Can Personal Injury Money be Reached by Creditors for Your Debts

[Brian57]

As we all saw in the OJ Simpson case, a pension (and possibly a 401K) is untouchable.

When a person trades his injury for a $1M, that money sitting in an acct is essentially his right arm in the form of cash. How could a person be forced to give up his personal injury money to settle a debt?

My wife recently received $35K for a workman's comp personal injury claim and my EA says it was all non-taxable.

I cannot see how any of your personal injury money could be seized during a bankruptcy. Well, maybe the past and future lost earnings of that money could be seized because that is income compensation, not personal injury compensation.

Sure, I don't sound like I know the law, but you guys don't sound like you know for sure either.

[jk]

As we all saw in the OJ Simpson case, a pension (and possibly a 401K) is untouchable.

When a person trades his right arm for a $1M, that money sitting in an acct is essentially his right arm in the form of cash. How could a person be forced to give up his right arm to settle a debt?

My wife recently received $35K for a workman's comp personal injury claim and my EA says it was all non-taxable.

I cannot see how any of your right arm money could be seized during a bankruptcy. Well, maybe the past and future lost earnings of that money could be seized because that is income compensation, not right arm compensation.

Sure, I don't sound like I know the law, but you guys don't sound like you know for sure either.

Whether or not it is taxable does not, in itself, mean it is exempt or not from bankruptcy claims. It means it falls within income that is not taxable and nothing else.

As to those you referred to that sound “not sure” of the law; until the laws are applied to a very specific set of facts, it is no different than a hypothetical situation. Facts matter and unless all pertinent facts are known, there is no absolute answer. Most answers are couched so as to allow for unknown facts to result in different answers

What happened in the OJ civil suit has nothing to do with what happens in a bankruptcy situation. Assets available to pay civil suits differ from what is dealt with in bankruptcy actions.

[Taxing Matters]

My wife recently received $35K for a workman's comp personal injury claim and my EA says it was all non-taxable.

What is taxable and what is not has nothing to do with whether the asset/income involved is attachable by creditors. After all, most pension income is, as you noted, beyond the reach of most judgment creditors but nevertheless is subject to tax. On the other hand, a personal injury award above the amount protected by federal bankruptcy law or state law bankruptcy exemptions (if the state has its own) is not protected from creditors in bankruptcy but is not subject to tax. No one is taking the debtor’s right hand. We are talking simply about money. And that money is awarded in significant part to pay the medical and other bills that the injured person incurred as a result of the injury. It would be odd indeed if those doctors, hospitals, and other creditors could not lay claim to the very money awarded to help the person pay those bills in the first place, wouldn’t it?

Sure, I don't sound like I know the law, but you guys don't sound like you know for sure either.

You are making the mistake of assuming that your emotional reaction of what you think the law should be is what in fact the law says. I go by reading what the law actually says, as does Mr. K and others here. It was the law actually says that matters. And the law is not always logical, or at least not logical in the way you think it should be.

[Brian57]

What is taxable and what is not has nothing to do with whether the asset/income involved is attachable by creditors. After all, most pension income is, as you noted, beyond the reach of most judgment creditors but nevertheless is subject to tax. On the other hand, a personal injury award above the amount protected by federal bankruptcy law or state law bankruptcy exemptions (if the state has its own) is not protected from creditors in bankruptcy but is not subject to tax. No one is taking the debtor’s right hand. We are talking simply about money. And that money is awarded in significant part to pay the medical and other bills that the injured person incurred as a result of the injury. It would be odd indeed if those doctors, hospitals, and other creditors could not lay claim to the very money awarded to help the person pay those bills in the first place, wouldn’t it?



You are making the mistake of assuming that your emotional reaction of what you think the law should be is what in fact the law says. I go by reading what the law actually says, as does Mr. K and others here. It was the law actually says that matters. And the law is not always logical, or at least not logical in the way you think it should be.

But it is not income. It is basically trading a body part for cash. Your arm suddenly becomes a lump of cash.

If a person required $100K/yr of medical treatment to keep his arm alive, could those assets/income be seized too? And off with the right arm? It's not much different.

I realize taxes and bankruptcy is very different but the basis of those funds is very similar.

[jk]

But it is not income. It is basically trading a body part for cash. Your arm suddenly becomes a lump of cash.

so when I go to work and they pay me that isn’t income? I trading my labor for money.

