely disclosed. This includes (a) all payments, whether guaranteed or life contingent, (b) near-term payments and (c) payments that may not be due for many years. It includes monthly, annual, lump sum and all other forms of payment"   Source: The Impact of Bankruptcy on Structured Settlement Payment Streams  by Bruce W. Akerly  January 31, 2023

Seek Professional Advice

It's  crucial to seek professional advice from a bankruptcy attorney to understand how your specific structured settlement may be affected by bankruptcy, taking into account your jurisdiction's laws and regulations