Can Personal Injury Settlements Be Garnished in NY?

For many, reaching a settlement agreement in a personal injury lawsuit is a source of relief – both financially and mentally. Plaintiffs who settle have both avoided a lengthy, potentially messy trial and secured the financial compensation they need in order to deal with the effects of whatever the defendant in their case did. Such compensation is often desperately needed by plaintiffs, especially if they have significant medical bills that need to be paid. Some plaintiffs, therefore, may be worried about whether the settlement they fought hard for can be taken away by creditors.

Fortunately, in New York, your settlement awards are at least partially protected from creditors trying to garnish your wages. Whether your award is protected or not is also dependent on the reason you are subject to a garnishment.

To get a free assessment of your situation, call The Carrion Law Firm’s New York personal injury lawyers at (718) 841-0083.

Can Creditors Garnish My Personal Injury Settlement in New York?

If you are in debt and also get compensation through a settlement, it is partially protected from creditors under New York law. Under C.V.P. Law § 5205(l), $2,500 of “statutorily exempt payments” – can be protected. This is reduced protection compared to federal garnishment protections, however, so you may be able to actually protect more under federal law than what New York State would protect.

When and How are Settlements Protected from Garnishment in New York?

It may be helpful to understand exactly what can and cannot be garnished to pay debts in New York. There are both Federal and state laws that deal with wage garnishment, and some or both of them may apply to your situation. In order to figure out which ones are relevant to your concerns, you should discuss your situation in detail with our Staten Island personal injury lawyers.

Federal Protections for Personal Injury Settlements

Personal injury settlements can be partially protected from wage garnishments pursuant to 11 U.S.C. § 522(d). In order to qualify for an exemption, you need to show that the financial compensation you got from the settlement was used to pay for things like medical expenses or counteract lost income. Damages or compensation awarded from settlements cannot be exempt if it was awarded for pain and suffering, emotional distress, or other non-economic reasons. Additionally, Federal law permits “wildcard” exemptions from debt under this statute, so you may be able to get a little more of the settlement protected depending on your circumstances.

Missed Child Support Payments

Making child support payments on time is something that the state of New York takes extremely seriously. If you do not make child support payments on time, one of the options available to the state is to dip into settlement amounts in order to make those payments, as they are not protected per C.V.P. Law § 5205(o). However, as long as you are able to pay any child support through income, wage garnishment, or other means, your settlement award will not be cut into to pay child support.

Tips to Avoid Getting Your Settlement Garnished in New York

There are steps you can take to avoid having the compensation you get out of a personal injury settlement garnished in New York. Some of these steps are universally helpful, while others may only apply in certain circumstances. Essentially, there needs to be a distinction between what assets are from income and other sources and what assets you got from a settlement; otherwise, they are indistinguishable, and you will not be able to protect your settlement from garnishment.

Asset Separation

One way to help guard against settlements being garnished is to keep them separate from other income you get. A lot of the time, the income you receive from your job, disability, or other sources can be garnished to the maximum extent possible under the law. If you place settlement awards in the same bank account as your income, there is not really a way to tell the two apart. This is called the “comingling” of funds, and our lawyers recommend avoiding it because your settlement can then be garnished just like wages. Instead, keep settlement amounts in a separate account and have clear documentation of settlement payments if they are coming in over time.

Set Up a Trust

Under C.V.P. Law § 5025(c), things that are in trusts are exempt from debt collectors. This is because you do not technically “own” things that are in a properly set up trust, so they cannot be seized by creditors in many cases. However, once you take something like a settlement payment out of a trust account, it becomes yours and, therefore, can be garnished to pay off creditors.

Trusts are fairly simple to set up, but you need to know what kind of trust makes sense for your situation and whether you will be deemed to be in control of the assets in that trust.

Bankruptcy

Another way that you can prevent garnishment of wages, settlements, and more in New York is to file for bankruptcy. Bankruptcy puts an “automatic stay” in place that stops all attempts to collect debts against you, including garnishments. This gives people who file for bankruptcy breathing room and allows them to pay off debts at a pace that works for everyone.

That being said, filing for bankruptcy is not a decision that should be taken lightly, and there can be unintended consequences if you decide to do so without seeing the full picture, so you should speak to legal counsel to see if bankruptcy is a good choice in your situation.

Contact Our NY Personal Injury Lawyers Today

Our Brooklyn personal injury lawyers can work with you right away when you call The Carrion Law Firm at (718) 841-0083.