When someone suffers an injury or is wronged due to another party's negligence or misconduct, they often seek justice through an insurance claim or lawsuit. One of the most pressing concerns for individuals going through this process is understanding how a settlement is paid out once a case is resolved. Usually, settlements are paid out as a lump sum or through a structured settlement. In both cases, the payout occurs after making deductions for legal fees, case expenses, and other outstanding obligations.
It is always best to work closely with a personal injury attorney who can explain how your specific payout will be handled and ensure you receive what you are owed.
How Does the Settlement Money Get Distributed?
Once a settlement agreement is reached, either through negotiations or mediation, the process of distribution begins. The defendant or their insurer will send the agreed-upon amount to the plaintiff's attorney. The attorney will then deposit these funds into a client trust account, which is a secure account designated for holding client funds temporarily.
From there, the attorney follows a process to allocate the settlement money:
- Deduction of legal fees based on the contingency fee agreement.
- Case expenses incurred during litigation are reimbursed.
- Medical liens and outstanding bills are paid to relevant healthcare providers.
- Remaining funds are issued to the client as their net recovery.
This process ensures all the parties' money owed are paid before the client receives their portion. Persona injury attorneys are ethically bound to handle this process transparently and in accordance with state laws, such as those enforced by the Illinois Rules of Professional Conduct.
Lawyer Fees and Case Expenses
One of the first deductions from a settlement is the payment for legal services. Most personal injury lawyers charge contingency fees, so they only get payment if the case is successful. The fee is usually a predetermined percentage of the total settlement, commonly 33.33 percent, and is agreed on before representation begins. However, this contingency fee can vary depending on the complexity of the case and the agreement you sign with your attorney.
In addition to the legal fee, attorneys often advance costs necessary to pursue the case, including:
- Court filing fees
- Expert witness fees
- Medical records requests
- Travel expenses
- Deposition and court reporter costs
- Investigative services
These costs reflect the effort and resources invested in securing your settlement. At settlement, they are itemized and deducted from the gross settlement amount, along with the attorney's percentage. Understanding this part of the process helps you anticipate deductions and avoid unexpected surprises. Ensure you have a well-drafted fee agreement that gives you a clear picture of your potential net recovery.
Addressing Medical Liens and Outstanding Bills
Another important aspect of settlement distribution involves resolving medical liens or unpaid bills related to your injury. If you received treatment for injuries tied to your case, healthcare providers may place a lien on your settlement. This is a legal claim that ensures they are reimbursed for services rendered, such as hospital stays, surgeries, or therapy.
In Illinois, for instance, the Health Care Services Lien Act limits such liens to 40 percent of the settlement, provided multiple providers aren't competing for payment. Your lawyer may negotiate these amounts to reduce the burden. It is important to note that liens are normally paid before you receive your share. Organizations that may assert liens on your settlement include:
- Hospitals and physicians
- Health insurance carriers
- Government programs such as Medicare or Medicaid
- Workers' compensation insurers
Once these medical liens are settled, the focus shifts to your payout. This step ensures that your medical providers are compensated, leaving you free from lingering debts tied to the case. It's a key part of the process that highlights the need for legal representation to manage negotiations effectively.
Structured Settlement vs. Lump Sum Payouts
When it comes to receiving your settlement, you'll face a choice between a lump sum or a structured settlement. A lump sum delivers the entire amount at once, offering immediate access to funds for major expenses like medical care or debt repayment. Key features of lump-sum payments include:
- The entire settlement amount after deductions is paid at once.
- Provides immediate access to funds.
- Suitable for those who need to pay off significant debts or expenses quickly.
- More appropriate for those eager to close the chapter and move forward.
In contrast, a structured settlement provides payments over time, monthly, annually, or in periodic lump sums. These payments are tailored to your long-term needs, such as ongoing care or lost income. Their key features include:
- Funds are paid over time in installments.
- Can include provisions for larger periodic payments.
- Provides long-term financial security and budgeting benefits.
- Structured plans can be customized with input from financial advisors.
Each option has its merits, depending on your circumstances. Your choice of settlement payout structure should align with your individual needs and circumstances. It is advisable to consult with your lawyer and possibly a financial planner to help you decide which path aligns with your goals.
Taxes and Settlement Payments
Tax implications are a common concern when receiving a settlement. In general, personal injury settlements in the United States are not taxable if they compensate for physical injuries or illness. However, there are some exceptions, including:
- Emotional distress damages not stemming from a physical injury may be taxable.
- Punitive damages are subject to taxation.
- Lost income damages are subject to income tax.
- Interest earned on a settlement held in an account may also be taxable.
It is advisable to consult both a personal injury attorney and a tax professional to explain the implications of your specific settlement. Planning ahead can help avoid unexpected tax liabilities and ensure compliance with IRS regulations.
Learn More From a Personal Injury Lawyer
When handling a personal injury claim, it is crucial to understand how your settlement will be paid out. If you don't understand how your settlement will be disbursed, you risk encountering unforeseen deductions, delays, or financial complications that can undermine the resolution of your case.
A personal injury lawyer can bring clarity to this process, ensuring you understand how your settlement will be paid out and advocating for your best interests. Contact your attorney today and learn what to expect in your personal injury case.