Does Filing for Bankruptcy Affect Workers’ Comp Benefits?

It should come as no surprise that medical expenses are the leading cause of personal bankruptcies.

According to some estimates, up to 58% of the individuals who have filed for bankruptcy did so because of exorbitant medical bills. The stress over unpaid medical bills can directly impact a person’s ability to recover from their injuries. What happens if there is a bankruptcy ruling along with approval for a workers’ compensation claim? Will one cancel out the other?  

Bankruptcy and workers’ compensation must be approved by separate entities. A bankruptcy is only granted by a judge in a bankruptcy court. A workers’ compensation claim needs the approval of the Maryland Workers’ Compensation Commission. Although some of the information might be shared between those agencies, they are considered separate issues.  

Someone who has been injured on the job and receives workers’ compensation benefits could also be dealing with a financial crisis that bankruptcy can relieve. According to the law, those benefits won’t be impacted by the bankruptcy ruling, provided that certain conditions are met.  

These are the kinds of scenarios where legal counsel from Belsky & Horowitz, LLC can help. We are experienced bankruptcy attorneys who provide information on how to navigate through the bankruptcy and workers’ compensation processes.  

The following is some helpful information that will provide insight into how bankruptcy and workers’ compensation benefits can coincide.  

Protecting Your Assets  

A workplace injury can be devasting and impact the entire family. The workers’ compensation insurance program is designed to cover the injured worker’s medical expenses and lost wages. However, in bankruptcy, that same injured worker could have obligations to creditors that generally impact any money that person receives. 

When approved, a Chapter 7 bankruptcy aims to discharge certain debts. In some situations, assets might be sold off to cover a portion of the debts. In other scenarios, those debts are eliminated altogether. With a Chapter 13 bankruptcy, the individual is required to repay debts over a specified period. This requires someone with a regular income and a court-approved repayment plan and budget.  

Someone who receives workers’ compensation benefits could receive monthly payments or a lump sum settlement. That could be considered income, but those benefits fall under the bankruptcy law exemption clause.  

With the bankruptcy exemption, the injured worker is entitled to retain all their benefits, regardless of the amount. However, that will only be applicable if the injured worker makes the proper disclosures.  

Exemption Disclosures  

Anyone who files for bankruptcy must disclose all their assets and liabilities. Schedule B in a bankruptcy filing is a list of assets that have to be disclosed, including the workers’ compensation benefits. Schedule C is the list of assets that need to be claimed to be exempt, which also includes workers’ compensation benefits.

In other words, you would have to disclose “this is what I’m getting” and “this is what should be exempt,” even when those are the same items and amounts.  

These rules apply regardless of the timing. For instance, you could already be approved for a Chapter 13 bankruptcy and then be injured on the job. In that scenario, you might have to make amendments to your bankruptcy filings.  

Get the Right Advice from Belsky & Horowitz, LLC 

Bankruptcy provides an opportunity to reset one’s financial future, but it is extremely complex and challenging for the average person to understand. That’s why you should seek out support from Belsky & Horowitz, LLC. We are well-versed in all the state bankruptcy and workers’ compensation laws.  

We can help clients navigate these laws and help ensure that if they are due to an exemption, they will get it by filing the proper disclosures. You don’t want to risk your benefits or bankruptcy approval.

Call to set up a consultation to get your questions answered.