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Workers’ Compensation Benefits In Bankruptcy

Workers' Compensation Benefits In BankruptcyIf you are injured on the job, the consequences can be devastating. Not only do you and your family have to confront the effects of the injury, you also have to deal with the financial impact as well. Sometimes, the financial consequences due to reduced or delayed payments are devastating.

Your financial concerns may lead you to thinking about filing for bankruptcy. One very important question is whether the workers’ compensation benefits you are receiving are protected from the people and companies (legally known as “creditors”) that you owe.

Fortunately, Maryland law protects certain types of your assets, in whole or in part, when the Bankruptcy Court in Maryland has jurisdiction. These are called “exemption” laws, because they describe assets that are “exempt” from the reach of creditors outside of bankruptcy, and which cannot be seized within a bankruptcy case. “Exempt” assets are those which the debtor (in this case you) gets to keep, no matter how much money the debtor may owe, or to whom.

Generally, under Maryland’s exemption laws, an injured worker’s right to receive worker’s compensation benefits is exempt, and cannot be taken by the bankruptcy trustee or be used to pay creditors through bankruptcy. Not only is the right to receive current benefits exempt from creditors and the trustee, but the right to receive a lump-sum award of benefits is also exempt from the reach of creditors and the trustee (it is best to keep your lump sum settlement in a different account from your other money). There is no dollar limit to this exemption, so the entirety of the worker’s entitlement to benefits is exempt.

But the exemption will only work for you if you make the proper disclosures.

Even though your right to receive worker’s compensation benefits is exempt in its entirety, you are still required to make full disclosure of the existence of those benefits. When a person files bankruptcy, there is a comprehensive set of documents, called Schedules of Assets and Liabilities which the debtor must complete. The list of assets (Schedule B) must include a disclosure of the debtor’s entitlement to worker’s compensation benefits on a current basis, and any claim for accumulated or unpaid benefits. The debtor may claim these as exempt in the list of assets claimed to be exempt (Schedule C). If you don’t list them, you very likely will lose the right to claim the exemption.

While bankruptcy is an extreme remedy designed to deal with extreme situations, you should not fear losing your worker’s compensation benefits if you are compelled to file bankruptcy. But remember, a debtor (you) must and should always make full and complete disclosure of:

  • The existence and amount of workers’ compensation benefits you are entitled to; and
  • Potential claims for future workers’ compensation benefits.

We must also caution you that bankruptcy law is an extremely technical area of the law with many traps for the unwary. It also may change as a result of new statutes or new Court rulings. Therefore, it is imperative that you speak with an attorney concerning the relationship between your workers’ compensation claim and any potential bankruptcy filing by you before doing so. This article is intended for general guidance but should not be relied upon by you. There is no substitute for legal advice in this matter.The stakes are too high!

By Clifford B. Sobin, Esq. and Jeff Sherman, Esq.

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