A lawsuit does not automatically stop your SSDI payments, but a settlement or court award can reduce or suspend them

If you receive Social Security Disability Insurance (SSDI) and you win money in a lawsuit — whether for a personal injury, medical malpractice, or another claim — the Social Security Administration (SSA) will count that money as income or resources. Depending on the size of the award and how it is structured, your monthly SSDI payment may decrease, stop temporarily, or continue unchanged. The outcome depends on whether the money is a settlement, a judgment, and how it is classified by the court or your attorney.

The key rule is this: money you receive from a lawsuit is treated differently depending on what it is meant to cover. Funds awarded specifically for past medical expenses or future medical care are usually excluded. Money awarded for lost wages, pain and suffering, or general damages counts as income and can affect your benefits. You must report any lawsuit settlement or judgment to SSA within 10 days of receiving the funds.

Key Takeaways

  • Settlement money or court awards are counted as income or resources by SSA, and you must report them within 10 days of receipt.
  • Funds designated for medical expenses or future medical treatment are often excluded from income calculations, but only if your attorney or the court separates them clearly.
  • A structured settlement — where you receive payments over time instead of a lump sum — may reduce the impact on your SSDI, depending on how it is written.
  • If your SSDI stops because of lawsuit money, it can restart once your resources fall below the limit, usually $2,000 for an individual.
  • You should consult with both your SSDI representative and your attorney before settling to understand how the money will be treated.

How SSA counts money from a lawsuit settlement

When you receive a settlement or judgment, SSA divides it into categories. Money awarded for medical expenses — past bills you already paid or future medical care — is excluded from income. Money awarded for lost wages, pain and suffering, emotional distress, or punitive damages counts as unearned income in the month you receive it.

If the settlement is large enough, it can push your monthly income over the limit. For 2024, the limit is $1,550 per month for SSDI (this amount changes yearly). If your settlement income exceeds that limit in a single month, your SSDI payment for that month is reduced or stopped. In the months after, if the settlement money is gone, your SSDI resumes at the full rate.

The settlement is also counted as a resource — money you own. SSDI allows you to hold up to $2,000 in resources without losing benefits. If your settlement pushes your total resources above $2,000, your SSDI stops until your resources fall back below that threshold. This can happen even if the settlement was small, if you already had savings close to the limit.

Structuring a settlement to protect your SSDI

If you are in a lawsuit and you receive SSDI, your attorney can request a structured settlement instead of a lump sum. In a structured settlement, you receive the money in installments over months or years, rather than all at once. This spreads the income across multiple months and may keep any single month's income below the SSDI threshold.

A structured settlement also allows your attorney to set aside money in a separate account designated for medical expenses or future care. That portion is excluded from SSA's income and resource calculations. For example, if you win $100,000, your attorney might structure it so that $30,000 goes into a medical expense fund (excluded) and $70,000 is paid to you over five years (counted as income, but spread out).

The structure must be written into the settlement agreement or court order for SSA to recognize the exclusion. A verbal agreement or informal arrangement will not work. Before you settle, ask your attorney to discuss the settlement structure with SSA or to consult SSA's rules on structured settlements. This step takes time but can save your benefits.

Reporting a settlement to Social Security

You are required to report any settlement or court award to SSA within 10 days of receiving the money. Contact your local Social Security office by phone, in person, or through your my Social Security account online. Have the following information ready: the date you received the money, the total amount, what the money was for (medical expenses, lost wages, pain and suffering, etc.), and whether it was a lump sum or structured payments.

SSA will ask for a copy of the settlement agreement or court judgment. Provide this document as soon as you can. If you do not report the settlement, SSA may discover it during a review and overpay you — meaning you will owe the money back later, with interest. Reporting it promptly protects you from that debt.

If your SSDI payment changes or stops because of the settlement, SSA will send you a notice explaining the change and the new amount (if any). Keep this notice. If you disagree with how SSA counted the settlement money, you can request a reconsideration within 60 days of the notice.

When your SSDI restarts after a settlement affects it

If your SSDI stops because of settlement money, it does not restart automatically. You must contact SSA once your resources fall below $2,000 or once the month in which you received the settlement income has passed. SSA will review your account and restart your benefits in the next month you are due to receive a payment.

If the settlement was structured and you receive payments over time, your SSDI may stop and start multiple times depending on how much you receive each month. For example, if you receive $500 per month from a structured settlement, that $500 counts as income each month. If your regular SSDI payment is $1,200, your total monthly income is $1,700 — over the $1,550 limit — so your SSDI is reduced or stopped. Once the structured payments end, your SSDI returns to the full amount.

Keep records of all settlement payments you receive. When you contact SSA to restart your benefits, you may need to show proof of when the payments ended or changed.

Special rules for medical expense funds

If your settlement includes money set aside specifically for medical expenses or future medical care, that money is treated as an excluded resource under SSA rules. It does not count toward your $2,000 resource limit, and it does not count as income when you spend it on medical care.

To may have access to for this exclusion, the money must be in a separate account, and the settlement agreement or court order must clearly state that it is for medical expenses. The account should be titled in a way that shows its purpose — for example, "Medical Trust for [Your Name]." You can only spend this money on medical care, medical equipment, or health insurance premiums. If you spend it on other things, SSA may count it as income.

Some settlements also set up an ABLE account or a Special Needs Trust to hold settlement money. These are special accounts designed to hold money for people with disabilities without affecting their benefits. If your attorney mentions either of these options, ask how they work and whether they explore to your situation.

What happens if you do not report a settlement

If you receive settlement money and do not report it to SSA, your SSDI payments will continue as normal — at first. SSA may not discover the settlement when ready. However, SSA conducts periodic reviews of SSDI recipients' income and resources. When it does, it may find the settlement money in your bank account or learn about it through other means.

If SSA discovers unreported settlement money, it will recalculate your benefits for the months you should have reported it. You will be overpaid — meaning SSA will say you received more money than you were due. You will owe that money back to SSA. The agency can recover the overpayment by reducing your future SSDI checks, or it may ask you to repay it in a lump sum. This debt can take years to repay and will damage your benefit record.

Reporting the settlement within 10 days protects you from this outcome. Even if reporting causes your SSDI to decrease or stop temporarily, it is better than facing an overpayment debt later.

Frequently Asked Questions

Can I keep my SSDI if I win a lawsuit?

Yes, if the settlement is structured correctly or if the money is designated for medical expenses. A lump-sum settlement for pain and suffering or lost wages will likely reduce or stop your SSDI temporarily. Work with your attorney to structure the settlement in a way that protects your benefits.

Does a settlement for medical malpractice count differently than other lawsuits?

No — SSA treats all settlements the same way. What matters is what the money is awarded for, not the type of lawsuit. Money for medical expenses is excluded; money for pain and suffering or lost wages counts as income.

What if my settlement is very small, like $5,000?

A $5,000 lump-sum settlement counts as a resource. If you already have savings, it may push your total resources over $2,000, which stops your SSDI. If you have no other savings, the $5,000 will be counted as a resource for the month you receive it, and your SSDI may be reduced or stopped that month. Once you spend the money, your benefits resume.

Can I put settlement money in a special account to protect my benefits?

Yes, if the account is set up correctly before or at the time of settlement. A Special Needs Trust or ABLE account can hold settlement money without affecting your SSDI, but the account must be established and titled properly. Discuss this with your attorney and SSA before you settle.

What if I disagree with how SSA counted my settlement?

You can request a reconsideration within 60 days of receiving SSA's notice about the change to your benefits. Contact your local Social Security office and explain why you think the settlement was counted incorrectly. Bring a copy of the settlement agreement and any documentation showing what the money was for.