Workers’ compensation claims are protected in bankruptcy proceedings under federal law, specifically the Bankruptcy Code. Section 523(a)(4) of the Bankruptcy Code provides that debts arising from fraud or defalcation while acting in a fiduciary capacity, or for willful or malicious injury to another person or property, are not dischargeable in bankruptcy.
Additionally, workers’ compensation claims may also be protected under state law. In California, the state’s exemption statute, California Code of Civil Procedure 704.140, provides that workers’ compensation benefits are exempt from the bankruptcy estate.
These exemptions have been upheld in various bankruptcy court decisions, and have established the principle that workers’ compensation claims are protected in bankruptcy proceedings.