For people who are seeking relief from their debt, bankruptcy is a popular and effective option. However, filing for bankruptcy while receiving workers’ compensation benefits, is a more complex task that requires careful planning.
In order to understand how bankruptcy can affect your workers’ compensation benefits, it is important to have a solid understanding of the two different kinds of bankruptcy: Chapter 7 and Chapter 13. When you file a Chapter 7 bankruptcy, you are attempting to discharge your debts without payment.
In a Chapter 7, you can exempt your principal assets, such as your residence, household goods, retirement accounts, car, etc. However, your non-exempt assets, such as a second home or car, can be seized by the Chapter 7 Bankruptcy Trustee and used to pay your debts.
A Chapter 13 bankruptcy is a reorganization under which you voluntarily make payments to your creditors through the use of a Chapter 13 Bankruptcy Trustee. In doing so, you are working to repay a portion of your debts and sometimes to repay them completely.
Under Nevada law, workers’ compensation benefits are exempt. What this means is that if you file a chapter 7 bankruptcy, the Bankruptcy Trustee will have no right to seize your monthly benefit or your lump sum settlement. However, your workers compensation benefits are counted as income to determine whether or not you are eligible to file a chapter 7 in the first place. In addition, if your benefits are deposited into a bank account with your other funds, this may put them at risk of being seized. In order to avoid this, you should keep any lump sum settlement completely separated from your other personal funds.
In a Chapter 13 bankruptcy, the Bankruptcy Trustee has no right to seize your assets, no matter what the circumstances are. As such, your workers’ compensations benefits will always be protected. It is important to note, though, that the benefits you have received prior to filing bankruptcy and after filing the Chapter 13 may be used to calculate the amount of your bankruptcy payment.
If you are considering filing for bankruptcy, you should contact an attorney who can advise you about how your decision will affect your workers’ compensation benefits.
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