Unless you have a high income and valuable assets, most California residents will qualify for chapter 7 bankruptcy. This type of bankruptcy will see the bankruptcy trustee seize your assets and property to pay creditors. This could leave you without a home or a vehicle and struggling financially.
If you have suffered a work-related injury, you will likely have received worker’s compensation benefits or be in the process of receiving these benefits. Losing your worker’s compensation benefits can be challenging, especially when you cannot return to work for a while. Fortunately, a worker’s compensation settlement awarded through a claim to your employer or a court ruling is a protected asset in California.
Regardless of the type of bankruptcy exemption you choose, you can continue to enjoy the workers’ compensation benefits without worrying about the repercussions of bankruptcy. Unlike other assets, where there is a limit to what you can keep, the amount you receive as worker’s compensation benefits will not be affected in bankruptcy.
Sometimes, worker’s compensation payments are gradual. Even when your employer declares bankruptcy, you will still recover the benefits. You will require competent legal guidance for more information on protecting your worker’s compensation benefits in bankruptcy.
Protecting Workers’ Compensation Benefits in Bankruptcy
Declaring bankruptcy is difficult for an individual or company. Most likely, you will have exhausted all other avenues of paying your creditors and failed. By the time you declare bankruptcy in California, creditors will be at your throat, claiming payment and trying to reach for everything you have.
For fear of being sued and undergoing legal processes, you could be tempted to use the amount you accrue from workers’ compensation to pay other creditors. You are entitled to compensation when you are injured at work and your injuries prevent you from working partially or completely.
Many people in California live from paycheck to paycheck. Therefore, their ability to wake up daily and go to work sustains their lives. Suffering a workplace injury will not only affect your ability to work but also cause a financial crisis. Fortunately, your employer is required to compensate you for all losses resulting from work-related injuries.
You can recover workers’ compensation benefits from your employer or by filing a claim against the employer who fails to perform their duties towards you. Workers’ compensation benefits are meant to be used for medical expenses and other expenses resulting from your injuries. The thought of losing these benefits is challenging.
The financial constraints associated with the work injury can push you to file for bankruptcy. Although bankruptcy gives you a fresh financial start, it is not always the best decision. There are three types of bankruptcy in California. Chapter 7 bankruptcy is the most suitable for individuals with low income and assets.
This type of bankruptcy involves liquidating your assets to pay for your debts. For individuals who do not meet the criteria for liquidation, you may need to file under Chapter 13. With this type of bankruptcy, you create a repayment plan where you can cover your debts according to priority. Chapter 11 bankruptcy is the best fit for businesses that are struggling financially.
After bankruptcy, you can lose your home, vehicle, and accounts, leaving you to start over. Fortunately, bankruptcy exemptions allow you to keep some property and items you need after bankruptcy. For most assets, bankruptcy laws dictate the amount you can keep through state and federal exemptions.
However, there is no exemption to the amount you can keep from workers’ compensation benefits. Your injury level determines the amount you recover as compensation for your injuries and disabilities. You can still file for bankruptcy even when you have enough money from workers’ compensation. This helps you avoid using the benefits to pay other debts.
703 Bankruptcy Exemptions
Under 703 bankruptcy exemptions, workers’ compensation benefits will be treated like disability benefits. These benefits are protected from bankruptcy, regardless of the amount you receive or stand to receive when your claim is settled. You must understand that the current rules impose an exemption to possible exceptions for spousal and child support.
If you owe any debts related to a family court ruling, it is important that you speak with a lawyer. Your attorney will help you understand how your debts affect workers’ compensation benefits.
704 Bankruptcy Exemptions
Protecting your workers’ compensation benefits using the 704 bankruptcy exemption is a more straightforward process. The exemption differentiates between workers’ compensation before and after you receive payment for your injuries. Before you receive compensation, your workers’ compensation is exempt, and there are no limits or conditions for the exemption. The laws and conditions of the exemption will change when you receive the settlement.
Choosing between the 703 and 704 exemptions will depend on your combination of debts. The bankruptcy exemption covers your workers’ compensation benefits and other assets. Therefore, you should consider everything you want to protect before choosing the right exemption.
