Can a Trustee Take Your Workers' Compensation Settlement After a Discharged Bankruptcy?

By Tom Streissguth

If your debts become unmanageable, you have the option of filing for bankruptcy protection. Federal law allows you to petition for a legal discharge of your debts, while a trustee takes control of your assets to repay secured loans. In bankruptcy, a workers' compensation case is considered a part of your estate; any claim for benefits is an asset that the trustee may take into consideration, as long as the case remains open.


After you file a petition for Chapter 7 bankruptcy, the court appoints a trustee to manage your estate -- all of your assets that are not exempt and that can be liquidated (sold) to pay your creditors. In a Chapter 13 bankruptcy, the trustee sets up a repayment schedule, which allows you to make monthly payments over several years on a portion of your outstanding debts. When the process of liquidation or repayment is complete, the bankruptcy is discharged. A discharge legally closes the case and cancels all debts that the law considers "dischargeable."


Workers' compensation laws provide for medical services and cash benefits to workers injured on the job. The laws protect employers from legal liability for the injury, while work comp insurance companies provide benefits according to the requirements of state law governing work comp claims. Workers who have filed a claim have the option to settle it by accepting a lump-sum payment, which ends the insurance company's obligation to provide medical and monthly cash benefits.

Get a free, confidential bankruptcy evaluation. Learn More


Each state has its own laws spelling out which assets are exempt from seizure by the trustee. In most cases, this includes workers' compensation cash benefits, which are considered income. Some states exempt benefits that are paid prior to or during the bankruptcy; other states do not exempt settlements paid before you file for bankruptcy. In all states, the law considers workers' comp benefits to be income in the "means test" that determines whether you are entitled to bankruptcy protection, under either Chapter 7 or Chapter 13. Some state laws do allow a trustee to seize a work comp settlement that you have modified. For example, in California, if you agree to an advance payment on the settlement, or to structured settlement payments from a third party, the money may become "non-exempt" and subject to seizure by the trustee.

State and Federal Exemptions

Some states allow you to choose between state and federal exemptions when filing for bankruptcy protection. However, there is no provision in federal law for the exemption of workers' compensation benefits. Therefore, if you file for bankruptcy, you would have to select the state exemptions in order to protect the workers' comp settlement while the bankruptcy case is open.


After a bankruptcy is discharged, dischargeable debts are cancelled and the trustee has no further claim on your assets, whether or not they are considered exempt by the law. This includes workers' compensation benefits or a settlement amount. The law does not allow the trustee to keep a bankruptcy case open indefinitely in order to seize non-exempt assets, nor does it allow a trustee to seize any asset after the discharge. However, debts like income taxes, child support and federally guaranteed student loans generally are not discharged, and your work comp settlement money can be subject to a garnishment or lien by the IRS or another agency.

Get a free, confidential bankruptcy evaluation. Learn More
Can I Be Sued After Chapter 7?



Related articles

Can They Touch Your Disability if You Go Bankrupt?

Medical and other expenses can pile up fast if you're disabled. If you are considering the bankruptcy option, there may be consequences regarding your disability benefits. The law generally holds that disability benefits are exempt from seizure by a bankruptcy trustee. However, there are exceptions to this general rule.

Can a Bankruptcy Court Take Your Injury Settlement?

If you are on the verge of filing for bankruptcy because you lost your job due to an injury, you may find yourself in bankruptcy court seeking protection from your creditors and in state court pursuing a personal injury claim. You must work with your attorneys carefully, and disclose any personal injury claims to the bankruptcy trustee or you may not be able to recover any money for your injuries.

Can Creditors Attempt to Get Money After a Discharge?

When you file a petition for bankruptcy, you are asking a federal court for protection from creditors and time to work out your financial difficulties. In a Chapter 7 case, the court authorizes a trustee to seize your assets and sell them in order to repay creditors. In a Chapter 13, the trustee sets up a repayment plan, taking into consideration your assets as well as your income. Unless the case is dismissed, both kinds of bankruptcy conclude with a cancellation of debts you owe to some — but not all — of your creditors.


Related articles

Can I File Bankruptcy if I'm Not Late on My Payments?

If a financial storm is brewing, you have the option to file for bankruptcy protection. The federal bankruptcy code ...

Bankruptcy Exemption Requirements

If your debts are out of control and you have little hope of catching up on the bills, you have the option to file for ...

What Happens if You Are in Bankruptcy and Win the Lotto?

Declaring bankruptcy means asking a federal court for protection from creditors. You begin the case by filing a ...

Can a Bankruptcy Trustee Take My Social Security Disability Back Pay?

When you file a petition for bankruptcy, you are asking for court-ordered protection from creditors. A court-appointed ...

Browse by category
Ready to Begin? GET STARTED