You are going through a personal injury lawsuit, and waiting on your claim, but wonder if creditors can take your personal injury settlement? 

Most of the time, creditors can’t take your personal settlement.

Any money you receive from your settlement is exempt. Depending on the time of settlement you received and if those creditors are the IRS and back child support. 

Having creditors calling is already stressful enough, but then adding a personal injury lawsuit on top of it can take the stress to another level.
If you are working with a personal injury lawyer for your case, they should be able to help you get set up with your claim, to keep all or minimize what the creditors are able to take. 

There are a few things you should do to make sure your money stays untouchable. Keep reading to learn the steps you should take. 


1) Don’t combine your settlement with your paycheck 

To limit confusion for yourself and creditors, keep your settlement in a separate bank account. Go and open a new bank account that will strictly be for your claim. 


2) Use A Prepaid Debit Card 

To ensure the creditors cannot track down your spending, get a prepaid card from your new bank account. Make sure you keep a paper trail that all of the money in this account is from the settlement and that no money from any other source gets mixed in. By adding other income sources, it could be subject to garnishment by the lien holder.


Who Can Put A Lien On A Personal Injury Settlement? 

In most cases, liens come through the medical process for your personal injury medical needs. This would be health providers, health insurance providers, Medicaid, or auto insurance. 

If you don’t have medical insurance when getting treatment, the provider might have you and your lawyer sign a letter of intent to pay for the care you receive. 

If any of your health treatments are paid for with Medicaid, the state will want to be paid back out of the settlement.

Your auto insurance company may have a policy that if they pay more than $5,000 in medical care for your personal injury medical care, that you would need to pay them back.
This all sounds daunting, but if you are being represented by an experienced personal injury lawyer, they will be aware of these potential liens and be sure to factor these into your settlement agreement to make sure you get the maximum settlement you deserve. 


Can The IRS Garnish Your Settlement?

Yes, if you owe the IRS back taxes, they could take your settlement. There are a few things you should do: 

  • Let your attorney know that you owe back taxes so he can prepare the settlement agreement appropriately.
  • See if you can work a deal with the IRS to get a lesser payoff amount. 
  • As stated above, don’t put the settlement in your bank account. 


Closing Statements

Make a plan with your lawyer before receiving your settlement. They are on your team, the more info you share with them and the sooner, the more time they can build a plan to give you the best possible outcome.

See what you can do to minimize the amount of money you owe, most times debt collectors will settle for less than what is actually owed. 

Get your new account set up before you get your settlement, be proactive, and be sure to keep settlement money and other income separate.