Bankruptcy and Worker's Compensation Assets

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Being injured at work and having to depend on workers’ compensation may have you considering bankruptcy. Fortunately, in most cases filing for bankruptcy does not affect your workers’ compensation benefits, but you still might be wondering how bankruptcy can help you?

When you declare bankruptcy, your belongings and monies are divided into a “bankruptcy estate” and assets that are excluded from the bankruptcy estate. Your creditors will be paid with whatever the court declares to be part of the bankruptcy estate. Workers’ compensation benefits are excluded because they are considered “future earnings.” Future earnings cannot be taken away from you or given to a third party because they are not assignable.
Bankruptcy if Workers’ Compensation is Pending

Workers’ compensation benefits are not part of the bankruptcy estate if the benefits have already been established, but pending benefits may cause a problem. As soon as you file for bankruptcy there is an automatic stay that takes effect and puts a hold on any proceedings against you. This means that all parties, including your employer, are restricted from making claims that any money is owed to them. This is done to give the court time to divide your assets and liabilities.

Pending workers’ compensation claims may be prevented because the automatic stay also prevents employers and insurance companies from making counterclaims regarding the workers’ compensation. However, if the employer or insurance company is just asserting a defense, that would not be considered a claim against the employee. In this case the workers’ compensation claim may be able to proceed.
Filing for Bankruptcy May Not Protect Against All Negative Claims

There are two situations where an employee may not be protected from claims against them even after they file for bankruptcy. An employer has the right to request that the court lift the automatic stay for them to pursue claims against the employee. They also have the right to proceed with a claim against the employee even after bankruptcy has been filed if it is before any debt has been settled.
When You Need a Bankruptcy Lawyer

Many considerations go into the decision to declare bankruptcy. In addition, there are state and federal laws that affect how bankruptcy is handled. Because there are complex legal issues and filing works differently for each situation, you will need to consult with a lawyer to evaluate exactly how bankruptcy will affect your situation. Filing for bankruptcy is complicated, but an experienced bankruptcy lawyer can help with your specific situation. Attorneys with experience in bankruptcy involving workers’ compensation already know the laws affecting your specific situation and can walk you through all of the proceedings. With so much uncertainty, having a bankruptcy lawyer to act in your best interests can provide comfort during this unsettling time.

Bankruptcy can take over your life, but experienced bankruptcy attorneys can stop the collection calls. And once they have gotten you through filing for bankruptcy, they can also help you recover and get your life back.

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