Can Creditors Take My Personal Injury Settlement?

Before addressing the substance of this question, we want to offer a context within which you should consider the information provided. Our goal is always to win the greatest amount of compensation for our injured clients. Our duty and loyalty are to our clients, not to creditors seeking to collect against a settlement or award. While we must obey the law, we will do everything in our power to protect our clients’ case recovery and to maximize the amount our clients net from their case. As to the subject question specifically, yes, creditors could take parts of your personal injury settlement, depending on what the settlement is for and whether or not you take measures to protect the money from creditors. Our Long Island personal injury lawyers will make sure you understand your options.

When Could Creditors Take Your Personal Injury Settlement?

Creditors might be entitled to a portion of your settlement if you owe them money for accident-related services and agreed to give them a lien against your case proceeds. For example, if you could not pay for your medical treatment, your provider might, instead of seeking a money judgment against you, accept a medical lien on your settlement. This allows the provider to defer payment until after you recover compensation, at which point the amount you owe may be paid from your settlement. You could also have to use part of your settlement to satisfy certain court-ordered obligations or other debts that carry special legal protections. Child support is a common example of a debt that could result in your settlement being garnished or otherwise subject to collection. Not every personal injury settlement is treated the same under the law. For example, if you file for bankruptcy, New York Debtor and Creditor Law § 283 determines what portions of your recovery may be protected from creditors. Those exemptions distinguish between different types of compensation. For instance, certain payments for personal bodily injury, wrongful death, or future lost earnings may qualify for protection under specific circumstances, while compensation for pain and suffering or actual financial losses is treated differently under the bankruptcy statute.

How Do Creditors Garnish Your Settlement?

Each creditor must prove that they have a valid reason for taking part of your settlement. This may involve the creditor having to go before a judge to show that you owe them a debt, and that your settlement is not considered exempt in cases involving this particular kind of debt. If the judge agrees with your creditor(s) that they have a valid claim to your settlement, it is likely that a court order will be issued compelling you to pay that creditor.

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How Could You Protect Your Settlement From Creditors?

Depending on what types of damages you recover, you could have several options for keeping your settlement away from creditors. One possible option is to have your attorneys negotiate with your medical providers or your health insurance. We might be able to reduce your medical debt, which in turn would reduce the portion of your settlement you need to use to pay what you owe. Another strategy is to keep your settlement proceeds in a separate bank account rather than combining them with your regular income or other funds. Maintaining a separate account creates a clearer record showing where the money came from, which may become important if questions arise about whether any portion of those funds is protected from creditors. Mixing settlement proceeds with other deposits could make it more difficult to distinguish the settlement money from other assets.

Do You Have to Pay Taxes on a Personal Injury Settlement?

Whether or not you have to pay taxes on your settlement depends, like with paying debts, on what kinds of compensation you receive. In New York State, you generally do not have to pay taxes on most damages directly. It is only if you receive certain types of damages, such as lost income, or if you made or saved money on those damages, such as by earning interest, that you may owe taxes. State and federal laws relating to debt and taxes are often extremely complex, and their applicability depends heavily on the specifics of your case. Save yourself a lot of trouble and uncertainty by consulting with a personal injury attorney as early in the legal process as possible.

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How Do You Get a Personal Injury Settlement?

Before you start worrying about whether or not creditors could take your personal injury settlement, you need to win that settlement. If you work with our legal team, we will take your concerns about creditors into account as we plan your legal strategy. Our attorneys fight hard for our clients to recover—and keep—the damages they need after a motor vehicle accident, a premises liability accident, or an act of medical malpractice. The legal process varies from case to case, as no two clients are the same, but the steps we take generally include the following:

• Collecting evidence to prove the at-fault party did you harm
• Collecting evidence of the injuries you suffered
• Determining how much compensation you need to cover your losses
• Presenting evidence to the at-fault party and their insurance company
• Negotiating for the maximum possible amount of compensation
• Litigating the case if no acceptable settlement offer is made
• Presenting the case to a judge and jury in the courthouse if the case does not settle prior to trial

While we do the legal work and will be happy to advise you, it is ultimately up to you to decide whether to accept or reject any given offer.

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What if You Recover a Jury Award Instead of a Settlement?

In rare cases, the insurance company refuses to cooperate, and we have to go to court instead of negotiating a settlement. If we are successful, our client would then receive compensation through a jury award or verdict rather than a settlement. Getting paid via a jury award presents many of the same issues as getting paid via a settlement. You will still be responsible for paying your creditors, and some or all of them might have a valid reason for taking part of your compensation for this purpose. Our accident injury lawyers will work with you to minimize the amount your creditors take and maximize the amount you are able to use to pick up the pieces after an accident.

Our Personal Injury Lawyers Will Work to Protect Your Settlement

Friedman & Simon, L.L.P., has recovered hundreds of millions of dollars for our clients. This includes many life-changing settlements and verdicts that allowed accident victims to rebuild their lives. You deserve to keep as much of your personal injury settlement as possible without worrying about creditors taking it away from you. Call our office now to learn more about how our legal team will fight for the damages you need—and to keep those damages in your pocket.

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