After the stress of a personal injury, the physical pain, the mounting medical bills, and the difficult negotiations, reaching a settlement agreement can feel like the finish line.
It’s a moment of immense relief. You have successfully held the at-fault party accountable, and you have secured the financial compensation you need to move forward.
But then a new question arises: What happens now? The agreement is signed, but the money isn’t in your bank account yet. How is a settlement actually paid out?
This is one of the most common questions at Lorenz & Lorenz, PLLC.
The period between agreeing to a settlement and receiving your funds can be confusing if you don’t know what to expect. The process involves several important legal and financial steps designed to protect you and fulfill all your case obligations.
Step 1: Signing the Settlement and Release Agreement
The very first step after verbally agreeing to a settlement amount is to formalize it in writing. The defendant's insurance company or their attorney will draft a legal document called a Settlement and Release Agreement.
This document is more than just a formality; it's a legally binding contract. It will detail:
- The total settlement amount.
- The parties involved (you, the defendant, the insurance company).
- A "Release of All Claims" clause.
The release clause is critically important. By signing it, you agree to release the defendant from any and all future liability related to the accident. This means you cannot come back and sue them for more money later, even if your injuries worsen unexpectedly.
It provides finality for both sides.
This is why you must never sign a settlement release without having an experienced attorney review it carefully. A skilled personal injury lawyer from Lorenz & Lorenz, PLLC scrutinizes the document to ensure the terms are exactly what you agreed to and that there are no hidden clauses that could negatively impact you.
Once we confirm the agreement is fair and accurate, you will sign it.
Step 2: The Settlement Check is Sent to Your Attorney
After the signed release agreement is returned to the defendant's insurance company, they will process it and issue the settlement check.
A common misconception is that the check is sent directly to you, the client. This is not the case. For your protection, the check is made out to both you and your law firm.
Why? The settlement funds are not yet yours to spend. There are still outstanding bills and obligations that must be paid from the gross settlement amount. The check is deposited into a special, highly regulated bank account called a client trust account, or an IOLTA (Interest on Lawyers' Trust Accounts).
The timeline for this step can vary. It typically takes the insurance company anywhere from two to six weeks to issue and mail the check after receiving the signed release.
Step 3: Paying Liens, Case Costs, and Attorney's Fees
Once the settlement check has cleared and the funds are securely in the firm's client trust account, the most intricate part of the process begins: settling the financial obligations associated with your case.
The gross settlement amount is used to pay three main categories of expenses.
1. Attorney's Fees
Personal injury law firms like Lorenz & Lorenz, PLLC typically work on a contingency fee basis. This means you pay us no upfront fees to handle your case. We invest our own time, resources, and expertise to fight for you. Our payment is "contingent" upon us winning a settlement or verdict for you. If we don't win, you owe us nothing in attorney's fees.
2. Case Expenses and Litigation Costs
Throughout your case, from the initial investigation after a car accident in Killeen to preparing for a potential trial for a truck accident in Waco, the firm advances the costs necessary to build a strong claim.
At Lorenz & Lorenz, PLLC, we meticulously track every expense. You will receive a detailed, itemized list of these costs so you can see exactly where a portion of the settlement funds went.
3. Medical Liens and Subrogation Claims
This is often the most complex and time-consuming settlement disbursement process. A lien is a legal right or claim that a third party has on your settlement funds as repayment for a debt.
This right to be reimbursed is often called subrogation. Your insurance contract gives the insurer the right to "step into your shoes" and recover the money they spent on your behalf from the at-fault party's settlement.
One of the most significant, yet often overlooked, services a personal injury attorney provides is lien negotiation. An experienced lawyer from Lorenz & Lorenz, PLLC will not simply pay these liens from your settlement.
We will contact each provider, verify the charges are accurate and related to the accident, and actively negotiate to reduce the amount you have to pay back.
Every dollar we save you in lien reductions is a dollar that goes directly into your pocket.
This single step can dramatically increase the amount of your final take-home recovery. This is a critical service we provide for our clients, whether they were injured in a pedestrian accident in downtown Austin or a drunk driving accident near Temple.
Step 4: The Final Settlement Statement and Your Check
Once all attorney's fees are calculated, all case costs are tallied, and all medical liens have been negotiated and finalized, our team at Lorenz & Lorenz, PLLC will prepare a Final Settlement Statement (also called a disbursement sheet).
This document provides a complete and transparent accounting of your settlement. It will clearly list:
- The gross settlement amount.
- A line-item deduction for attorney's fees.
- A line-item list of all case expenses.
- A line-item list of all medical liens and other bills paid.
- The final net amount payable to you.
We will go over this statement with you in detail, answering any questions you have. Your peace of mind and understanding are our top priorities. After you have reviewed and approved the statement, you will sign it, authorizing us to disburse the funds.
