Winning a personal injury case is a major milestone for any plaintiff. After months or even years of litigation, medical appointments, depositions, and negotiations, justice is finally served. But what happens next? The process of how funds are distributed after a case is won is critical to understand for managing expectations.
In this post, we examine the process of how settlement or court-awarded funds are handled and disbursed at the conclusion of a personal injury case.
Understanding the Nature of the Award
When a personal injury case is resolved, the plaintiff may receive a settlement (agreed upon out of court) or a judgment (decided by a judge or jury). Either way, the award means to compensate the injured party for medical bills, lost income, pain and suffering, and other personal injury damages.
However, the money doesn’t go immediately into the plaintiff’s pocket. There is a specific process involved in how funds are distributed after a case is won, ensuring that all financial obligations related to the case are satisfied first.
Step 1: Settlement Check Issued to Attorney’s Trust Account
The first step in the disbursement process is for the defendant’s insurance company or legal representative to transfer funds. This is typically done through sending a check or electronic funds transfer like a bank wire. The transfer is typically made payable to the plaintiff’s attorney “in trust,” and deposited into the law firm’s IOLTA (Interest on Lawyers’ Trust Accounts) account.
Funds are deposited into the attorney’s account and not directly to the plaintiff because the attorney must also act as a fiduciary, ensuring that all liens, expenses, and legal fees are handled properly before the plaintiff receives their portion.
Step 2: Paying Attorney’s Fees
In most personal injury cases, legal representation is provided on a contingency fee basis. This means the attorney is paid a percentage of the final settlement or judgment. The standard contingency fee ranges from 33.3% to 40%, depending on the agreement and whether the case went to trial.
For example, if a case settles for $300,000 and the agreed fee is 33.3%, the attorney’s fee would be:
$300,000 x 33.3% = $99,900
This fee is deducted before the client receives any money. The exact fee structure is usually clearly outlined in the signed retainer agreement between the plaintiff and attorney.
Step 3: Reimbursing Case Costs
Beyond their legal fee, attorneys typically advance certain out-of-pocket costs to build and present the case. These are usually referred to as case liens and often include:
- Court filing fees
- Medical record retrieval costs
- Expert witness fees
- Deposition and transcript costs
- Travel expenses
- Postage, copying, and administrative fees
These costs are reimbursed from the recovery. Using the previous example, if case-related expenses total $5,000, that amount would also be deducted before funds are distributed to the client:
$300,000 – $99,900 – $5,000 = $195,100 remaining
Step 4: Paying Medical and Other Liens
It’s common for personal injury plaintiffs to have outstanding medical bills or treatment that was provided on a lien basis. These arrangements are often “guaranteed” through letters of protection where lawyers promise to pay for treatment from the future settlement. Health insurers or medical providers may also have liens on the proceeds.
Types of liens that may need to be satisfied include:
- Health insurance subrogation claims
- Medicare/Medicaid reimbursement
- Hospital or treatment provider liens
- Workers’ compensation liens
- Private medical lien funding companies
Attorneys will often negotiate reductions in these liens to maximize the client’s take-home amount. After all liens are negotiated and paid, the funds can finally be distributed to the client.
For example, a file that owes $40,000 in medical liens but negotiated down to $30,000. Continuing the example, that leaves:
$195,100 – $30,000 = $165,100
Step 5: Repaying Lawsuit Loans (If Applicable)
Some plaintiffs obtain legal funding (also called pre-settlement funding) to help cover living expenses while their case is pending. What are lawsuit loans? These are non-recourse advances that must be repaid from the settlement. Although sometimes referred to as “lawsuit loans”, this is actually a misnomer. These transactions are structured as a transfer or property rights in the potential proceeds of a case. Thus, plaintiffs do not borrow money from their lawsuit in the technical sense.
Although some legal funders offer deals where plaintiffs simply repay double the advance amount, most lawsuit loans get more costly over time. That is, the repayment amount increases with the passage of time. The longer the case takes to resolve, the less plaintiffs receive when the funds are distributed in most cases. Legal system delays can sometimes cause a case to drag on for years. This is especially true with more complex cases such as large mass tort actions and medical malpractice cases. In these instances, payoff amounts can be substantial.
Continuing our example: If a plaintiff took a $10,000 loan and owes $14,000 at the time of disbursement, that amount must be repaid before funds are distributed.
$165,100 – $14,000 (lawsuit loan repayment) = $151,100
Step 6: Final Disbursement to the Plaintiff
After all fees, costs, liens, and advances are paid, funds are distributed and the plaintiff receives the net settlement—the remaining amount. In the above example, the final disbursement would be:
$151,100
The attorney issues a check directly to the client, along with a settlement statement (a.k.a. disbursement sheet) detailing every deduction and payment. Plaintiffs obviously should review this statement carefully and ask any questions before signing.
Timelines for Distribution
A common question is, “How long after winning my case will I receive the money?” While every case is unique, funds are distributed typically something like the following:
- Settlement check issued: 2–6 weeks after agreement
- Deposit and clearance: 5–10 business days in trust account
- Lien resolution: Can take days to months, depending on complexity
- Final disbursement: After all approvals and payments
In total, most plaintiffs receive their funds within 30 to 90 days of the case being resolved. Delays may occur due to lien negotiations, court approvals (especially in cases involving minors), or insurance processing.
If You Have Any Questions, Call 888-964-2224
WE ARE HERE TO HELP YOU!
How Funds are Distributed – Special Circumstances
While the above describes the general process of how funds are distributed after a case is won, certain situations can complicate or delay matters:
Structured Settlements
In some cases, funds are disbursed through a structured settlement, where payments are made in installments over time rather than a lump sum. This often applies in large or catastrophic injury cases.
Court Approval Required
Cases involving minors or incapacitated adults often require court approval of the settlement and distribution plan, which adds time and legal steps.
Bankruptcy or Divorce
If the plaintiff is involved in bankruptcy or divorce proceedings, the settlement funds may be subject to claims by creditors, trustees, or former spouses.
Estate Cases
If the plaintiff passed away before the case was resolved, funds must be distributed through the estate in accordance with probate rules and the decedent’s will or applicable intestacy laws.
Tax Implications
Generally, personal injury settlements are not taxable under federal law if they compensate for physical injuries or illness. However:
- Punitive damages are taxable
- Interest on the settlement is taxable
- Emotional distress awards not related to physical injury may be taxed
Plaintiffs should consult a tax advisor or CPA to understand any obligations based on their specific circumstances.
Tips to Maximize Your Final Settlement Payout
Knowing how funds are distributed after a case is won empowers plaintiffs to take steps that increase their net proceeds. Here are some tips:
- Work with an experienced personal injury attorney who is skilled in negotiating liens and handling disbursements properly.
- Ask for itemized cost tracking from your attorney as the case progresses.
- Avoid unnecessary lawsuit loans, or borrow only what is truly essential.
- Stay involved in the lien negotiation process, especially if you have large medical bills.
Understanding How Funds are Distributed is Important
Understanding how funds are distributed after a case is won is a crucial part of the personal injury process. Although the recovery amount is important, rules exist to ensure everyone involved is fairly compensated.
From attorney fees and medical liens to lawsuit loan repayments and final client disbursements, each step is vital and must be handled with care. Plaintiffs who stay informed and work with experienced legal counsel are best positioned to maximize their outcome and move forward financially secure after their case concludes.
Thank you for your interest in Fair Rate Funding.
