In February 2020, the Boy Scouts of America filed for Chapter 11 bankruptcy due to the hundred of sex abuse lawsuits pending against them. This national story continues to make headlines as the details of the legal mess get sorted out, and it recently led us to reflect on a common source of confusion for many clients:
How does a bankruptcy filing affect a workers’ compensation case, and what happens if an individual who is receiving workers’ compensation benefits—or who is about to start receiving benefits—files for bankruptcy?
Questions surrounding bankruptcy actually come up more commonly than you’d expect in workers’ comp cases.
Filing for bankruptcy before receiving workers’ comp benefits
If someone has filed for bankruptcy prior to their workers’ compensation case, it shouldn’t have an impact on the benefits. But it is important to let your bankruptcy attorney know that you are going to file a workers’ compensation claim and put your 2 attorneys (workers’ comp lawyer and bankruptcy attorney) into contact with each other so they can coordinate their individual efforts. This helps ensure that both legal filings proceed smoothly.
There is often specific documentation, such as a fee contract, that needs to be filed in the bankruptcy proceedings. Also, if the workers’ comp case is settled, that will have to be approved by the bankruptcy court.
Filing for bankruptcy while receiving workers’ compensation
Everything stated above is also true if a person is currently receiving workers’ comp benefits files for bankruptcy. We know that for people who are on workers’ compensation for an extended period of time, it’s difficult for them to maintain the lifestyle they had before their case.
If this happens, and they unfortunately have to file bankruptcy (possibly for the second time), the workers’ comp attorney should be in touch with the bankruptcy attorney so that all the “t’s” are crossed and all the “i’s” are dotted.
A person who is receiving benefits should ask their workers’ comp attorney for a bankruptcy attorney recommendation. It’s best to work with an attorney who specializes in bankruptcy and who is also versed in workers’ comp law—that way the entire legal situation can run its course unimpeded. We’ve seen several situations where this communication was lacking and it has been problematic.
In Georgia, the maximum workers’ comp benefit is $675 per week. So if an individual was earning $1,000 per week, typically they’ll have a reduction in their weekly wages which could make it difficult to make their regular ends meet. They may be able to maintain their lifestyle for 3 or 6 months. But if they are out of work over a long duration, financial difficulties could set in.
There is no “cost of living” increase to the $675 max workers’ comp payment. So as the years go by, that amount buys you less and less because your compensation rate is locked in at the time of the accident.
Employer goes bankrupt while you filing for workers’ compensation
Another question our Atlanta attorneys get a lot is:
“What happens if my employer either goes bankrupt or goes out of business during my workers’ compensation case?”
Fortunately, a company going out of business should have no effect on the workers’ compensation case at all. The reason for this is because, just like in an automobile accident case, once the workers’ comp case is filed, we’re generally dealing with the workers’ compensation insurance company, not the employer.
You still were covered by insurance as of the date of the injury; it wasn’t canceled at that point. Therefore, no matter what happens with the company, the workers’ compensation case can proceed.
One positive from a workers’ comp standpoint is that if the company goes out of business while you are out of work recovering, they will not have the opportunity to bring you back to work on light-duty job status, so you may be able to continue receiving benefits for a longer period of time and have more time to heal.
Insurance company goes bankrupt during workers’ comp case
Another question we hear a lot is:
“What happens if the insurance company declares bankruptcy during my case?”
Unfortunately, that does happen from time to time, and any workers’ comp attorney who has practiced law for as long as we have has seen this type of situation.
The state of Georgia has something called an “insolvency pool,” which provides a state-run backstop for insurance companies for exactly this type of situation. If your case goes to the insolvency pool, you’ll definitely want an attorney to help you navigate the complexities and differences to navigate the insolvency pool rules and regulations.
If you are representing yourself in a workers’ comp case and your employer’s insurance company goes bankrupt, we strongly recommend employing an attorney at this time. But the bottom line is that the state has reserves in place, so you will still continue to receive indemnity benefits and medical treatment for your workers’ compensation case.
For example, attorney Tom Holder had a case a few years ago that involved a husband-and-wife truck driving team who lived in the state of Washington. They left from a terminal in Georgia and flipped their truck over in Arkansas. Unfortunately, during the course of the case, both the company and the insurance company went bankrupt.
It took a long time to track down which government agencies we had to work with, and which state we had to work with since the company was not incorporated in Georgia. It took some time to get it all sorted, but in the end we were able to settle the case for exactly the same benefits as if they hadn’t gone out of business.
When to consult a knowledgeable attorney near you
When it comes to bankruptcy and workers’ compensation, it’s vital you talk with an attorney. Your bankruptcy shouldn’t impact your workers’ comp case, and vice-versa; however, it’s best to involve an attorney in each situation so that they can advise you as both cases move through the courts.