If you put the money from a workers’ compensation claim in a bank account and leave it there, you can lose it in bankruptcy. When you file for exemption in bankruptcy, you have the burden of establishing that the source of the money is exempt. Failure to meet the required burden will attract creditors seeking payment from the benefits.
What Happens to Pending Workers’ Compensation Claims When an Employer Declares Bankruptcy?
Bankruptcy can affect your workers’ compensation rights directly or indirectly. Workers’ compensation benefits can be a pain in one large settlement or gradually, depending on the nature of your injuries. If you are still receiving your benefits when your employer files for bankruptcy, you do not have to worry about losing them.
Your benefits after your employer’s bankruptcy will come through the Wage Earner Protection Program. This program is aimed at ensuring that you receive the benefits you deserve even when your employer is incapable of doing so. If your employer is filing for bankruptcy, your benefits are not treated as other debts that must wait for the repayment plan.
The difference between WEPP benefits and regular workers’ compensation benefits is that the WEPP benefits come from the federal government and not employers and are not subject to any legal action by creditors. Even when a creditor files a case against you for failure to pay your debts, the court cannot order you to pay them using the compensation benefits.
Coverage for self-Insured Employers
Under WEPP, a self-insured employer will be entitled to payment protection. However, self-insured employers will not be immune to legal action. Being self-insured does not mean that one has no liability. Employers utilizing self-insurance must pay for the WEPP and their original insurance coverage premiums. However, the WEPP will not shoulder the payment liability for the initial cover.
For example, if an employer actively pays for the WEPP benefits and one of their employees is injured, the government-funded program will only compensate the victim for medical bills and lost wages associated with the injury. The business owner will still pay their premiums for the basic cover, whereas the employee will receive compensation for other losses.
Uninsured Employees
Employers in California are required to cover their employees with workers’ compensation. This involves paying the basic insurance coverage and contributing to the WEPP. This allows employees to recover compensation for their losses if injured at work. Additionally, paying for the coverage prevents employees from taking legal action against the employer.
Failure to pay for workers’ compensation is unlawful. However, the government will not allow employees to suffer for their employers' unlawful actions. Therefore, the WEPP will compensate an injured employee when an uninsured employer files for bankruptcy.
Even after the employee is compensated, the employer may face legal action from the injured worker or other individuals who suffer losses at work. Additionally, the employer can be a defendant in a class action lawsuit for failure to follow the laws.
If your employer files for bankruptcy in California with a pending work-related injury case, there is a limit to the amount you can receive from WEPP as compensation for your medical expenses. These limits are similar to the ones that apply to the regular workers’ compensation and benefits you will receive from your employer.
Possible Delays in Provision of Workers’ Compensation Benefits After Bankruptcy
If you were recovering your workers’ compensation benefits before your employer declared bankruptcy, you could hit some bumps in recovering your rightful compensation. Before an injured worker can recover compensation, the company and insurance company must perform their investigations.
Insurance companies are not thrilled to compensate anyone. Therefore, the investigation of your claim is to ensure that the injuries you have resulted from a work-related activity. If the insurance company does not receive the necessary information from your employer on time, your claim will be delayed.
Another reason your benefits could be delayed is your inability to return to work. After a work-related injury, the insurance company may determine the amount you deserve depending on when you are expected to return to work. Often, your physician examines you and gives a timeline of possible recovery.
When most companies go bankrupt, they can close down the company or lay off some workers. Unfortunately, if you are injured and not performing the expected duties, your employer may view you as a liability and lay you off. With no work to return to, it is challenging to determine the amount you deserve as compensation.
If you hope to recover your workers’ compensation benefits in a lump sum and the company goes bankrupt, the insurance provider may lack enough money to pay for your damages. Before a company declares bankruptcy, it may fall behind on premium payments, reducing the amount available for your compensation.
In cases where the amount you claim as compensation is more than the insurer's limit, the company is responsible for paying the extra. When an employer is bankrupt, and out of business, you can no longer recover from them. You will need to file a personal injury claim for a chance at recovery. This takes more time and effort to battle your employer.
Worker’s Compensation Insurance in Chapter 11 Bankruptcy
When a company cannot pay its debts and is on the verge of ruin, filing for chapter 11 bankruptcy may be the best way to work through the financial issues. By filing for bankruptcy, the company can reorganize its debts and develop a convenient and affordable plan to pay off its creditors.
