Can a Foreclosure Garnish an Injury Settlement?

Injury settlements are payments made after a lawsuit over an accident that resulted in injury, usually leading to medical expenses and the loss of work opportunities. These settlements, once made, do not fall under specific shelter regulations like some types of financial aid. While a foreclosure will rarely end in seizing assets outside of a property, in some cases creditors can seek further garnishment. Injury settlements, depending on their stage of payment, may be subject to such garnishment.

Foreclosure

A foreclosure is a legal action started by a lender to seize a house, either via a court order or through contract guidelines used by an escrow company holding the deed. The goal of the foreclosure is to provide value to the lender in exchange for the lost loan -- in this case, the value in the property itself, which was used as collateral for the mortgage. Foreclosures are focused on property and are not directly related to any other type of seizure, including the seizure of bank assets.

Judgment Lien

A judgment lien occurs when a court confirms the existence of money owed to a creditor. The court usually orders garnishment through the judgment lien, such as the garnishment of wages. Sometimes lenders with a foreclosure will be left with extra debt that has not yet been paid back and will attempt to get a judgment lien to collect the rest. A judgment lien does have the potential to garnish funds that the borrower holds, such as cash in a normal checking or savings account.

Injury Settlement

The key to garnishing injury settlements is what stage the payment is in. If the settlement has been decided but not yet granted, then no judgment lien can collect on it. If a borrower has received the settlement check but has not yet cashed it, then the money is still difficult to access. But when the borrower cashes the check and deposits the money into an account, it becomes likely that the judgment lien will use account information and decide to garnish debts owed from this money, now paid. Again, this is not likely with a foreclosure, since the lender has already received the collateral as required by the contract.

Limitations

States have varying exemption laws that may protect money in bank accounts. Some states allow for full collection, while others have limitations for wages that go beyond the typical living expenses limitation of the IRS. Because a bank account and the cash in it -- like cash from an injury settlement -- is essentially extra money beyond wages, it is more likely for states to have 100 percent collection laws that allow for total garnishment of the money.