Can A Personal Injury Settlement Be Garnished? (Solved)

So you’ve finally reached a settlement in your personal injury case – huge relief, right? 

But before you get too excited about your payout, you might be wondering if your creditors or others take a piece of it? After all, if you’ve been through an injury, the last thing you want is for your hard-earned settlement to be taken away.

In this post, we’ll shed some light on if and when a personal injury settlement be garnished.

Can A Personal Injury Settlement Be Garnished?

Yes, your personal injury settlement can be garnished, but it’s not a free-for-all. In many cases, it’s protected from regular creditors. 

For example, if you have credit card debt or owe on a personal loan to someone, those companies or collection agencies CANNOT take your settlement money.

That said, there are a few exceptions. And they’re pretty specific.

Also Read: Can Child Support Be Taken from a Personal Injury Settlement?

When A Personal Injury Settlement Can Be Garnished

Your settlement can be garnished in certain situations, especially if the law or a court order allows it. These are the most common scenarios:

#1 Child Support Obligations

One of the most common reasons a personal injury settlement can be garnished is for unpaid child support.

If you owe child support and are awarded a personal injury settlement, the state may take part of it to cover the arrears. This is particularly common if you have a court order in place that requires you to pay child support.

The good news is that the garnishment will generally only apply to the amount you owe. 

For example, if you’ve been behind on payments and there’s a court order, they could take a portion of your settlement to pay those overdue amounts.

#2 Government Debts

If you owe the government money like back taxes, fines or unpaid federal student loans, the government can garnish your personal injury settlement to pay for those debts. 

The IRS, for example, has the ability to garnish wages, bank accounts, and even settlements to satisfy unpaid taxes. This applies whether the debt is from income taxes, business taxes, or any other government-related fees.

The government tends to move quickly on these matters. 

Also Read: Will A Settlement Affect My Food Stamps?

If you owe federal taxes, they have the legal power to go after your settlement money and garnish a portion of it. The same applies to state or local tax authorities.

#3 Court-Ordered Judgments

If you’ve been ordered by a court to pay a judgment to someone, like in a lawsuit or divorce settlement, that judgment can also be paid out of your personal injury settlement. 

This applies if you have an outstanding court-ordered judgment for any reason.

For example, let’s say you lost a court case a few years ago, and the court ruled that you owe someone money. 

If your settlement comes in and you haven’t yet paid that judgment, the other party can claim part of your settlement to satisfy that debt.

#4 Medicaid/Medicare Reimbursement

If you’ve been receiving government health benefits, like Medicaid or Medicare, and your injury-related medical expenses were covered by these programs, they may try to recoup some of that money from your settlement. 

This is known as “subrogation.”

So, let’s say you received treatment for your injury, and Medicaid or Medicare paid for it. 

If you then win a settlement for those same injuries, the government program might ask for reimbursement from your settlement amount. 

#5 Medical Provider Or Hospital Liens

Another situation where your settlement can be garnished is when you owe money to medical providers or hospitals that treated you for your injuries.

The hospital or doctor might place a lien on your settlement.

A lien is essentially a legal claim for the payment of the medical bills you owe. Hospitals and doctors often file these liens if they’ve treated you and know you’re pursuing a claim. 

Once you win a settlement, they can ask for payment directly from it.

These liens are pretty common, and you may not have much choice but to pay the amount owed. However, hospitals or medical providers will typically settle for a reduced amount if your settlement is smaller than expected, so it’s worth discussing your options with your lawyer.

How To Protect Your Settlement From Garnishment

The best way to keep your settlement safe is to get ahead of any issues before the money arrives. Communication and planning go a long way here.

First, let your attorney know if you have any debts that could be a problem. 

This gives them a chance to plan and maybe negotiate before your case is even settled. A lot of personal injury lawyers will help reduce or settle liens as part of wrapping up your case.

Also Read: Are Personal Injury Settlements Considered Marital Property?

Oh and don’t try to hide the money. That rarely ends well. 

Be upfront about what you owe and to whom.

Here are a few things that might help protect your settlement funds:

• Set up a separate settlement account, so the money’s clearly tied to the injury
  
• Ask your attorney to negotiate liens or payments down before disbursement
  
• Avoid mixing settlement funds with other money if you’re trying to protect it from creditors

Some states also offer protections through what’s called “exemptions.” 

These laws vary, but in some places, courts limit how much can be garnished or block it altogether for certain types of debt. Your lawyer can walk you through what applies in your state.

Bottom Line

Your personal injury settlement is safe from general creditors most of the time. But if you owe child support, taxes, or have court-ordered debts or medical liens, part of your money might be taken before it even hits your bank account.

That said, you can take steps to protect yourself by addressing your debts, working with your attorney, and being proactive about your financial situation.

FAQs

Can Creditors Take My Personal Injury Settlement?

Yes, in certain cases, creditors can take a portion of your settlement, especially if you owe child support, taxes, or have medical liens.

Can You Settle A Debt After Garnishment?

Yes, you can usually negotiate a settlement with creditors even after garnishment. 

It’s often possible to settle the debt for less than you owe, depending on the circumstances. So it’s a good idea to talk to a lawyer or debt specialist if you’re in this situation.