The Short Answer
Yes, workers' compensation benefits are protected in bankruptcy under North Carolina law. The bankruptcy trustee cannot seize benefits you're actively receiving because they are exempt. However, your workers' comp payments do count as income for the means test, which affects whether you qualify for Chapter 7 and how much you'd pay in a Chapter 13 plan. If you have a large settlement pending, you need to discuss it with your attorney before it's finalized — court approval and amended exemptions may be required.
In many cases when a client walks in our office to seek bankruptcy advice it is because they are at the end of their rope and under severe financial distress. Often times, many clients have already lost or are at risk of losing nearly everything they have.
When someone has been injured at work they are no longer able to receive their full compensation if they are unable to work due to their injury. Instead, they get workers’ compensation benefits which are typically 66.6% of their regular income. Workers? compensation benefits may be the only asset or source of income a person has. In these situations, one of the first questions a client will ask is whether or not their workers compensation benefits will be protected, and will they be able to continue to receive the benefits if they file bankruptcy. Well, in most cases the answer is ?yes?.
Workers compensation benefits may include payments you receive from your employer after being injured in an accident at work. These benefits/payments are usually based upon a percentage of your wages and are considered income and will not be affected by filing bankruptcy.
Under North Carolina law, workers? compensation benefits are exempt. When you file a bankruptcy, the bankruptcy Trustee does not have the legal right to seize any benefits that you are receiving at the time. Although the Trustee cannot take your benefits, your benefits are considered income and will be used for the Means Test to determine whether or not you can qualify for a Chapter 7 bankruptcy and/or the amount that you will need to pay back to the court in the event that you file a Chapter 13 bankruptcy.
If you are expecting a large workers compensation settlement, it is very important that you discuss the pending settlement with your attorney ahead of time. Once a settlement is reached, it is necessary in some districts of North Carolina that you obtain the Court’?s approval to settle the claim and the exemptions in your bankruptcy are amended.
Key Takeaways
- North Carolina law exempts workers' compensation benefits, meaning the bankruptcy trustee has no legal right to take payments you are currently receiving.
- Workers' comp payments count as income on the means test, which determines whether you qualify for Chapter 7 or sets your repayment amount in Chapter 13.
- Workers' compensation typically pays 66.6% of your regular wages, and for many injured workers it is their only source of income at the time they file.
- Ongoing benefit payments are not affected by filing bankruptcy — you will continue to receive them after your case is filed.
- A pending workers' compensation settlement is different from regular benefit payments and requires special handling — in some NC districts, the court must approve the settlement and your exemptions may need to be amended.
- Always disclose a potential or pending workers' comp settlement to your bankruptcy attorney before it is finalized to avoid complications with your case.
