The settlement amount that you win after a car accident can go a long way in helping you pay for your medical bills and other expenses if you were recently injured in an accident. However, you may be subject to garnishment action at the hands of creditors if you owe a large debt.
The settlement amount that you win after a car accident can go a long way in helping you pay for your medical bills and other expenses if you were recently injured in an accident. However, you may be subject to garnishment action at the hands of creditors if you owe a large debt.
Many people consider bankruptcy since it offers the debtor an opportunity to rebuild their credit score. Another significant advantage of declaring bankruptcy is that creditors cannot harass you. Collection agencies can be quite aggressive. They can use questionable tactics for recovering money. For instance, they may call you at inconvenient times.
In New York, personal injury settlements are exempt at the hands of the creditors to some extent. Creditors, as a result, are prohibited from taking a part of the personal injury settlement as recovery for their debts. This is primarily because personal settlements cannot be seized by creditors to a certain extent. They don’t have the right to take any part of your injury settlement.
However, even though the settlement is recognized as being exempt under New York law from creditors, it is important that people who owe settlements and debt take critical actions for protecting their assets.
Income Execution
Income execution refers to an order from a government agency or a court requiring the employer to withhold some part of the money from their paycheck to benefit the creditor. There are legal limits in place dictating the amount of paycheck that can be garnished by a creditor. This depends primarily on the debt type.
Garnishment
Assets can be seized from the debtor by the creditor through garnishment. This is a legal proceeding allowing creditors to take resources from the debtor to satisfy the judgment. Creditors cannot start taking your assets by claiming you owe them money.
Instead, creditors have to take a legal judgment against debtors. Creditors are also required to take the necessary steps for filing garnishments and serving them properly. Garnishment is a lawful judgment by way of which the creditor can collect from the debtor’s assets.
Medical Care Liens Following an Accident
Liens in New York can be filed against settlements for personal injury. These liens usually get filed by parties providing medical care that results from injuries leading to a settlement. Medicare and Medicaid physicians and agencies are some of the parties filing these liens. These liens can also be filed by private carriers.
You may be asked to sign a lien if you were injured in an accident and your medical treatment is not covered by your health insurance. The lien will state that the treatment provider has the right to recuperate the cost of service from the recovered settlement. The medical provider may garnish your personal injury settlement to pay for the medical costs.
Child Support Liens
Child support obligations are taken seriously by New York. Parties can face significant consequences if they fail to pay child support. In New York, liens can be filed against the personal injury claim of a parent for collecting overdue child support.
Protecting Personal Injury Settlements
Individuals in New York are not allowed to protect their full personal injury settlement. Nonexempt assets are eligible for distribution for the payment of creditors in exchange for discharging all unpaid debts if the debtor files for Chapter 7 bankruptcy.
In New York, people filing for bankruptcy can choose between utilizing state and federal bankruptcy exemptions. Most people tend to prefer federal exemptions since they have more generous guidelines than the ones within the state.
These are a few of these generous guidelines:
- Exemptions of up to $25,180 are permitted under federal law for personal injury settlements. However, this is only if the compensation is awarded for economic losses, such as medical bills or lost wages following an accident. The compensation should not have been awarded for pain and suffering. The amount of $25,180 gets routinely adjusted.
- Wildcard exemptions are also acknowledged under federal law. This can be utilized by debtors to protect their non-exempt assets. Currently, wildcard exemption stands at $13,900. This amount can be lowered if the exemption is used for protecting a home’s equity.
- In New York state exemption for personal injury, compensation happens to be much lower than federal exemptions. Debtors are permitted to exempt up to $8,500 in New York in personal injury compensation. However, this compensation should not be assigned to pain or suffering. It should be assigned for bodily injury. Nonexempt assets that are not excluded in the bankruptcy can be seized by creditors.
- Chapter 7 bankruptcy proceedings can also protect personal injury settlements as long as the creditor misses the deadline to file a “proof of claims” with the bankruptcy court. The “proof of claims” is used for establishing that the debtor (personal filing for bankruptcy) owes the creditor a certain amount. Creditors waive their right to collect on personal injury settlement and non-exempt debts if they fail to file the claim.
Keeping Assets Separate is Vital
A critical step in protecting settlements is keeping your funds separate from the money you own. Bankruptcy exemptions apply to compensation and settlements and may not apply to other funds present in your bank account.
You risk obscuring funds protected under bankruptcy exemption if you deposit the settlement amount where you get your paycheck. This act is referred to as “commingling” funds. You should avoid doing this wherever possible.
Creditors tend to argue that commingled assets do not have an exemption status. Often, legal actions are filed to seize these funds. You may need to devote some time to set up a separate bank account for your settlement. But, in the long run this is a much better option since it avoids the risks arising from commingling funds.
Some people in their bid to further distinguish the two accounts use a separate financial institute for creating a bank account. This helps in decreasing the risk of commingling funds accidentally.
Protecting Personal Injury Settlements in New York
These are a few things you should remember about protecting personal injury settlements from creditors.
- The exempted settlement amount is influenced by whether damages are viewed as economic or non-economic. The decision of labeling these damages is critical, especially if the person is anticipating filing for bankruptcy or owes money.
- You need to ensure documenting important issues about the damage settlement. This includes which bank account to keep the money in.
- The bankruptcy process can be a complex process. Taking federal or state exemptions is one of the most critical decisions to be made. Seeking advice from a knowledgeable personal injury attorney can help you understand your options better.
Student Loans, Child Support, and Unpaid Taxes Limits
The creditor or government can garnish your wages without having to wait for a court judgment if you owe student loans, child support, and taxes. The amount of maximum garnishment in these cases is different.
Child Support
All court orders since 1988 for child support include an automatic income withholding order. It is possible for the other parent to get a wage garnishment order if you are behind on child support payments. Garnishment as per federal law is limited to 50% of the disposable earnings if you support a child or a spouse that is not subject of the order.
Sixty percent of your earnings can be taken if you are not supporting a child or a spouse. An additional 5% may be garnished as part of support payments in arrears over 12 weeks.
Defaulted Student Loans
The US Department of Education or another entity collecting for them has the right to garnish your wages without a court judgment if you have defaulted on a federal student loan. This will be done under administrative garnishment. Up to 15% of your disposable income can be garnished by the Department of Education. However, the amount cannot be more than 30 times the amount of minimum wage.
Unpaid Taxes
Your wages can be garnished by the federal government without a court order if you owe back taxes. The amount will depend on your deduction rate and the number of dependents you have. Local and state governments also have the right to garnish wages to collect unpaid local and state taxes.
Wage Garnishments and Losing Your Job
It can be annoying for your employer to comply with wage garnishment orders. They may terminate your employment because of this. Federal and state law may afford you some protection in this situation. Your employer cannot fire you under federal law if you have one wage garnishment. However, you won’t be protected under federal law if you have more.
You should check with a local attorney regarding state protections. Income execution is no excuse for an employer to fire, refuse to promote or take any negative action.
Consult with an Experienced Personal Injury Attorney in NYC
Outstanding debts and student loans can amplify the stress of a personal injury claim in New York City. You should plan ahead by staying informed. The dedicated and resourceful personal injury attorneys at Rosenberg, Minc, Falkoff & Wolff have the necessary knowledge and experience to evaluate your situation and help you with the best possible legal strategy. call Rosenberg, Minc, Falkoff & Wolff, LLP today at 212-344-1000 or contact us online.
