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If I become Bankrupt will my compensation go to pay my creditors?

No it will not. Compensation that you receive from your personal injury claim does not form part of your estate in bankruptcy and therefore, the Trustee in Bankruptcy is not able to use any compensation or damages payments relating to your personal injury claim to meet debts owing under your Bankruptcy.

And this applies, whether you are declared bankrupt before or after you receive your compensation payment for your personal injury compensation or damages claim.

Unfortunately when a person suffers injury and they are unable to return to work or to running their business, this can have a devestating impact on their financial circumstances and understandably so. We all have financial commitments to meet and when you are employed and earning income, then we all tend to incur greater financial commitments because we are able to afford them. However, when you are suddenly injured and that weekly income payment stops or is significantly reduced, and you can no longer meet your weekly credit card, mortgage, or car or personal loan payments, this can be a real issue and can cause terrible anxiety and stress for the injured party, their partner and family.

We at The Personal Injury Lawyers have seen this problem over and over again in our more than 30 years experience running personal injury claims. What we do is tell our clients up front that they should not stress over this issue as there are options available to them and which we can help them identify and access, including income disability insurances, advances on damages from the claim insurer, credit and loan insurances, and even litigation loans where you are able to obtain a lump sum payment from a litigation lender, that does not have to be paid back until the end of your personal injury claim, and only if you achieve compensation.

There are circumstances however, where the debts that accrue in not being able to meet substantial loan payments or credit card debts, become so unreasonable in the circumstances of increasing and accruing interest, that Bankruptcy becomes the best option for an injury victim. And although no one wishes to be in the position where they have to declare bankruptcy, there are some circumstances where it is just not able to be avoided, and through no fault of the injured person who has only been placed in such a position because of someone else's negligence. And as stated above, in such case, personal injury claim compensation and damages cannot be used to meet any debts of the bankruptcy estate - the compensation payment remains separate from the bankruptcy and cannot be accessed by the Trustee in Bankruptcy.  Similarly any assets purchased with compensation received for personal injury are also protected from the bankruptcy and cannot be used to pay creditors, whether purchased before or after bankruptcy is declared.

If you would like to see the official statement on this issue, go to the following link at the Australian Government Financial Security Authority website: Bankruptcy and compensation payments  

 If you have been in a traffic accident, work accident or in another accident where you have sustained injury through the fault of another, then you should contact us at The Personal Injury Lawyers on 1300 782 202 or send us an enquiry through our website at the following link:  Claim Enquiry Form  

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