SUPPOSE that you lost your finger in a work related accident. You filed a worker’s compensation claim for that, then you filed a Chapter 7 bankruptcy. A day after you file your bankruptcy, you receive $193,000 as your worker’s compensation payment. In your bankruptcy petition you exempt your worker’s compensation claim pursuant to Section 522(d)(10)(C) and (d)(11)(E). These two provisions of the bankruptcy code exempts the debtor’s right to receive “a disability, illness, or unemployment benefit;… a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.” The trustee objects to your claim of exemption. Who is correct?
In Re Dang, the Chapter 7 debtor lost his finger and part of his hand in a work related injury on February 16, 2011. On September 6, 2011, a redemption agreement was entered into by the debtor, his employer, and his employer’s insurance carrier. The agreement said that the debtor got injured, a dispute existed, and that the parties settled the dispute for a lump sum payment of $193,143.60 with $173,679 going to the debtor. A redemption order was entered that same day becoming final 15 days later. Debtor filed for Chapter 7 relief on October 3, 2011. His original schedules listed the value of his worker’s compensation claim as “unknown.” He said he received his settlement check on October 4. The debtor subsequently amended his Schedule B to reflect the actual settlement amount. He also amended Schedule C to exempt the entire amount of worker’s compensation funds received under Section 522(d)(10)(C) and (d)(11)(E). Naturally, the trustee objected to debtor’s claim of exemption arguing that “its just a finger… a lot of people get around with four fingers on one hand, and he still has five fingers on the other hand, that makes a total of nine fingers.”
At the hearing on the trustee’s objection to debtor’s exemption, the debtor’s worker’s compensation attorney testified that the redemption order allocated 100% of the award to wages. However, it was his opinion that 75% of the award should be allocated to wages and 25% to medical expenses. The attorney also told the court that if the debtor chose to obtain prosthetics, he would need 3 separate prosthetic hands during his life at about $65,000 per hand. Finally, he said that insurance companies do not issue checks until the time to file an appeal has passed, and that he has had clients wait 60 days to receive a check. The trustee called the debtor’s receipt and deposit of his check on the day after he filed his petition a “suspicious coincidence.” Unfortunately for the trustee, he forgot that a “suspicious coincidence” is not a legal argument, nor is it admissible evidence to support his position. Debtor also called on Captain Hook to testify as an expert witness. Hook testified that not a day goes by that he wished he had his hand and fingers back instead of a hook.
The court said there was nothing on the record to support the trustee’s suspicions other than the date on the check of September 23, 2011. The court found that the trustee failed to meet his burden of proof that the exemption was not validly claimed, and that the debtor did not receive the settlement check until after he filed for bankruptcy. “Based upon the plain meaning of 11 USC § 522(d)(10)(C), which states that the ‘debtor’s right to receive… a disability, illness, or unemployment benefit’ may be exempted, if the award is considered a disability benefit, the debtor’s settlement funds of $173,679.49 are exempt,’ the court said. “However, if the award is considered as loss of future earnings, it is exempt under 11 USC § 522 (d)(11)(E). At the time the petition was filed, the debtor had a right to receive the compensation for loss of earnings.” Trustee objection to exemption denied.
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