Is It True A Workers' Comp Claim Can Be Discharged In Bankruptcy?

The purpose of workers' comp insurance is to simply the process of compensating employees for injuries they sustain on the job, but there are numerous issues that can complicate matters. If your employer files for bankruptcy while you're receiving benefits, you may be wondering what impact this has on your case. It depends on who's paying out those benefits and what the circumstances of your case are. Here's what you need to know.

State- vs. Employer-Paid Benefits

Workers' comp claims are treated like unsecured, non-priority debt in bankruptcy proceedings, which means they only get paid if the debtor who files the petition has money left over from paying secured and priority debts. If there's no money available — as is often the case — the claim will be discharged along with other low-priority debts.

Whether or not this happens to your claim depends on who's paying it. Workers' compensation insurance programs are administered by the state government. Even though your employer pays the premiums for the policy, the state processes the claims submitted by employees. Since the government is generally solvent, the likelihood your claim would even see the inside of a bankruptcy court is extremely low, so you really don't have to worry about being affected if your employer goes out of business.

The same can't be for claims paid by employers. When an employer fails to maintain workers' comp coverage, they may be sued by employees and be forced to pay out of pocket for the injured party's expenses and losses. Unfortunately, if the business goes bankrupt, the claim is treated like any other debt and at risk of being discharged, leaving the employee with no money and no means of collecting further compensation.

Possible Exception to the Rule

It may be possible to prevent a workers' comp claim from being discharged in bankruptcy, but it depends a lot on the circumstances of the case. Personal injury judgment arising from intentional or malicious acts, fraud, or involving DUIs are not dischargeable. So, if your injury was caused by your boss intentionally creating a situation to harm someone, the court would allow that debt to survive the bankruptcy.

However, you will have to file an objection to the discharge with the court, and there may be other legal hurdles you have to jump to keep your case alive. It's essential you contact your workers' comp attorney as soon as you hear about the bankruptcy proceedings so he or she can take steps to protect your interests.

For more information about this or other workers' comp issues, contact a local law firm like Bennett  Law Firm PC.