How are Car Accident Settlements Paid?
The fallout of a car accident can linger for months. Even after your bruises are faded and your broken bones have heal, the process is far from over. It’s possible to spend many months working towards a fair car accident settlement amount with the insurance company. Whether you’ve been self-advocating or have had an attorney negotiating, the process can take longer than expected. Once you settle the claim, you wonder: how exactly are car accident settlements paid?
It would be nice to have a check handed to you immediately following an accident. In reality, that’s rarely how it works out. Most of the time you will need to pay a number of parties involved out of your settlement money. Mechanics, doctors, therapists, and lawyers will all be eagerly awaiting your auto accident settlement.
Receiving Compensation for a Car Accident Should Wait Until You’ve Reached MMI
For this and many other reasons, it’s best to wait until you’ve reached maximum medical improvement, or MMI, before accepting a car accident settlement. The concept of MMI essentially says that you should wait until you’re as physically and mentally/emotionally healed as you’re likely to ever be before you accept a car accident settlement offer.
This is because once you accept the settlement terms, you can never again pursue compensation for damages related to the accident. Statutes of limitations may prevent you from waiting too long. In many states, victims have two years from the accident date to pursue compensation. Fortunately, an attorney can help you understand when it’s time to settle a claim.
When NOT To Accept a Car Accident Settlement
In some cases, a lawyer may advise you not to settle. When an insurance company fails to offer fair compensation for car accident damages, you may need to escalate to a lawsuit. Though rare, car accident lawsuits can help you recoup some costs., especially in complex instances or when there’s a major fact of the case that the parties can’t agree on.
In most cases, an experienced attorney will be able to negotiate a fair settlement without going to court.
How and When Will My Car Accident Settlement Money Actually Be Paid Out?
Once you have settled the auto accident claim, it may take some time to actually get paid. Insurance companies handle hundreds of new auto accident claims each day. The bureaucratic red tape that comes with paying out settlements can be frustrating. For large settlements, you may see the lump sum broken up into several payments paid out over a few years. If you need the entire settlement upfront, be sure your lawyer negotiates this arrangement ahead of time.
Upon receipt of your settlement, your lawyer will deposit the money into an escrow account or trust. This is mandatory in most states. Once the check clears, your attorney will distribute the cash. You may want to have them send portions of your settlement to pay off any accident related debts. Fail to resolve these liens, and you could face expensive penalties. This process does require your attorney to be trustworthy, and unfortunately there are a number of instances of lawyers stealing client settlement money, so make sure to do your research and hire an attorney with a good reputation.
Before you spend any of your settlement money, create a list of crash related outstanding debts to pay off. From your settlement, you’ll need to pay off any medical debt you owe because of the accident. Prioritize these payments; because without creating a plan, quickly your settlement money will be frittered away. Make out payments to any mechanics or body shops where you have outstanding debts.
Of course, you’ll also want to take care of your attorney. In many cases, their payment structure demands a certain percentage of your settlement. Get an itemized statement detailing the services you received. Your legal fees may include a number of costs. Costs associated with gathering medical evidence, paying expert witness fees, and paying deposition and court reporting costs. If you have questions or concerns about your legal fees, ask your attorney for clarification.
Tax Implications of a Car Accident Settlement
When creating this list of liens, it also helps to plan for tax season. While it would be nice to assume your settlement money is tax-free, that is unfortunately false. While many parts of a car accident settlement aren’t taxable, such as reimbursement for medical bills, it is a requirement that you have paid taxes on the money you received for lost wages and emotional distress. On the other hand, you won’t owe taxes on medical expenses or for crash related pain and suffering. Work with an accountant to better understand your tax situation so the IRS doesn’t come knocking.
Patience is a virtue, but it can be tempting to wrap up such a stressful period. The settlement process isn’t as straightforward as the insurer simply dropping a check in the mail, though. Typically, insurance companies will pay out car accident settlements in about six weeks. Unfortunately, the process to reach that point can be complex. Understanding what to expect helps you’ll be better prepared to handle the car accident claims process and get the settlement you deserve.