Personal injury settlements can help you recover the costs you’ve incurred as a result of someone else’s negligence in a car accident or other personal injury event. You may get a settlement award that provides for your medical care, which would include all medical expenses for surgeries, physical therapy, prescriptions, and other medical costs.
You may also recover your lost wages in your compensation for being unable to work, along with other expenses, such as non-economic losses. However, the process of your personal injury claim may have forced you to file for bankruptcy.
During the process of bankruptcy, you may wonder, “Can creditors garnish my injury settlement?” At Mazzu Law in New York, our attorneys represent victims in personal injury cases. Many of our clients worry, citing “creditors access to my injury settlement funds” and want to know what they can do about it.
This informative article discusses the concerns that many personal injury victims have regarding their personal injury settlements and answers the question, “Can creditors take my personal injury settlement?”
What Are Personal Injury Settlements?
Personal injury settlements are the result of a favorable outcome in a civil lawsuit. The settlement amount will vary depending on the total of the expenses suffered by a victim as well as the type and extent of their injuries.
With a personal injury settlement, you may recover money for your medical treatment and other losses. Due to the costs you’ve incurred, especially if you were already on shaky financial ground, you may need to file for bankruptcy. Under New York law, creditors may have some access to these funds, and understanding the partial exemptions can help you determine your next steps.
Can Creditors Claim My Personal Injury Settlement?
In New York, federal or state exemptions can protect you in most cases when filing for bankruptcy. However, whether creditors can take your personal injury settlement during bankruptcy depends on a few factors.
Here is a look at when you may have cause for concern with the New York bankruptcy court and your personal injury settlement:
Wage Garnishments
A government agency or bankruptcy court may issue a court order that requires your employer to withhold some of your money from your paychecks. This is known as wage garnishment, and there are legal limits that specify how much they can take.
Seizing a Debtor’s Assets
Creditors may also try to seize assets from a debtor but they can’t take what they want. They must get a legal judgment first, which would allow them to take non-exempt assets.
Medical Care Liens
After an accident in New York, creditors can place liens on a personal injury settlement. The lien is often placed by the medical provider who provided the medical care for the injuries that were addressed in the lawsuit.
In some cases, health insurance coverage will not cover certain treatments, leaving victims to pay the medical bills. If you were not covered by your health insurance provider for these treatments, you may be asked to sign a lien stating that the provider has the right to recover these costs from your personal injury settlement. This tends to be common in New York as many people either have no health insurance or their coverage is inadequate.
Child Support Liens
If you have to pay child support, then you should know that New York takes child support payments very seriously. Hence, liens can be issued for overdue child support on personal injury settlements.
Unpaid Taxes
You should know that if you have any unpaid taxes, the federal government does not need to issue an order to garnish your wages. They can simply issue this ruling and take wages to satisfy unpaid debts for state and federal taxes.
Just when you thought your bank account would be back in good standing, another legal proceeding may arise that could allow debt collectors to take part of your settlement during bankruptcy. However, personal injury victims have ways they can protect themselves to a degree. It is always best to discuss your unique circumstances with a financial advisor and a Buffalo personal injury lawyer to find the best way to proceed.
Federal Bankruptcy Exemptions
If you file for bankruptcy under Chapter 7, certain assets will not be allowed for bankruptcy exemption. In New York State, you have the option to apply for state or federal exemptions. Since federal law provides more generous guidelines in this regard, many personal injury victims choose to go that route. Here is a look at those exemptions:
Personal Injury Settlements
Federal law allows exemptions for personal injury settlements of up to $25,180. However, be aware that the exemption for this only applies to the economic damages in your settlement amount, such as your medical expenses or lost income. It will not apply to non-economic damages as that amount is routinely adjusted due to inflation.
Wildcard Exemptions
You may also be able to get a wildcard exemption. A wildcard exemption lets you protect anything you want, up to the value of $13,900 for any non-exempt asset. Some people use this to protect their home’s equity but in those cases, it may be a lower amount.
If you use New York’s exemptions for your settlement during bankruptcy, the exemption only allows for up to $8,500 on compensation that is for bodily injury only.
How to Protect Your Personal Injury Compensation
When you have a personal injury case, it is of great importance to have a protected personal injury settlement from creditors. Here is what you can do to minimize the fallout and protect your compensation.
Keep Your Settlement Separate
Never put your settlement in the same checking account as your other funds, such as your paycheck. Known as commingling funds, creditors often argue that when it is in the same bank account as your other income, it will not be exempt.
One of the best things you can do after you get your settlement when you owe a large debt is to avoid depositing it into the same account. Create a savings account to keep the funds separate and you will be able to protect your settlement from creditors while undergoing bankruptcy.
Label Settlement Funds
If you are currently going through bankruptcy or there is a possibility you may file for it to assist with some of your debts, make sure your funds from the settlement are labeled. Remember, in bankruptcy, you can exempt the economic damages of your settlement from the collection of debts.
Get Help with Bankruptcy and Debts
It can be overwhelming and frustrating as you deal with this process, especially after suffering injuries at the hands of someone else’s careless actions. You should speak with an attorney and a financial advisor about what the best course will be for you in your specific situation. With financial planning, you will be able to prepare for any debt collection while protecting what should rightfully be yours.
How a Personal Injury Attorney Can Help You Protect Your Personal Injury Settlement
When you have outstanding debts and loans, it just adds to your turmoil while you try to recover from your injuries. The compensation you receive should help you make your life as whole as possible again following your painful injuries.
In some cases, victims involved in these circumstances may also face issues with employers over garnishment of wages. The laws afford you some protections, particularly if you have only one judgment of garnishment for your income. However, any more than that and you will have a lack of protection. Despite this, your employer does not have the right to terminate you, refuse to promote you, or take other negative actions against you.
Whether you are facing issues with garnishment or simply need help protecting your personal injury settlement, a personal injury attorney can help you. From the moment you have been injured by the negligent behavior of another person or entity, you should consult a lawyer.
At Mazzu Law, we provide comprehensive legal services that include investigating your case, gathering relevant evidence, and negotiating for your full and fair compensation. If there is a chance that you need to file for bankruptcy or your financial situation was dire prior to this injury, we will review all the factors and help you take the right steps to protect your settlement.
We work to make sure you get to keep as much of this money as possible, especially if the defendant was the cause of your financial fallout. Contact our law office today to schedule a free initial consultation where we can review the factors of your case and help you find the best way to move forward.