When someone is injured in a Texas accident, they may be entitled to compensation for their property damage, medical bills, lost wages, and pain and suffering. This compensation is typically paid out through a personal injury settlement, which is an agreement between the injured party and the at-fault party or their insurance company.
Settlements are usually disbursed through either a lump sum payment or a structured settlement, each with its unique benefits and drawbacks. In this article, the personal injury attorneys at Varghese Summersett explain how personal injury settlements are paid out in Texas and the different options available to injured parties.
Lump Sum Payments
A lump sum payment is a one-time, comprehensive payment that covers the total amount agreed upon in the settlement. This is often the most straightforward option, where the injured party receives the entire settlement amount in a single check or direct deposit. For example, if a settlement is reached for $250,000, the injured party would receive the full amount (minus any fees or liens) in a single payment.
How Are Lump Sum Payments Processed?
After an agreement has been reached with the insurance company or the liable party, the defendant typically has a set period, often between 30 to 60 days, to disburse the settlement funds. Texas law allows for the settlement agreement to be documented in a legally binding contract, which both parties sign. After this, the defendant (or their insurer) processes the payment. Here’s how it typically works:
- Settlement Agreement: Both parties sign the settlement agreement, which outlines the terms and conditions.
- Release Form: The plaintiff signs a release form, which essentially waives their right to pursue further legal action related to the injury.
- Payment Disbursement: The settlement amount is then disbursed, usually to the plaintiff’s attorney, who manages the distribution.
Pros of Lump Sum Payments
- Immediate Access to Funds: Receiving the full amount at once can be beneficial if the injured party has substantial medical bills, lost wages, or other pressing financial needs.
- Financial Freedom: A lump sum allows the recipient to invest, save, or use the money as they see fit.
- Finality: The case is closed once the payment is made, offering a sense of closure and eliminating future dealings with the defendant or insurer.
Cons of Lump Sum Payments
- Financial Risk: With a large sum of money comes the risk of poor financial decisions. Without careful management, the funds can be depleted quickly.
- Tax Implications: Although personal injury settlements are generally non-taxable, any interest or investment income earned from the lump sum may be subject to taxation.
- No Long-Term Financial Support: A lump sum does not provide ongoing financial support, which may be necessary if the injured party has long-term medical needs.
Structured Settlements
A structured settlement involves periodic payments made over a set period, rather than a single lump sum. The payments can be arranged in various ways, including monthly, annually, or in larger sums at specific intervals.
How Are Structured Settlements Processed?
Structured settlements involve receiving regular payments over a specified period. The defendant’s insurance company often purchases an annuity from a life insurance company, which funds the periodic payments to the plaintiff. For instance, a $300,000 settlement might be paid out in monthly or annual installments over 20 years. The key steps include:
- Settlement Agreement: Both parties agree to the terms of the structured settlement, including the payment schedule.
- Annuity Purchase: The defendant’s insurer buys an annuity from a life insurance company.
- Periodic Payments: The life insurance company disburses payments to the plaintiff according to the agreed-upon schedule.
Pros of Structured Settlements
- Long-Term Financial Security: Structured settlements provide a steady income stream, which can be especially useful for individuals with ongoing medical needs or long-term financial commitments.
- Tax Benefits: Periodic payments from a structured settlement are typically non-taxable.
- Less Financial Risk: Receiving smaller amounts over time reduces the risk of mismanaging the settlement funds.
Cons of Structured Settlements
- Lack of Immediate Access: Individuals who need large sums upfront for medical bills or other expenses may find structured settlements limiting.
- Inflexibility: Once the payment schedule is set, it is often difficult or impossible to change.
- Potential Loss in Value: If inflation rises significantly over time, the fixed payments might lose purchasing power.
What Happens After a Settlement Is Reached?
Once a settlement is reached, there are several key steps that follow:
1. Review and Sign the Settlement Agreement
After negotiations, your injury lawyer will review the settlement agreement, ensuring all terms are accurately reflected. This legally binding document outlines the amount and method of payment and requires both parties’ signatures.
2. Sign a Release Form
Before the settlement funds are disbursed, you must sign a release form. This document releases the defendant from any further liability related to the incident. It’s critical to understand that signing this form generally waives your right to pursue additional compensation.
3. Attorney Disbursement
Once the defendant’s insurance company processes the payment, the funds are typically sent to your lawyer. The attorney will deposit the check into a trust account, from which they will:
- Pay Any Outstanding Liens: If you have unpaid medical bills or liens, they must be settled first.
- Deduct Legal Fees: Your attorney will take their agreed-upon fee from the settlement amount.
- Issue the Remainder: After deducting fees and paying off liens, the remaining funds are disbursed to you.
4. Manage Your Funds
It’s essential to plan how you will use your settlement funds. Whether you receive a lump sum or structured payments, consider consulting a financial advisor to help manage the money effectively.
It’s important to note that the timeline for receiving a settlement can vary depending on factors such as case complexity and negotiations with lienholders.
Can Creditors Claim Part of Personal Injury Settlements?
In most cases, personal injury settlements are exempt from seizure by general creditors. This means that if you owe money to credit card companies, personal lenders, or have other unsecured debts, those creditors typically cannot take your settlement funds to satisfy those debts. Still, there are some important exceptions to be aware of:
Exceptions
However, there are some key situations where portions of your settlement may be claimed:
- Medical Liens: Healthcare providers who treated your injuries may have placed liens on your settlement. These liens must typically be paid from the settlement funds.
- Child Support: If you owe back child support, a portion of your settlement may be claimed to satisfy those obligations.
- Government Debts: Certain government debts like unpaid taxes or student loans may be able to claim settlement funds.
- Bankruptcy: If you file for bankruptcy, a portion of your settlement may become part of the bankruptcy estate, depending on the timing and specifics of your case.
Protecting Your Settlement
To best protect your settlement funds:
- Deposit the money into a separate account, not commingled with other funds.
- Consider using a prepaid debit card for settlement funds to avoid bank account garnishment.
- Consult with a financial advisor or attorney on the best way to structure and protect your settlement
Secure Your Settlement with Varghese Summersett
Navigating a personal injury settlement can be complicated, and choosing the right payment method is a crucial decision. The experienced personal injury attorneys at Varghese Summersett are here to guide you through every step. Call Varghese Summersett today at (817) 320-2220 or contact us online to get started on your path to recovery.
