A fellow bankruptcy attorney recently posed an interesting question regarding the dischargeability of an obligation to pay workers compensation insurance premiums. Here is the exchange I had with him:
Is money owed to the “State Fund” for unpaid workers compensation insurance premiums by a debtor as a responsible officer of a defunct corporation nondischargeable?
You may find the Ninth Circuit’s decision in In re George, 361 F. 3d 1157 (9th Cir. 2004) helpful. The background facts were:
Owen and Deborah George petitioned for bankruptcy under Chapter 7 on October 20, 1998, and obtained a discharge from debt on January 4, 1999. A year later, on February 7, 2000, they were found liable on a debt for $116,000. The debt arose because they had failed to cover an employee injury by purchasing workers’ compensation insurance or meeting state requirements for self-insurance, as required by law. The Trust Fund filed a lien against the Georges’ real property. The Georges filed a complaint in their bankruptcy case to establish that the debt had been discharged and to avoid the lien. The Bankruptcy Court held that the Trust Fund’s claim was not an “excise tax,” so the debt was discharged and the lien was void. The Trust Fund appealed, and the District Court reversed. The Georges appeal.
In re George, 361 F. 3d at 1158.
The Court reversed the District Court holding that the unpaid Workers Compensation premiums were not an excise tax, and the liability was therefore dischargeable.
Perhaps your client’s failure to pay the premiums could be characterized as a failure to purchase workers compensation insurance, thus making the George holding apposite to their case.
In sum, a debt incurred from failure to pay workers compensation premiums should be dischargeable in the Ninth Circuit.
Image courtesy of Flickr (Licensed) by David Hilowitz