When i sell a car that, doesnt produce income?

Income is exactly what it sounds like. The source and purpose and how it is viewed under various laws may vary but income is income.

[Mr. Knowitall]

Yeah, we get it. You don't understand, and you just can't keep yourself from posting about stuff you don't understand.

[Taxing Matters]

But it is not income. It is basically trading a body part for cash. Your arm suddenly becomes a lump of cash.

It is an asset, which is why I included that term. And what assets are exempt from attachment are defined in the law. We've told you what the law says with regard to personal injury awards.

If a person required $100K/yr of medical treatment to keep his arm alive, could those assets/income be seized too? And off with the right arm? It's not much different.

If the asset or income that the person is planning to use for hte medical treatment is not exempt from attachment, then yes, it could be seized by creditors to pay his debts. That he plans to use the money for future medical treatment does not get that asset protected. If emergency medical treatment is needed to save that arm or he cannot afford to pay for medical care, there are resources available to people for that. Emergency rooms cannot turn away patients based on ability to pay, for example. And programs like Medicaid provide medical care to those unable to pay for health insurance on their own.

What you are not grasping here is that the law defines what is exempt from attachment and whatever your own feelings about it, the law does allow these funds to be attached, at least over a certain amount.

I note that you pointedly avoided discussing the issue I raised about the basis for the judgment being in significant part the medical bills and other expenses that the injured person had incurred and that it would certainly be odd if at least those creditors couldn't reach the money he was awarded to pay those people. Do you not see a problem there if the law made the award entirely exempt from attachment?

[Brian57]

It is an asset, which is why I included that term. And what assets are exempt from attachment are defined in the law. We've told you what the law says with regard to personal injury awards.



If the asset or income that the person is planning to use for hte medical treatment is not exempt from attachment, then yes, it could be seized by creditors to pay his debts. That he plans to use the money for future medical treatment does not get that asset protected. If emergency medical treatment is needed to save that arm or he cannot afford to pay for medical care, there are resources available to people for that. Emergency rooms cannot turn away patients based on ability to pay, for example. And programs like Medicaid provide medical care to those unable to pay for health insurance on their own.

What you are not grasping here is that the law defines what is exempt from attachment and whatever your own feelings about it, the law does allow these funds to be attached, at least over a certain amount.

I note that you pointedly avoided discussing the issue I raised about the basis for the judgment being in significant part the medical bills and other expenses that the injured person had incurred and that it would certainly be odd if at least those creditors couldn't reach the money he was awarded to pay those people. Do you not see a problem there if the law made the award entirely exempt from attachment?

Lawyers have specialties. I have to ask: Is this subject your specialty, or, do you have actual professional experience with this exact matter? Because this seems very odd what you're saying.

I can't ask Mr KIA that because it is below him to answer such a question. Therefore, with his extremely heavy bias, I must take everything he says with a grain of salt. Sorry, it is the image he's created.

Yeah, we get it. You don't understand, and you just can't keep yourself from posting about stuff you don't understand.

Am I making statements about this subject or am I asking questions? It seems the latter.

It is you that couch your statements with "it should be, it might be, it can be" etc. Often couched unless pulled directly from Google.

It is easy to dazzle naive folks like myself and OP's, but I suspect you would be hard pressed to dominate a real lawyer on the other side of the table...since you are not at all interested in what they are capable of.

[Taxing Matters]

Lawyers have specialties. I have to ask: Is this subject your specialty, or, do you have actual professional experience with this exact matter? Because this seems very odd what you're saying.

I do have professional experience in this: I have clients with judgements to collect and who have attached all manner of non exempt assets to collect them, including when needed funds from personal injury lawsuits. Moreover, as I lawyer I know how to research and read the law — we are taught that in law school — and use those skills every day. What is exempt from attachment is pretty to find when you know what to look for. This is not something that is terribly complex or requires a particular speciality to understand.

That you find it hard to understand simply reflects that you are going by your emotional reaction that these funds shouldn't be subject be subject to attachment rather than any research into what the law actually says on the matter.

And I'll ask you again: shouldn't at least those debts that were included in the judgment the injured person got be allowed to attach those funds? Surely you don't think its right for the injured person to use those debts to increase his judgment and then stiff the doctors, hospitals, etc, that provided him with care, do you? The reason I keep going here is that some states do exempt personal injury awards from most attachment, but still do allow attachment for the medical debts that the debtor incurred as a result of that injury.

