A lien gives a person or company a right over someone else's property, or an interest in their legal claim. A lien is sometimes called a security interest. A lien can come from a contract or from state or federal law.
A good example of a lien is a mortgage because a mortgage gives the bank or mortgage company a right over your real estate. As long as you pay your mortgage, the bank cannot take your property, but, if you stop paying your mortgage, the mortgage gives the bank the right to foreclose on your property.
In the personal injury and car accident context, there are several types of liens that can be placed on an insurance settlement or verdict. Some of the most common liens come from the following types of debts or contracts:
If one of these liens exist, an injured person's lawyer must repay the lienholder before disbursing any of the settlement or trial proceeds to the client. If the lawyer knowingly fails to repay the lien out of the client's settlement or verdict, the lienholder will sue the lawyer (as well as the client) for the money, and the lawyer will almost definitely be sanctioned by his/her state's legal governing authority.
Many people with personal injury claims end up with unpaid medical bills. Most states have a law that allows health care providers to place a lien on the injured person's case. Generally, the health care provider has sent the injured person and/or his/her lawyer a specific notice. If the notice is done properly, the health care provider has a lien on any money that the injured person might receive on his/her claim through a settlement or verdict at trial.
Most states' laws permit the injured person to reduce a health care provider's lien by the same percentage of the recovery that the injured person is paying to his/her lawyer. So, if the health care lien is $6,000, and the injured person's lawyer will take one third of the settlement, then the health care provider is only entitled to receive $4,000 on its lien. Either way, most lawyers will try to negotiate with the health care provider to see if the provider will agree to accept even less than the amount of its lien. Sometimes the provider will agree to make a deal with the injured person; sometimes not.
Insurance companies that have paid out insurance benefits to an injured person will almost always have a contractual lien that allows the insurer to be repaid in the event that the injured person receives any proceeds from a car accident injury settlement or verdict. The lien language will be in the insurance policy.
Insurance liens arise from all types of insurance benefits. Workers' compensation insurance, health insurance, and short or long-term disability insurance are the most common types of insurance liens. Similar to a medical lien, an insurance lien must generally be reduced by the same percentage of the recovery that the injured person is paying to his/her lawyer.
If an injured person receives local, state, or federal government benefits as a result of an injury, the government will always have a statutory lien on the injured person's recovery. Typical benefits that will create a lien are Medicare and Medicaid benefits, unemployment benefits, welfare benefits, food stamps, and perhaps even housing benefits.
Unpaid taxes, child support, or alimony can also lead to a lien on a personal injury claim. Every state's law differs as to whether governmental liens can be reduced based on the attorney's fee. Further, many governmental agencies will not negotiate a lien, especially for unpaid child support liens. Their position is that the injured person owes whatever the amount of the lien is, and that is final.
Many people who get injured end up out of work, and they can accumulate credit card debt. A credit card company has no contractual or statutory right to a lien on a car accident injury claim. However, most credit card companies will agree to a reduction in the amount owed if the injured person agrees to voluntarily give them a lien on his/her claim. If you are injured and have substantial credit card debt, you should speak with your lawyer to see if he/she can negotiate a reduction of the amount that you owe in return for giving a credit card company a lien.
Some injured people decide to get a pre-settlement loan. The contract with the pre-settlement loan company gives the loan company a lien on the proceeds of the injured person's claim, and the pre-settlement loan companies rarely agree to negotiate a reduction of the amount owed.