Since there is no bankruptcy trustee under Chapter 11, the company must elaborate to the court on how they plan to pay the creditors. This could be through the sale of company assets or by reducing expenses. In California, all employees are protected by workers’ compensation laws and policies. If you suffer an injury on the job, you have a right to be compensated for treatment and other expenses that arise from the injury.
California law requires all employers to obtain workers’ compensation insurance for their employees and could penalize them for failure to follow this direction. An employer’s insurance company is liable for compensating the employees in the event of a temporary or permanent disability.
When a company files for bankruptcy, its finances are not in order. Workers’ compensation insurers may attempt to participate as creditors in the bankruptcy, but they cannot push through. The workers’ compensation insurer is responsible for employee injuries before and after the company files for bankruptcy.
Therefore, employers must include the insurance policy in their reorganization plan. If there are pending premium payments for the insurance, the employer will continue to pay it even after bankruptcy to ensure the employees are covered for work-related injuries.
Insurance Premiums under Chapter 11 Bankruptcy
According to a Supreme Court ruling in 2006, workers’ compensation insurance premiums are liability premiums, not employee benefit premiums.
For this reason, the bankruptcy court will not treat unpaid employee workers’ compensation benefits as unsecured debt. When a company files for bankruptcy, the insurer will not have a claim against the company for unpaid premiums.
Before the company makes a reorganization plan, it will have a private obligation toward the employees. This obligation will not be related to the accompanying ability to retain the policy.
Insurance Policy in Bankruptcy
Although the insurance company is responsible for paying employees before and after bankruptcy, the company has the right to regain or withdraw from its policy. If a company wishes to continue with the worker’s compensation insurance policy, it must consider the insurer a creditor during the reorganization plan.
A company going through bankruptcy must file a reorganization plan with the court within 120 days of filing a bankruptcy petition. This allows the insurer to ensure they will receive payments for the back premiums.
Can I fall out of the workers’ compensation bankruptcy exemption?
Under California bankruptcy exemptions, your right to receive workers’ compensation benefits is exempt from bankruptcy. This means that the bankruptcy trustee will not use the benefits to cover the debts you owe or use the money in a repayment plan. This right also includes the protection of any lump-sum benefits you could receive in the future.
However, the bankruptcy exemption for workers’ compensation benefits only applies when you make the correct disclosures. When you file for bankruptcy, the court expects you to disclose information about your properties and accounts. Therefore, you must state that you have the workers’ compensation benefits in your bankruptcy petition.
Even when you have not received the benefits, you must fill out a document stating that you expect compensation when your workers’ compensation claim is resolved. You can list these benefits under "exempt property," since bankruptcy always protects them. Failure to list the compensation benefits causes you to lose your right to exemption.
Bankruptcy laws are complicated, and many traps could be hidden. If you want to protect your workers’ compensation benefits, you must navigate the bankruptcy process with an experienced lawyer.
Find a Skilled Bankruptcy Lawyer Near Me
If you file for bankruptcy in California, your assets can be liquidated to pay the creditors. Alternatively, you can make a repayment plan where you pay your debts within three to five years. Bankruptcy has exemptions on the assets and accounts you can keep even after your case is finalized.
Bankruptcy laws indicate the maximum amount you can save per exemption. If you receive workers’ compensation benefits for an injury at work, the compensation is exempt from bankruptcy. Therefore, you can keep the benefits as you begin your fresh financial start.
Unless you do anything that changes the character of your workers’ compensation benefits, you will qualify under the workers’ compensation exemption. The settlement agreement you sign for your workers’ compensation award can have legal aspects that disqualify you from the worker’s compensation exemption. Therefore, before you sign any agreement, you must have the insight of a skilled bankruptcy lawyer.
At San Diego Bankruptcy Attorney, we understand how much you need your workers’ compensation benefits, especially during the financial struggles that lead to bankruptcy. We offer expert legal guidance to all our clients hoping to protect their workers’ compensation benefits in San Diego, CA. Contact us at 619-488-6168 today to discuss the details of your bankruptcy case.
