Can My Personal Injury Settlement be Garnished?
If you were injured in an accident, the amount that you win in a settlement can go a long way in paying for your medical bills and other resulting expenses. If you also owe a large debt, however, you might worry about garnishment actions from creditors. You might even be considering bankruptcy. While bankruptcy offers a debtor the opportunity to rebuild a strong credit score, another advantage that many people realize by declaring bankruptcy is that it prevents creditor harassment. Some collection agencies are extremely aggressive and use questionable tactics to recover money from debtors, such as calling at inconvenient times.
Fortunately, personal injury settlements in New York are exempt to a degree from the hands of creditors. As a result, creditors are prohibited in several situations from taking personal injury settlements to satisfy debts. This is because personal settlements to a degree are protected from creditors; they do not have a right to seize part of an injury settlement. Even though New York law recognizes that settlements in some situations should be exempt from creditors, people who owe debts and receive settlements should still take some critical actions to protect these assets.
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Liens for Medical Care After an Accident
In New York, liens can be filed against a personal injury settlement. These liens are often filed by parties who provided medical care as a result of injuries caused by a settlement. Some of the parties who file these liens include Medicare and Medicaid agencies and physicians, as well as private health insurance carriers. If you are injured in an accident and your health insurance does not cover your medical treatment, you will likely be required to sign a lien stating that the medical provider has the right to recuperate costs of service from a settlement. Later, if you win a personal injury settlement, this will be garnished to pay for these medical costs.
Liens for Child Support
New York state takes child support seriously. Failure to pay child support can cause parties to face serious consequences. Among the many actions that New York state takes to collect funds from parents who refuse to pay child support is that liens might be filed against a parent’s personal injury claim to collect overdue child support.
What Degree of Personal Injury Settlements are Protected?
New York does not permit individuals to protect the entirety of a personal injury settlement. This means that if a person files for Chapter 7 bankruptcy, non-exempt assets can be distributed to pay off creditors in the exchange for the discharge of any unpaid debts. People who file for bankruptcy in New York can select whether to utilize either federal or state bankruptcy exemptions. Most individuals select federal exemptions because they are more generous than the state ones. Consider the following:
● Federal law permits exemptions of up to $25,180 for personal injury settlements provided that this compensation was awarded for economic losses like lost wages and medical bills that a person faces after an accident. This compensation cannot have been awarded for pain and suffering. While this amount is currently $25,180, it is routinely adjusted.
● Federal law acknowledges a “wildcard exemption” that can be utilized by debtors to protect any non-exempt asset that they wish. Currently, the wildcard exemption is $13,900, although this amount can be lowered if a person utilized an exemption to protect a home’s equity.
● New York state’s exemption for personal injury compensation is much lower than the federal one. New York permits debtors to exempt up to $8,500 in personal injury compensation, but this compensation must have been assigned for bodily injury and not pain or suffering. Remember, any non-exempt asset in bankruptcy that is not excluded is at risk of being seized by creditors.
● Personal injury settlements can also be protected during Chapter 7 bankruptcy proceedings provided that a creditor fails to file “proof of claims” with the bankruptcy court before the deadline. These “proof of claims” establish that a certain amount is owed to the creditor and owed by the person who is filing for bankruptcy. If a creditor fails to file this claim, they waive their right to collect non-exempt debts including the personal injury settlement.
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Keep Assets Separate
One of the most critical steps that you should take to protect a settlement is to keep these funds separate from other money that you own. While bankruptcy exemptions apply to your settlement, it is unlikely that any exemptions apply to other funds in a bank account. If you deposit a settlement amount into the same account as where you place your paycheck, you are at risk of obscuring what funds can be protected under bankruptcy exemption. The act of combining a settlement with a paycheck is referred to as “commingling” funds and should be avoided whenever possible. Creditors often argue that commingled assets lose their exemption status and as a result often file legal actions to seize these funds. While it might require slightly more time upfront to establish a separate bank account for a settlement, this is a much better option than the complications that can arise from commingling funds. To further distinguish between the two accounts, some people go as far as creating a bank account at a separate financial institute. Doing this helps to decrease the risk of accidentally commingling funds.
Things to Remember About Protecting Personal Injury Settlements
There are several helpful things to remember about protecting settlements from creditors include:
● The exempted amount of the settlement will be influenced by what damages are viewed as economic versus non-economic. The decision of how to label these damages is often critical, particularly if a person owes money or anticipates filing for bankruptcy.
● Make sure to document important issues about the settlement, including the bank account where it is kept. These preventative steps can help to guard the settlement amount.
● The bankruptcy process is a complex one. Deciding on whether to take federal or state exemptions is just one of several critical issues. A knowledgeable attorney can help you navigate the bankruptcy and determine what options work best for your situation.
Contact a Knowledgeable Nassau County Personal Injury Attorney
If you or a loved one has been injured in an accident and someone else is responsible, remember that you have the right to pursue compensation. If you are dealing with creditors who are attempting to collect on debts owed, you can quickly find yourself facing a complex situation. Contact the Law Office of Cohen & Jaffe LLP today to schedule a free case evaluation regarding your personal injury case today.