Compensation for physical injuries is not taxable. There is no such thing as the bank reporting you if you have a check over $10,000. If you have cash you are depositing over $10,000 in a single day it is a different story and the bank must report to the U.S. Treasury.
Part of these funds are obviously trust fund money that does not belong to your attorney and cannot be used to pay his debt with the IRS. Your attorney, or you may need to hire a tax attorney for this matter (at your attorneys expense), should call the IRS and explain the situation and ask for the portion of the funds that belong to the client (you) to be released from the lien. The IRS goes overboard to protect their position and has sent out a levy notice to the insurance company in case...
If you have United States source income you will be required to file income tax returns and pay taxes on the income. Money that was transferred from your father would not be income. If you rent out rooms the income you derive from this activity is taxable and would require you to file income tax returns in the United States. it your be a good idea for you to hire a tax professional to prepare these return for you since you are not familiar with our system of taxation.
For your principal residence the feds allow you to exclude up to $2 million of qualified mortgage indebtedness under the Mortgage Forgiveness Debt Relief Act of 2007, and California allows the same exclusion, but limits the debt to be excluded to $500,000. If the Act does not provide sufficient coverage or this is not your principal residence or qualified residence indebtedness then you can look to exclude the income under IRC Section 108 if you are insolvent or discharge the debt in a bankruptcy.
Since your child lives with you, you are the custodial parent. You are correct that he would need a Form 8332 release from you to take the deduction. If he claims the deduction too the IRS will send you both a letter asking why you should receive the deduction. Explain the situation to them and you should prevail.
According to IRC Publication 936 you would need to be obligated on the loan. IRC Reg 1.163-1(b) says that you need equitable or legal ownership to take the deduction. Which you seem to have. There are a number of Tax Court cases that address this situation and you should have a local tax professional review these cases along with your specific facts to make a determination of whether you can take this deduction.