At this point, we will cut you a check for your net settlement amount from the client trust account. You have successfully navigated the personal injury claim process.
Lump Sum vs. Structured Settlement
For most standard personal injury cases, the settlement is paid out in a single lump sum. This means you receive your entire net settlement in one check.
However, in certain situations, particularly those involving catastrophic injuries, wrongful death, or cases involving minors, a structured settlement may be an option.
In a structured settlement, you receive the money as a series of guaranteed, periodic payments over time rather than all at once.
Pros of a Structured Settlement:
- Provides long-term financial security.
- Can be tailored to meet future needs (e.g., college tuition, ongoing medical care).
- The payments are typically tax-free.
- Protects against the risk of spending a large sum of money too quickly.
Are Personal Injury Settlements Taxable?
Another frequent question is about taxes. The good news is that, in most cases, personal injury settlements are not taxable at the federal or state level.
According to the IRS, compensation received for physical injuries or physical sickness is non-taxable.
This includes money meant to cover:
- Medical bills.
- Pain and suffering.
- Emotional distress resulting from the physical injury.
- Lost wages due to the physical injury.
However, there are exceptions. The portion of a settlement that is considered punitive damages (damages meant to punish the defendant, not compensate you) is almost always taxable.
Additionally, compensation for purely emotional distress (not stemming from a physical injury) may also be taxable.
Contact Lorenz & Lorenz, PLLC Today
The journey from injury to recovery is a long one, and the legal process can feel overwhelming. Understanding how a settlement is paid out is the final piece of the puzzle.
The most important takeaway is that having a dedicated and experienced legal team on your side is essential to protect your rights, maximize your compensation, and ensure the final disbursement process is handled professionally and accurately.
If you or a loved one has been injured in a car, truck, motorcycle, or any type of accident due to someone else’s negligence, don't face the insurance companies alone.
At Lorenz & Lorenz, PLLC, we handle all the complex legal and financial details so you can focus on what matters most: your health and your family.
We are proud to serve communities across Central Texas. Call us today for a free and confidential consultation.
- Austin Office: (512) 477-7333
- Waco Office: (254) 662-4800
Let us put our experience to work for you.
Frequently Asked Questions (FAQ)
Q1: How long does it really take to get my money after I agree to a settlement?
A: While every case is different, a general timeline is between four to six weeks from the time you sign the release agreement.
This period allows time for the insurance company to process and mail the check, for the check to clear in the trust account, and for your attorney to negotiate and pay all medical liens and case costs. Complex lien negotiations can sometimes extend this timeline.
Q2: Will I get the full settlement amount we agreed on?
A: No, you will receive the net settlement, not the gross settlement. The gross amount is the total settlement figure. From that, attorney's fees, case expenses, and any outstanding medical bills or liens must be paid.
The remaining amount is your net recovery, which is the final check you receive. An attorney's primary goal is to maximize this net number for you.
Q3: What is a medical lien and why must my lawyer pay it?
A: A medical lien is a legal claim for repayment placed on your settlement by a healthcare provider or insurance company that covered the costs of your medical treatment.
Your attorney is legally and ethically obligated to satisfy any valid liens from the settlement funds before disbursing the money to you. A key benefit of hiring a lawyer is that they will work to negotiate these liens down, which increases your final take-home amount.
Q4: Do I have to pay taxes on my personal injury settlement?
A: For the most part, no. The IRS does not consider compensation for physical injuries, medical bills, or pain and suffering to be taxable income. However, portions of a settlement designated for punitive damages or interest are typically taxable.
It is always best to consult with a tax professional about your specific situation.
Q5: Why does the settlement check go to my lawyer at Lorenz & Lorenz, PLLC first?
A: This is a standard and required practice that protects you. The check is sent to your attorney and deposited into a special client trust account to ensure all the financial obligations of your case (like medical liens and case costs) are properly paid.
This prevents creditors from coming after you for payment later on and ensures the disbursement process is handled in a transparent and orderly manner.
Q6: What if the insurance company is delaying payment after we settled?
A: If an insurance company is failing to pay in a timely manner as outlined in the settlement agreement, your attorney at Lorenz & Lorenz, PLLC can take action.
This may involve filing a motion to enforce the settlement with the court or pursuing a bad faith insurance claim against the company for unreasonable delays. We will continue to be your advocate until the funds are secured.
Q7: Can Lorenz & Lorenz, PLLC help me understand all my settlement options?
A: Absolutely. Whether it's deciding between a lump sum and a structured settlement or understanding the details of your final disbursement sheet, our team is here to provide clear explanations and guidance.
We believe an informed client is an empowered client. Call our Austin office at (512) 477-7333 or our Waco office at (254) 662-4800 for a free consultation about your case.