Bankruptcy courts will protect workers compensation settlements and other benefits belonging to an injured worker. Florida statute section 440.22 clearly states that:
[Workers compensation ] 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.
Some bankruptcy trustees and judgment creditors, have attempted to argue that this exemption for workers compensation benefits is lost once an injured worker deposits the proceeds of a lump sum settlement into a savings account. However, the Florida Supreme Court has rejected this argument. See Broward v. Jacksonville Medical Center, 690 So.2d 589 (Fla. 1997). In that case, an injured worker took his lump sum workers compensation settlement and deposited into a savings account. A judgment creditor then attempted to garnish the bank account. The Florida Supreme Court held that the funds in the account, which had not been co-mingled with any other funds, were exempt under the statute quoted above, and therefore the judgment creditor was not entitled to them.
Florida bankruptcy courts have since relied on this court decision to hold that when an injured worker files bankruptcy, the proceeds of a workers compensation settlement remain exempt, and therefore, do not have to be turned over the trustee for the benefits of the debtor’s creditors.
Even though one bankruptcy court has held that exempt settlement funds co-mingled with non-exempt funds do not lose their exempt status, (In re Mix, 244 B.R. 877(S.D. 2000), it is advisable that any workers compensation benefits be placed in a segregated account that is identified for that purpose. One Florida Middle District bankruptcy court has held that settlement funds can be used to purchase stocks or other investments to try to maximize the value of the funds, without losing their exempt status. In re Harrelson, 311 B.R. 618 (Fla. M.D. 2004). However, if the settlement proceeds are pledged as security for a debt, they will likely lose their exempt status. See Sullo v. Cinco Star, Inc., 755 So.2d 822 (Fla. 5th DCA 2000)(holding that bank CD purchased solely with funds of a workers compensation settlement was not exempt because debtor had pledged it as security for a loan).
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