Is this 'income' (personal injury) - WWYD?

[ItsJustMe]

Our situation. $55K CC debt (was $85K - worked our buts off last year to pay it down - but now income seriously reduced).

Car accident a few years ago. We got the max from the policy of the other driver, but it wasn't much. We filed with our insurance for an underinsured claim, but it's been almost a year and we gave up.

Stopped paying CCs last month w/intentions of filing BK. Working down our income a few thousand so that we qualify for 7 (have 2 months to go).

We got a call that we will probably get that underinsured policy. About $25K. This will count as income, correct? Now we aren't sure if we want to file or not. Maybe we could use that $25K to negotiate down the debt? But then I worry about taxes and such. Or wait another 6 months for that income to drop off. Or file 13 because we'll be above means. Or just decline the payment when it is officially offered.

Any advice?

[catleg]

I think that if you really need the money to live on, then figure out a way to shovel it into an exemption, i.e. crank up your 401k deductions at work to the max and compensate by living off the insurance proceeds for a while until your 6 month lookback is clean. Alternatively you could pay off a student loan, do some necessary home improvements etc. A lot just depends on your situation. You obviously tried hard to avoid bk so it seems a shame to let that effort go to waste but there is really no great sense of moral fulfillment in paying off credit carts IMHO. :-)

[dingdong]

Some states allow for a personal injury exemption.

I believe Ohio has a 5000.00 exemption.

Have you checked your state's exemptions to see if any can be exempted?

[ItsJustMe]

Thanks. We're in CA. We have calls in to both our lawyers asking them to call eachother. Hopefully they'll be able to give us some good advice.

We hopefully will keep our home if our modification goes through, and then we have tons of household repairs we could do. We tore out some carpet a few years ago as part of a home repair and then funds went dry and couldn't afford to finish...does new carpet count as a 'repair' ? I also have some student loans ($10K) I could pay off. I didn't realize I could do that. Thanks.

[eddiep]

I am in a similar situation. Hubby was involved in a motorcycle accident. My lawyer said that if the claim is not settled before we file it will be considered an asset not income. In my state we are allowed to use the federal exemptions which gives a $20,200 exemption on personal injury lawsuites.