Can Creditors Garnish My Workers Comp Checks?
How to Protect Workers Compensation Payments and Settlements from Garnishment
Meeting your burden of proof and receiving an Award Letter for workers compensation benefits is good.
However, it is better to protect these benefits so you can use them to maintain your pre-injury quality of life or start fresh after an occupational injury.
Unfortunately, by the time you start receiving wage loss payments (temporary partial or temporary total disability) under the Workers Compensation Act, you may struggle to stay financially afloat. The litigation process can be lengthy, and you may experience wage loss and have thousands of dollars in unpaid medical bills during this time. This delay, coupled with the fact that workers comp pays two-thirds of your pre-injury earnings (or less if you are a high-wage earner), can lead to financial difficulties.
It’s a harsh reality that your creditors may threaten to garnish your current or future income or property, including your workers compensation benefits or settlement. If they are successful, this can push you into a more challenging financial position, especially when you’re already dealing with an occupational injury or illness that has disabled you from work.
We understand the distress this may cause you.
But don’t worry. Workers compensation laws provide help and protection from garnishment.
This article explains when a creditor can garnish your workers comp or property bought with these funds. Unless one of the exceptions exists, a creditor cannot garnish your weekly checks or settlement payment or place a lien on property purchased or loans given with workers’ comp proceeds.
Read to learn more about keeping your workers compensation payments from creditors’ claims.
Then call us at (804) 251-1620 or (757) 810-5614. We have negotiated millions of dollars in workers compensation settlements that provided financial security for injured employees.
What is a Creditor?
A creditor is a person, business, or government entity you owe money.
Your creditor may ask a court for a judgment against you if you fail to pay the debt owed.
What is Wage Garnishment?
Garnishment is a legal process by which a plaintiff collects a monetary judgment from a defendant. For example, the Code of Virginia defines garnishment as “any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt.”
Wage garnishment is the most common type of garnishment. It occurs when a creditor obtains a court order directing an employer or other entity to deduct money from your compensation (usually your salary or weekly earnings). For example, your employer must deduct part of your earnings when doing payroll and then send that money to the creditor.
The wage garnishment continues until you pay the entire debt through these deductions or resolve it by other means.
What Does the Law Say About Garnishing Workers Compensation Benefits?
Federal and state law protects your weekly (or biweekly) workers comp checks from garnishment by most creditors.
Federal Wage Garnishment Protection in Workers Comp
The Consumer Credit Protection Act (CCPA) is the federal wage garnishment law.
This law limits the amount of your disposable earnings subject to garnishment.
The CCPA defines earnings as “compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.”
Disposable earnings are the part of your earnings “remaining after the deduction from those earnings of any amounts required by law to be withheld.”
Generally, weekly workers comp payments and the part of your lump sum settlement not allocated to future medical benefits are subject to garnishment under federal law.
However, employers must follow Virginia law on garnishments because these laws result in less money garnished from your check. Indeed, Virginia’s law on garnishing workers comp is much more favorable to injured employees.
Code Section 65.2-531: Virginia’s Exemptions on Garnishing Workers Compensation
If you have received a read a summons in garnishment, you may have seen the option to claim exemptions from garnishment or a lien. Code Section 8.01-512.4 says a summons in garnishment served on a financial institution must have this notice.
Several of the exemptions to garnishment relate to occupational injuries or the permanent restrictions they may cause.
For example, you may claim exemptions for:
- Social Security disability insurance (SSDI) benefits and Supplemental Security Income (SSI)
- Veterans’ benefits
- Workers compensation benefits
The section for workers compensation benefits cites Code Section 65.2-531.
Code Section 65.2-531 is entitled “Assignments of Compensation; Exemption from Creditors’ Claims.”
Part A of the statute says:
A. No claim for compensation under this title shall be assignable. All compensation and claims therefor shall be exempt from all claims of creditors, even if the compensation is used for purchase of shares in a credit union, or deposited into an account with a financial institution or other organization accepting deposits and is thereby commingled with other funds. However, benefits paid in compensation or in compromise of a claim for compensation under this title shall be subject to claims for spousal and child support subject to the same exemptions allowed for earnings in § 34-29.
Therefore, no creditors, except for Divisions of Child Support Enforcement (DCSEs) with orders to collect past due spousal and child support, can garnish your workers compensation benefits or settlement. Even then, the law limits how much the DCSE can garnish from your workers compensation. Click here for more information on child support and workers comp.
This prohibition against creditors remains even if you deposit your workers comp checks with other money in your bank account, such as savings, loans, or a spouse’s income. The creditor cannot garnish what the bank or credit union holds for you up to the amount of your workers comp payments.
Can I Ask the Insurer to Pay Part of My Workers Compensation to a Creditor?
You may want to repay your creditor even though the law says your workers compensation cannot be garnished.
If so, you may propose a wage assignment, a voluntary agreement between you and the creditor to withhold a specific amount from your check to satisfy the debt.
However, you cannot do this under Virginia workers compensation law. The applicable garnishment statute says you cannot assign a compensation claim.
Are Property and Vehicles Purchased by Workers Compensation Benefits Protected from Creditors?
Yes.
Federal district and bankruptcy courts have interpreted workers compensation garnishment and creditor exemption statutes in favor of injured employees.
For example, In re Williams, Appellant, Schreiber, Trustee/Appellee, No. 93-543-M (D.N.H. 1994), the district court held that a motor vehicle was exempt from creditors because the debtor purchased it with workers compensation benefits. It found no basis to distinguish a bank deposit comprised of workers comp benefits from a car acquired with benefits.
In re Nelson, 179 B.R. 811 (Bankr. W.D. Va. 1994), the U.S. Bankruptcy Court for the Western District of Virginia adopted the rationale of the New Hampshire court. It ruled: “It is clear that the Virginia legislature in passing § 65.2-531 and providing for exemptions therein fully intended that the proceeds from these funds and the purchase of property from the said funds would be exempt. This Court so holds.”
Therefore, you can invest your workers compensation proceeds without worrying that creditors can take these investments. However, you must keep documentation.
Helping Injured Employees Keep Their Workers Compensation from Creditors, Garnishments, and Liens
The last thing you should have to worry about while recovering from a work-related injury is whether you will lose the income you are receiving and everything you have worked so hard for.
However, if you find yourself dealing with phone calls, letters, threats from creditors, or even a garnishment notice, call a skilled work injury lawyer to help you get and keep your workers compensation money.
With offices in Richmond, Newport News, Hagerstown, Baltimore, and Cambridge, we help injured employees throughout Virginia and Maryland.
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