Complicated answer: The hospital lien immediately attaches to any settlement or insurance proceeds, and bankruptcy does NOT discharge that lien.
Generally, your insurance proceeds/settlement are exempt, or safe from creditors (and the bankruptcy trustee) under Utah law. See
Utah Code 78B-5-505 (1)(a)(x) “An individual is entitled to exemption of… proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.
However, before you file bankruptcy, your hospital creditors have an opportunity to file a “hospital lien,” which is a lien or claim against those insurance monies.
Below, I am going to cover the hospital lien statute in a little more depth and give a recent Utah bankruptcy case dealing with when the lien attaches.
Hospital Lien Statute (Utah Code 38-7-1):
The hospital lien attaches automatically, but is only perfected after:
- medical services are provided
- notice of the lien is given
- the lien is then perfected when verified written notice is filed in the state district court where the hospital is located, and
- the notice of lien must be sent by certified mail to the person/parties liable for the injuries and to the insurance carrier.
In fact, the hospital can perfect its lien after you file bankruptcy. Filing bankruptcy does NOT get rid of their lien, and their perfection of that lien does NOT violate bk law.
Now what if they haven’t even provided notice of the lien before filing bankruptcy? I’m not sure. Someone is going to have to take that argument before the bankruptcy court.
The United States Bankruptcy Court for the District of Utah covered this issue in In Re Cloward, 608 B.R. 759 (Bank.D.Utah 2019) here.