Bankruptcy and Uninsured Claims

All businesses are required to carry workers’ compensation insurance for their employees in California, with few exceptions. If a business fails to carry such insurance and a worker sustains a work-related injury and successfully receives an award for said injury from the WCAB, the worker can seek payment from the Uninsured Employers Benefits Trust Fund (UEBTF or UEF). The Uninsured Employers Fund will then seek to recoup the costs paid to the employee from the uninsured employer. When the Uninsured Employers Fund is seeking to recover those costs paid against a business which has filed for bankruptcy protection, the question becomes whether that debt is dischargeable by the employer in their bankruptcy.

The controlling case in this issue is In re George, 361 F.3d 1157 (9th Cir. 2004). In that case, the couple declared Chapter 7 (discharge) bankruptcy. Later, the UEF attempted to file a lien against them for funds paid out to an injured worker. They disputed the lien in their bankruptcy case, as they had received a discharge. The UEF  argued that the debt was not dischargeable. The Court disagreed, and ruled that debt to the Trust Fund for injury to an injured worker is dischargeable in bankruptcy.

However, there are actually two types of bankruptcy for businesses: liquidation (or Chapter 7) bankruptcy, and reorganization (Chapter 11) bankruptcy. In a Chapter 7 bankruptcy, your business gets a “clean slate” and all assets are completely liquidated to help pay off the debts against your business. However, in Chapter 11 bankruptcy, your debts are reaffirmed and your business will be put on a payment plan. Chapter 11 is more common, as not all businesses will be eligible to declare chapter 7 bankruptcy.

If your business is has a lien from the UEF or a pending claim from an injured worker, the important next step is to attempt to negotiate down the amount of the lien with the UEF. As it is more likely that your business will be in Chapter 11 bankruptcy and will have to pay off all debt, it is an obvious benefit to make sure that there is less debt and the lien is as small as possible.

I have experience in dealing with the Uninsured Employers Fund in the context of helping my clients negotiate down debts. If you are facing a lien or judgment from the UEF, contact me today at 714-516-8188 to discuss your options in negotiating your lien.

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