As a general rule, if there are any liens on your personal injury case, the liens will get paid off first from any settlement or verdict in your case. In other words, the lienholders get paid before you do. Let's take a closer look at how liens work in the context of a personal injury claim.
Who Might Have a Lien on Your Injury Case?
Liens can come from any number of sources. Here are just a few:
- unpaid federal or state taxes
- unpaid child support
- unpaid medical bills
- Medicare or Medicaid payments for injuries suffered in the underlying accident
- medical bill payments made by a health insurer for injuries suffered in the underlying accident
- payments made a by a workers’ compensation insurer for injuries suffered in the underlying accident
- long- or short-term disability payments related to your injury, and
- other creditors (people or companies) you might owe money to.
How Does a Lien Get on Your Case?
There are different legal methods by which a lien gets placed on your case. Some lienholders, like tax or child support authorities, are entitled to a lien on your case as a matter of law. All they have to do is write the proper letter to you and/or your lawyer in order to assert their rights.
Other lienholders, like insurance companies, are entitled to the lien by the terms of the insurance contract that provides your coverage.
Finally, if you owe someone money, that person or business might be able to go to court and have a judge authorize a lien on your case.
What Can You Do About a Lien?
Unfortunately, once a lien is on your case, it is usually there to stay. The only way to get a lien off your case is to prove that it shouldn’t have been put there in the first place -- either because you don’t owe the money or because the insurance payments in question did not relate to the injury for which you are suing. If your lawyer can prove one of those things to the lienholder’s satisfaction, then the lienholder should remove the lien. If not, the lien is going to stay.
And if the lien is still there when you settle your case, your lawyer is going to have to pay the lienholders first. The lienholders are legally entitled to get all of their money before you get a cent, even if there is nothing left for you. (Learn more about Personal Injury Settlements.)
That is a pretty harsh result, and it's one reason why good lawyers will start negotiating with the lienholders before they settle the case. Once the case is settled, your lawyer will have no leverage to get the lienholder to possibly reduce the lien. Another way of putting this is, once the case is settled, a lienholder will have no reason to agree to reduce its lien. The settlement is done; the money is there; the lienholder just sits back and waits for its money.
But when the plaintiff’s lawyer negotiates with the lienholder before settling the case, now the plaintiff has some leverage over the lienholder. If the plaintiff goes to trial and loses, then the plaintiff gets no money, and the lienholder also gets nothing. So, if the plaintiff’s lawyer can convince the lienholder that the plaintiff’s case isn’t very good, the lienholder will often agree to compromise its lien in order to make sure that it at least it gets something.
The lesson here is that, in any case where you have liens on your case, you want to make sure your personal injury lawyer is talking with the lienholders well in advance of any settlement negotiations, especially where insurance companies and government agencies are involved. Bureaucracies like those move very slowly, and they need time to get approval of any compromise of a lien. Your lawyer shouldn’t try contacting a lienholder for the first time to talk about reducing its lien in the middle of settlement mediation. (More Personal Injury Claim Do's and Don'ts.)