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Can Creditors Take My Personal Injury Settlement in New York?

February 27, 2020

If you have large debts, you might be facing a garnishment action or considering bankruptcy. Some collections agencies are very aggressive and use every legal tool available to squeeze money out of debtors, often by hounding them at all hours of the day and night.

Fortunately, personal injury settlements are exempt from the reach of creditors—up to a point. This means that creditors cannot take some personal injury settlements to satisfy a debt. However, debtors should still take steps to protect their settlement.

How Much of My Personal Injury Settlement Is Protected?

New York does not allow people to protect all of a personal injury settlement. For example, if you file for Chapter 7 bankruptcy, the trustee can take non-exempt property and distribute the proceeds to your creditors. This happens in exchange for a discharge of any unpaid debts.

Those filing for bankruptcy in New York can choose whether to use the state or federal bankruptcy exemptions. The federal exemptions are more generous:

  • Federal law allows exemption of up to $25,180 in a personal injury settlement. This money must be for economic losses like medical bills and lost wages. It cannot be for pain and suffering. The amount is adjusted regularly.
  • Federal law also provides a “wildcard exemption” that debtors can use to protect anything they want. The wildcard exemption is currently $13,900, though less is available if you used an exemption to protect the equity in a home.
  • By contrast, New York allows debtors to exempt up to $8,550 in personal injury compensation, provided it is for bodily injury and not for pain and suffering.

Any amount that is not exempted is vulnerable to being taken by a creditor, so the more a person can exempt, the better.

Keep Funds Separate

To fully protect your settlement, you want to keep it separate from all other money that you have, which might not be exempt. For example, most wages you earn are not exempt. If you deposit your paycheck into the same account that holds your settlement monies, then you are obscuring what is exempt and what isn’t. This is called “commingling,” and you want to avoid it.

Many creditors will claim commingled funds lose their exemption status and could initiate legal proceedings. They might lose, but trying to separate exempt from non-exempt assets is a time-consuming process and best avoided.

There is an easy way to protect your settlement from commingling—put your settlement in its own bank account and don’t put any other funds in it. If your mother gives you $50 for your birthday, don’t put it in this account. Put it in your regular checking or savings account.

A good way to prevent yourself from commingling settlement funds is to open your account at a different bank, preferably in a different part of Brooklyn from where you normally do business. This way, you won’t accidentally commingle funds.

Contact a Brooklyn Personal Injury Lawyer for Help Protecting Your Settlement

The lawyers at Lipsig, Shapey, Manus & Moverman have aggressively negotiated many favorable settlements for our clients. When you have been injured in an accident, please call us today at 212-285-3300. You can also submit this contact form. All our consultations are free and confidential.


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