For example, Colorado revised statute (CRS) section 13-54-102 provides the list of property that is exempt from attachment in that state. Among them are “[t]he proceeds of any claim for damages for personal injuries suffered by any debtor except for obligations incurred for treatment of any kind for such injuries or collection of such damages.” CRS § 13-54-102(1)(n). So as you can see, the Colorado statute clearly allows attachment of the award for the debts incurred to treat the debtor for the injuries he or she had that was the basis for the judgment. Certainly at least that much should seem fair to you, right?

California is not quite as protective as Colorado. It exempts from attachment the portion of the award “to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.” Cal. Civ. Proc. Code § 704.140(b). But even that exempt amount may be attached “if the judgment creditor is a provider of health care whose claim is based on the providing of health care for the personal injury for which the award or settlement was made.” Cal. Civ. Proc. Code § 704.140(c).

Ohio law uses an approach similar to the one used in federal bankruptcy that Mr. K cited to you before (and which I discuss again below.) Ohio law exempts “a payment, not to exceed twenty thousand two hundred dollars, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the person or an individual for whom the person is a dependent.” Ohio Rev. Code Ann. § 2329.66(A)(12)(c). Thus, in that state any judgement creditor may reach the portion of the personal injury award that exceeds $20,200.

Now those laws set out what creditors may attach by garnishment through the state courts. What exemptions apply in bankruptcy, however, differs since federal law determines the exemptions there. Federal law allows a state to: (1) set out its own bankruptcy exemptions, (2) to require the debtor to take the federal exceptions, or (3) allow the debtor to choose either the federal exemptions or the state exemptions (but the debtor cannot cherry pick some from one list and some from another; they must use one list or another). Mr K. gave you the exemption earlier that applies to federal exemptions in bankruptcy. The law that sets out exemptions in bankruptcy is 11 U.S.C. § 522. The provision for personal injury is “a payment, not to exceed $15,000, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent;(d)(11)(D). That $15,000 amount is inflation adjusted, and now stands at $23,675.

So Congress took the Ohio type approach of setting a dollar amount in deciding how to treat personal injury awards in bankruptcy rather than the approach used by Colorado that looks to the type of creditor seeking to attach the award. Congress exempts the first $23,675 and allows anything over that to be claimed by the trustee to pay creditor claims.

As you can see, each jurisdiction does it differently, and the exemptions can differ between what can be attached by garnishment in the courts and what is exempt in bankruptcy. You have to look at the applicable law to determine what, if any, part of a personal injury award (or any other asset or income) might be out of the reach of creditors. It varies from state to state and in federal law. It matters, too, the type of debt being collected. For example, the IRS may levy (garnish) ALL of a personal injury award to collect unpaid federal tax, but worker's comp payments are not subject to levy.

The bottom line, personal injury awards are indeed subject to attachment for at least some kinds of debts despite your initial reaction that they should be completely exempt. The exact extent to which it may be attached depends on the details of the attachment and the applicable federal or state law.

[Brian57]

Thank you for the thorough explanation. Laws like this usually make sense to me after they are explained. This one will too once I wrap my head around it.

Personal injury awards may be a large amount of money but they are made up of very different components. There are lost earning, future lost earnings, pain and suffering, disfigurement, total medical bills, out-of-pocket medical bills, property loss, future medical bills, future pain and suffering, etc. The list goes on and each one has their dollar amount. I never said that lost earnings should be exempt from attachment because that is earned income. However, if someone took your right arm which left you with pain, suffering, disfigurement, handicapped, etc, that is your body. I doubt that one would have to pay a debt by the act of giving up a part of their body. You do not come out financially ahead with pain and suffering, it is an even trade...thus no income tax.

Our bodies are literally worth a million dollars. To suggest that some people have to give up part of their body to pay a debt and others don't, is what I have a problem with.

I just read an article on this and an attorney said parts of a personal injury claim are not attachable. I tend to believe that it is the pain, suffering, disfigurement part that he was referring to. Do you know which part of that large settlement is untouchable?

Oh, BTW, you asked me a question three times and the reason I do not answer it is because I do not understand what you are asking.