Bankruptcy and Workers Compensation Benefits

For individuals injured on the job in Florida, worker’s compensation provides necessary wage replacement and payment of medical expenses related to the injury.  Worker’s compensation payments are paid out weekly or if a settlement agreement is reached, in one lump sum.
The wage replacement benefits paid under Florida’s worker’s compensation laws are less than the wages employee would have received if they had not been injured and continued working.  For this, reason, injured employees (particularly those with severe injuries lasting a long time) with no supplemental insurance to fill-in the financial gaps sometimes find themselves in financial distress and bankruptcy may become a consideration.
The question becomes: what happens to worker’s compensation payments during bankruptcy?  Can creditors reach the proceeds?
The answer begins with a provision of the Worker’s Compensation statute, Fla. Stat. § 440.20 which provides:
“No assignment, release, or commutation of compensation or benefits due or payable under this chapter except as provided by this chapter shall be valid, and such compensation and benefits shall be exempt from all claims of creditors, and from levy, execution and attachments or other remedy for recovery or collection of a debt, which exemption may not be waived. However, the exemption of workers’ compensation claims from creditors does not extend to claims based on an award of child support or alimony.”
The clear language of the statute would seem to imply that worker’s compensation benefits are exempt from the reach of bankruptcy creditors.  However, creative creditors in Broward v. Jacksonville Medical Center, 690 So. 2d 589 (Fla. 1997) argued that lump-sum worker’s compensation payments were not exempt and thus, open to garnishment by creditors.  The creditor claimed that because the debtor had already received the lump-sum payment which was sitting in debtor’s bank account it was no longer “due and payable” because it had already been paid.
The lower courts agreed with the and the case was appealed all the way to the Florida Supreme Court which overturned the lower court’s decision.  The Florida Supreme Court found that the language of the statute wasn’t all that clear as to whether such payments would be exempt from bankruptcy creditors.  In such situations, courts look to the intent of the legislatures.  The court found that the clear intent of the legislatures was to protect injured workers and held that lump sum worker’s compensation payments are exempt during bankruptcy.bankruptcy and workers compensation benefits
Despite the favorable law set out in Broward, debtors should proceed with caution when determining where to place their lump-sum worker’s compensation payments.  Since Broward, some creditors have argued that if the lump sum worker’s compensation funds are commingled (e.g. placed in the same account with) with non-exempt funds they may lose their exempt status and be subject to creditor’s reach.  The Bankruptcy Court for the Southern District of Florida shot down this argument in In re Mix, 244 B.R. 877 (Bankr. S.D. Fla. 2000); however, variants of it continue to arise and the law is not completely settled.
Worker’s compensation benefits are just one of the many assets that those considering bankruptcy have questions about.  The Jacksonville bankruptcy attorneys at Adam Law Group would be happy to answer questions about workers compensation benefits in bankruptcy and what is likely to happen to your assets and property during bankruptcy.