Unfortunately, this can be a complicated question with no clear answer, and the answer you get definitely depends upon where you live. Therefore, I strongly urge anyone with this issue to contact a bankruptcy or consumer lawyer in your area. Rather than getting into legal intricacies with this post, let me just briefly tell you what to watch out for:
1. If you have a Workers’ Compensation claim but have not yet received a lump sum settlement, you should file your bankruptcy petition before you receive any lump sum payment.
2. Be CAREFUL if you receive a lump sum amount before you file for bankruptcy. At the very least, you should have your lawyer place these funds in escrow for you so that they are “traceable” to the workers’ compensation case, but even that might not help. If you are going to receive a lump sum settlement or award before you file for bankruptcy, the best possibility is to resolve your workers’ compensation case by having the funds placed into a financial account called an annuity which prevents from having any direct access to the lump sum amount.
3. If you become injured while your Chapter 13 case is pending (in other words, when you filed a Chapter 13 case, you had no workers’ compensation claim, but only received the claim after filing your Chapter 13 case), you should be able to convert your bankruptcy case to Chapter 7 without having to worry about the Chapter 7 Panel Trustee taking your money.
4. Some states have laws which make Workers’ Compensation claims and all funds traceble to them entirely exempt and beyond the reach of a Trustee in bankruptcy; other states do not.
5. If you are in a Chapter 13 case at the time you receive a lump sum workers’ compensation award or settlement, the money may be “exempt” from your bankruptcy estate; however, the Trustee and Court may consider the funds you receive to be “disposable income” which may cause a drastic increase to your Chapter 13 Plan Payment.
Remember, nothing in this post is deemed to be legal advice; you should ALWAYS consult an attorney regarding issues such as these.
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