Perhaps you spent months recovering from your injury, and the insurance claims adjuster spent months more making low settlement offers. During this time, your bills have been piling up. Now that a settlement is near, you may ask, “what should I do with my settlement money?”
There are several things you will need to do as soon as the insurance company processes your payment and sends it to your attorney. Here are the answers to some of the questions that are asked most often about post-settlement obligations.
How Are Attorney Fees Handled When a Personal Injury Claim Is Settled?
Most personal injury lawyers work on a contingent fee basis. This means that payment for their services is contingent on a successful resolution of your claim. If your settlement falls through and you lose your case, you owe your attorney nothing.
However, if your attorney can negotiate a settlement on your behalf, they will receive a percentage of the total proceeds awarded for the claim. Here are the steps to how the contingent fee billing method works.
The Contingent Fee Agreement
When you are injured and hire an attorney to assist you in obtaining compensation for your injury, you enter a contingent fee agreement with the attorney. This agreement details the services to be provided, as well as the percentage you both agree to for payment.
The Provision of Services
The attorney provides legal services to you, including determining a value for your claim, presenting a demand for payment to the liable party’s insurance provider, and negotiating a settlement.
The Collection of Settlement Proceeds
When the settlement agreement is in place and you have signed a release from further liability, the insurance provider will process the payment. The payment will be sent directly to the attorney, who will place the amount in a trust fund. From this fund, they will remove the percentage for their services, per the contingent fee agreement.
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Preparing to Receive the Settlement
When you are waiting on a settlement and have a good ballpark idea of how much you are going to receive, you can prepare for the settlement by creating a plan. This plan should include deductions from the award for expenses, including attorney fees and medical liens.
It is advisable to plan for the leftover amount as well, to avoid blowing through it. This plan should include whether you have income from other sources, how much your monthly expenses are, and the number of outstanding debts you can pay off.
Taxes on Settlement Proceeds
According to the Internal Revenue Service (IRS), the proceeds of a personal injury settlement are not taxable because they are not considered income. There are some exceptions, however. If you took an itemized deduction for medical expenses in one tax year and then obtained a settlement that contained compensation for medical expenses the following tax year, you must include, in your income, the amount in deductions you took the previous year for those expenses.
When you obtain pre-settlement legal funding through High Rise Legal Funding, you can rest assured knowing that you will not have to pay taxes on your pre-settlement funding either. Because this funding is considered an advance on a settlement designed to compensate you for a physical injury, it is not considered income.
What Is a Medical Lien and How Is It Satisfied?
When you are injured in an accident that was the result of someone else’s negligence, and that injury requires medical treatment, likely, you will not have the funds to pay the unanticipated costs of the injury out-of-pocket. These unpaid expenses go to collection, and the health care provider or group insurance provider who provided the treatment places a medical lien on any personal injury settlement that you obtain.
A medical lien is an official notice filed against a proposed settlement by a third party that states the party’s legal right to obtain some or all of the proceeds from the settlement to satisfy the debt. When your attorney obtains the proceeds of your settlement, they will take the percentage owed to them for the legal services and will also satisfy any liens placed against the settlement before releasing the funds to you.
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Additional Uses for Remaining Settlement Funds
If there is enough money remaining after you have satisfied the expenses incurred by your injury or accident, you can use those remaining funds on whatever you would like. Some additional ways people use the remainder of their settlement proceeds or funds that they have obtained through pre-settlement legal funding include the following.
Starting a Business or Investing in Family and Friends
The national economy in recent years has left many people scrambling for opportunities to change their lives and their careers. Obtaining a settlement can often provide you that chance, or the opportunity to help family members and friends as they navigate the world of entrepreneurship.
Hiring a Qualified Financial Advisor
Those who are not well trained in handling a large settlement often find great value in hiring a financial advisor to assist them in making decisions on matters such as saving, investing, or estate planning.
Donating to Charity
Donating to a favorite charity not only makes you feel good but can also provide needed tax relief, as those donations are tax-deductible.
Paying Off Debts
A settlement intends to make you financially whole again after incurring impacts and expenses from a negligence-caused accident. Many individuals use the settlement money to start a new chapter of life, in which they are debt-free.
What if You Need Money Right Now?
The settlement process can be long and complicated, often causing health care and other expenses to pile up. You can obtain pre-settlement legal funding to handle emergency expenses and other financial needs while you wait. For more information, contact us today.