Will your workers’ comp benefits stop if you or your employer declare bankruptcy?
After you’ve been injured at work, you may encounter numerous financial difficulties. Although you’re entitled to compensation for lost wages, you will only receive two-thirds of your salary (in most states). That compensation is not taxed, but it may still be significantly less than you were bringing home while you were working.
If your family was struggling financially even before your injury, the financial strain may be significant and you may consider filing for bankruptcy. However, if you file, it’s important to understand what impact your workers’ compensation may have on the proceedings.
Likewise, it’s important to understand what your rights are if your employer goes bankrupt while you are receiving workers’ compensation benefits.
Continue reading to learn all about how bankruptcy law and workers’ compensation interact.
Chapter 13 and workers’ compensation benefits
Chapter 13 bankruptcy is known as a “wage earner’s plan” because it’s designed for those who have regular income to develop a plan to pay their debts, whether it’s the total amount or their creditors agree to a lesser amount.
Filing for Chapter 13 bankruptcy takes between 3 and 5 years, during which you will be required to pay a set amount to repay your debts. This allows you to avoid foreclosure and keep some of your property.
If you are currently in Chapter 13 bankruptcy and are injured at work, you need to talk to your bankruptcy lawyer as soon as possible. The trustee will need to be informed that your income has changed and that this could impact your ability to make payments.
If there is a possibility of you receiving a lump sum payment as part of your workers’ compensation claim, this may also have an impact on your payments. In some states, a lump sum settlement of this type is considered exempt, but you’ll want to talk to your attorney to be sure.
Chapter 7 and workers’ compensation
Chapter 7 bankruptcy is different from Chapter 13, starting with the fact that there is a much shorter time period to discharge your debt. Normally, the discharge occurs within 120 days, but you can be injured on the job in that short amount of time. Any assets you receive once you have filed for bankruptcy remain yours and are not considered by the courts, including any lump sum settlement you receive.
If you are contemplating filing Chapter 7 after you have been injured, you will need to discuss your circumstances with a bankruptcy attorney. Some states may not exempt a lump sum settlement. This means that the bankruptcy court could take your settlement to pay your creditors.
What if my employer files bankruptcy?
What happens if your employer files while I’m receiving workers’ compensation?
Workers’ compensation benefits are normally paid by an insurance company and they should continue making those payments even if your employer files for bankruptcy or closes down. However, in some states, employers are allowed to self-insure for workers’ compensation. This means the employee pays the claim themselves, even if the plan is managed by an outside administrator.
If your employer is self-insured and files bankruptcy, they may no longer be able to pay your claim. Some states offer special funds to cover injured workers in the event that an employer is self-insured and goes bankrupt or in case an employer fails to pay for workers’ compensation insurance.
Can bankruptcy delay your benefits?
Although your workers’ compensation may not be affected by your employer’s bankruptcy, it’s possible you may see delays in payments, especially if you filed your claim recently. There’s a chance the insurance company is having difficulty reaching your employer about your claim since the company may have closed its doors.
Nevertheless, your claim shouldn’t be denied if you can establish that you were working at the time you were injured, that your injury was related to your job duties and that you were performing those duties when the injury happened. The insurance company should review the claim and determine if this was an actual work injury and pay the claim even if your employer is no longer in business.
When to speak to a work injury or bankruptcy attorney
There is no question that if you are contemplating bankruptcy or have already filed for bankruptcy when you are injured at work, then you need to speak to a bankruptcy attorney as soon as possible who can advise you as to whether a lump sum settlement you may receive as part of your claim is exempt under your state’s laws.
If you learn that your employer is filing for bankruptcy or closing their doors, speak with an experienced workers’ compensation attorney right away to preserve your rights. Hiring an attorney doesn’t mean you plan to sue your employer. In fact, in most states, you are forbidden from filing a lawsuit for a workplace injury in most circumstances.
Instead, an attorney can guide you through what steps you need to take to be sure your claim is paid by the insurance company—or that your employer provides you with coverage during their own bankruptcy proceedings.
If you’ve been injured at work and are dealing with significant financial difficulties, or if you learned your employer plans to file bankruptcy while you are collecting workers’ compensation, contact Gerber & Holder Law today. We can arrange for a no-obligation consultation to discuss what your rights are and how to receive the workers’ compensation you’re due.