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What usually comes out of a settlement
Settlement money normally goes to the lawyer’s trust account first. The lawyer’s fee comes out according to the written contingency fee agreement, which in California must state the percentage and how costs are handled. Case costs come next, such as filing fees, medical record charges and expert fees, depending on what the agreement says about who pays them.
Then medical balances and liens are paid. These can include doctors who treated you on a lien, hospital bills, and repayment requests from a health plan or a MedPay insurer under your policy. Whatever remains is paid to you. Read how medical liens work to see why this step often changes the final number the most.
Hospital liens and bill reductions
California’s Hospital Lien Act limits what a hospital can take. A hospital can collect its lien only from up to 50 percent of the money owed to you under a judgment, settlement or compromise, after any prior liens are paid. That rule keeps part of a smaller settlement from being swallowed by a large hospital bill.
Other providers often agree to reduce their bills when the settlement is small compared with the medical charges. Lawyers commonly ask for these reductions before the money is distributed. Whether a given bill can be reduced depends on the agreement and the facts. Ask your lawyer which bills were reduced and by how much, and make sure the written breakdown shows it.
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Why the settlement may be limited
Sometimes the settlement amount is set by the other driver’s insurance rather than by the size of the injury. The minimum California liability coverage for policies issued or renewed since January 1, 2025 is $30,000 for injury to one person. When the at-fault driver carries little coverage, check your own underinsured motorist coverage, which may add money to the case.
Shared fault can also lower the amount. Under California’s pure comparative fault rule, your recovery goes down by your share of the blame. If you think the offer is low for your injuries, read how to respond to a lowball offer before you accept anything. Once you sign a release, the claim is usually over.
Do you pay taxes on what you keep?
Under federal tax law, damages received on account of personal physical injuries or physical sickness are generally excluded from gross income. Punitive damages and interest are generally taxable. Most car accident settlements for physical injuries fall in the first group, but the wording of the settlement matters. Read is a car accident settlement taxable for more.
Keep a copy of the settlement agreement and the breakdown with your tax papers. If any part of the money was for something other than physical injury, such as interest or punitive damages, talk with a tax professional before you file. This page explains the general rule so you know what to ask, and it does not replace advice about your own taxes.
What to do now
Before you sign anything, ask for a written settlement breakdown that lists the gross amount, the fee, each cost, each lien or medical balance, and your net amount. Compare it with your fee agreement. Ask about anything you do not recognize. A clear breakdown lets you check every number yourself instead of taking anyone’s word for it.
If you do not have a lawyer yet and an insurer has offered you money, do not sign a release or give a recorded statement before you talk with one. Keep your medical bills, receipts and claim numbers together. A California injury lawsuit must generally be filed within two years, so an offer that arrives close to that date needs quick attention.
- Gross settlement amount
- Attorney fee under the written agreement
- Each case cost, listed separately
- Each medical bill, lien and repayment request, with any reduction
- Net amount paid to you
Common questions
Can I negotiate the lawyer’s fee?
In California, a contingency fee agreement must be in writing, must state the percentage and how costs are handled, and must say that the fee is not set by law and is negotiable. You can ask questions about the fee before you sign. Read what percentage accident lawyers take.
Do I have to pay my medical bills out of the settlement?
Usually, yes. Providers who treated you on a lien, hospitals with a lien, and health plans or MedPay insurers with payback rights expect to be paid from the settlement. Many bills can be reduced before payment. Your written breakdown should show every bill that was paid and the amount.
What if my medical bills are more than the settlement?
That happens, especially when insurance limits are low. Lawyers often ask providers to accept less, and California limits a hospital lien to 50 percent of the money owed to you after prior liens. Your own underinsured motorist coverage may also add money. Talk with a lawyer before you sign any release.
How long until I get my money after a settlement?
It depends on how fast the insurer sends the check, how long the bank holds it, and how long it takes to resolve liens. Ask your lawyer for an expected timeline and what is holding things up. Read how long a settlement takes.
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Car and truck accident lawyer — Beverly Law
If you were hurt in a car or truck crash in California and Washington, talk to a personal injury attorney. Free, confidential, English or Spanish. You owe no fees or costs unless we win.
Related pages
The insurance company made a lowball offer: how to respond · Should I accept the first settlement offer after a car accident? · How long does a car accident settlement take? · Is a car accident settlement taxable? · Car accident settlement with no injuries: what you can claim · All car and truck accident questions
Sources
- Cal. Bus. & Prof. Code § 6147(a)-(b)
- Cal. Civ. Code §§ 3045.1, 3045.4
- Cal. Veh. Code § 16056(a)(2), (d) (as amended by SB 1107, Stats. 2022, ch. 719); Cal. Ins. Code § 11580.1(b)(1)
- Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 828-829; CACI No. 405
- 26 U.S.C. § 104(a)(2); IRS Publication 4345
- Cal. Code Civ. Proc. § 335.1
Important: This page is general information about California and Washington law, not legal advice, and reading it does not create an attorney-client relationship. Every case is different; talk to a lawyer about yours. Last reviewed: November 5, 2026.