Is My Workers’ Compensation Settlement Safe from Creditors?

281094918_e916dfe3e9_z

Carrying workers’ compensation insurance is a requirement for employers in every state except Texas. This type of insurance is a safety net, in a way, that protects employers from being sued and potentially having to pay out large sums of money in the event of an accident or injury in the workplace.

If you’ve been injured at work and have received a workers’ compensation settlement, you may potentially still be out of work due to your injury. In many cases, even with a workers’ compensation settlement, workplace injuries lead to financial strife.

Extended time off work in order to heal or to receive surgery obviously means no wages earned during that time. Sure, your workers’ “comp” will definitely help, but it will not replace your entire income. This frequently leads to missed mortgage or other important payments. Ultimately, you may decide to file for bankruptcy in order to get rid of the past due debts that have accrued.

If I file for bankruptcy in NJ, will I be able to keep my workers’ compensation settlement money?

This is a pressing question for anyone in this particular situation. After all, the money you received as a result of your workplace accident may have been the only thing keeping you above water. The answer to the above question is almost an unequivocal “YES.”

When a person files for bankruptcy in any state, there are state “exemptions” – assets that are protected from liquidation or distribution to creditors to pay back some of the debts owed. Other examples of NJ bankruptcy exemptions include social security disability benefits, life insurance benefits (usually), retirement benefits and unemployment compensation.

Also on that list of exemptions in New Jersey is workers’ compensation settlement funds. To be clear, anything listed as exempt cannot be taken from you if you file for bankruptcy.

Although safe from creditors, any monies received as part of your workers’ comp settlement must be carefully kept in a designated account into which you only deposit money paid to you for workers’ compensation.

The reason it is so important to keep your exempt cash assets in their own account is because of a funny word that bankruptcy judges don’t like to see: commingling. Now, even though commingling may give you mental images of a long-past dinner party where you didn’t know anyone, in financial terms (at least in terms of bankruptcy in NJ), it means certain death.

Not yours, mind you, but if you allow your exempt monies to commingle with funds you receive from other sources, you’ll cause your protected settlement money to lose its exemption status, and you’ll have to say goodbye to it. If you want to keep your workers’ comp settlement, take every precaution to ensure that it lives in its own private bank account with absolutely NO funds from any other source.

How will anyone know if I have allowed my funds to commingle?

Granted, it may feel like you can simply tell the bankruptcy trustee that you’ve kept your money separated by source, even if there have been times when it was just easier to allow commingling to occur. Know this: if you fail to keep your workers’ comp funds completely separate, the trustee WILL find out about it. Every deposit made into every account you own will be scrutinized. You will need to keep a detailed paper trail that clearly shows the origin of every single cent kept in all of your bank accounts.

While you do have to be extremely careful in order to protect your exempt assets in bankruptcy, as long as you follow the rules, you’ll be able to keep all of your New Jersey workers’ compensation money.

Image credit: Anthony Easton

Advertisements

One Response to Is My Workers’ Compensation Settlement Safe from Creditors?

  1. Pingback: How is a Spendthrift Trust Affected by Bankruptcy in NJ? | Veitengruber Law

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: