By Ryan C. Wood
The short answer is yes, but how much of the workers compensation award or lump sum payment that can be protected depends upon the bankruptcy filer’s other assets as well. California has two different set of exemptions to protect assets from being liquidated in a Chapter 7 bankruptcy case. In a Chapter 13 case assets are not liquidated, but the equivalent value of the unprotected or unexempt asset are paid to creditors in the Chapter 13 plan as if the assets were liquidated. There are two different ways a California workers compensation award or lump sum payment can be protected under California exemptions.
1. California Civil Procedure Section 703.14(b)(11)(D) Exemption (703 Exemptions)
Pursuant to C.C.P. Section 703.14(b)(11(D) $25,575 of a personal injury award or claim can be protected due to personal injury, including being injured on the job. Even if you already received the award or lump sum payment the funds in your bank account can still be protected if you can trace the source of the funds back to the personal injury award. Be sure to discuss this issue with your bankruptcy attorneys as soon as possible upon being injured at work. California bankruptcy exemptions under C.C.P §703 are most notable for the generous wildcard exemption totaling $26,925.00. This exemption can be applied to equity in a home or any other assets like bank accounts or if someone owns multiple vehicles. The negative of using the 703 exemptions is the limitation on protecting equity in a home. What exemptions are applied really depends upon the individuals assets and potential claims they may have. So in theory, under the 703 exemptions a workers compensation claim, award or lump sum payment could be protected under the 703 exemptions totaling approximately $52,500. This is the combined personal injury exemption plus the wildcard exemption. For this to be true though none of the wildcard exemption could be used to protect money in bank accounts or any other assets, which is unlikely.
2. California Civil Procedure Section 704.160 Exemption (704 Exemptions)
Under C.C.P. Section 704.160 all benefits and claims are exempted or protected and there is not stated limit. So unlike the 703 set of exemptions mentioned above the 704’s provide for in theory protection of an unlimited amount received from worker’s compensation. The catch with using the 704’s is there is no generous wildcard exemption to use on any type of asset. The most common reason bankruptcy attorneys use the 704 exemptions is to take advantage of the generous homestead exemption amounts to protect equity in a primary resident. This set of exemptions allows the following homestead exemptions: Single and no dependents: $75,000; Married or Single with Dependents $100,000; Either Spouse is 65 or older, mentally or physically disabled, $175,000. Now that home values are increasing again which set of exemptions to apply to assets is becoming more and more important.
If you have already received a lump sum payment you need to be able to trace or prove that the funds in your bank account are from the workers compensation award. It would be wise to open a new account for this specific purpose so there is no question where the money came from. Once you comingle the award with normal monthly income and other funds it opens up the argument that the workers compensation award should not be exempt using the exemptions listed above.