Can an Injury Settlement Be Garnished?

After winning a settlement, you might think the battle is over. Ideally, this is true, but there are cases in which creditors and the bankruptcy court might threaten a settlement with garnishment. In Kansas City, as in most places in the country, injury settlements are exempt from garnishment and from bankruptcy cases.

Parties cannot take part or all of your settlement as payment for your debts. However, you might have to take certain steps to ensure your settlement’s protection from garnishment. Following these guidelines can help you keep your Kansas City personal injury settlement exempt.

can a worker's compensation settlement be garnished?

Keep Your Settlement Money Separate

Upon receiving your settlement check, don’t deposit it into the bank with other sources of income. Instead, keep it in its own account, separate from other wages. Do not deposit any other types of money into this account. Segregating your settlement earnings instead of what the bank calls “commingling funds” protects its exemption from garnishment. Mixing your settlement money with your other income, on the other hand, removes the settlement’s inherent protection from garnishment.

If you do have to deposit other money into the same account as your settlement, keep careful documentation that separates the two types of funds. You might have to prove that the money in your account is from the settlement and not your wages, in the event of a wage garnishment situation. You will need to keep receipts, deposits, and other documentation providing a “paper trail” of which money came from your wages and which came from a settlement check. This is why it’s easiest to simply deposit the settlement and only the settlement into its own account.

Get a Prepaid Debit Card

If the courts issue a judgment against you, protect your injury settlement by moving it to a prepaid debit card – not a bank account. The prepaid card should not have any connection to your traditional checking or savings accounts. This is a legal way to keep your settlement money exempt from garnishment, as collectors will not be able to garnish the prepaid card. Once again, keep a paper trail as proof that the money on the prepaid card came from your injury settlement. Do not commingle any other types of deposits onto the card.

Protecting a Workers’ Compensation Settlement

Injury settlement checks through the workers’ compensation program in Kansas City follow much the same rules as other types of settlements. In most cases, workers’ comp settlements are exempt from garnishment as are other settlement types. Debt collectors cannot garnish them, with the exception of certain government agencies. For example, the KC government might be able to garnish a settlement received from workers’ compensation if you fail to pay spousal or child support. Treat a workers’ compensation settlement the same as other injury awards and take steps to protect it from garnishment.

Prevent Creditor’s Liens

It is possible for a creditor to place a lien on an injury settlement if the law entitles the third party to some or the entire award. For example, an entity paid your medical bills with the agreement that you would repay the entity if and when you won a settlement. Hospitals, medical care providers, and insurance companies can potentially place a lien against your settlement to get the money the plaintiff owes. While you must pay these entities at some point, talking to a lawyer can help protect your recent injury settlement. In some cases, a skilled attorney can help prevent liens and negotiate payment plans to avoid settlement garnishment.

Talk to an Attorney

Our attorneys specialize in liens and garnishments and can help you protect your settlement in the event of a judgment against you and they can help you know what to do with the money today, tomorrow, and far into the future.