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Challenging Exemptions Under The United States Bankruptcy Code

Challenging Exemptions Under The United States Bankruptcy Code

11 U.S.C. § 522(d)(11)(D) reads as follows:

§ 522. Exemptions
(d) The following property may be exempted under subsection (b)(2) of this section:
(11) The debtor’s right to receive, or property that is traceable to —
(D) a payment, not to exceed $20,200, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; . . .
Federal Rule of Bankruptcy Procedure 4003(c) provides as follows:
Rule 4003. Exemptions
(c) Burden of Proof. In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed. After hearing on notice, the court shall determine the issues presented by the objections.
House Report 95-595 provides, “this provision in subparagraph (D)(11) is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant cost that accompany such loss, such as medical payment, pain and suffering, or loss of earnings. Those items are handled separately by the bill.” H.R. 95-595 at 362, U.S. Code Cong. and Admin. News 1978, pp. 5787, 6318.

To say that the exemption provided by Section 522(d)(11) and the attendant legislative history is a bit ambiguous would be an understatement. Cases discussing the ambiguity of this section and the little guidance provided by the legislative history are legend and need not be cited herein. For resolution of this Opinion, the Trustee’s sole position is that the personal bodily injury referred to in the exemption section must be permanent. For their part, the Debtors assert the injury does not need to be permanent and they have no quarrel with the Trustee’s Amended Objection that the exemption cannot extend to pain and suffering or compensation for actual pecuniary loss but only advance that part of the Objection based upon its timeliness.

The filing of an objection to an exemption creates a dispute which is a contested matter under the Federal Rules of Bankruptcy Procedure. See the Advisory Committee Note to Rule 9014 (Contested Matters). Federal Rule of Bankruptcy Procedure 4003 (Exemptions) at subparagraph (b)(1) provides the following:

Rule 4003. Exemptions
(b) Objecting to a Claim of Exemptions.
(1) Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later. The court may, for cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request for an extension.
There is no question that the Trustee’s initial Objection to the exemptions was timely under the applicable Rule. Furthermore, under Rule 9014(c), “the court may at any stage in a particular matter direct that one or more of the other rules in part VII (Adversary Proceedings) shall apply.” Federal Rule of Bankruptcy Procedure 7015 (Amended and Supplemental Proceedings) at subparagraph (a)(2) provides as follows:

(a) AMENDMENTS BEFORE TRIAL.
(2) Other Amendments. In all other cases, a party may amend its pleading only with the opposing party’s written consent or the court’s leave. The court should freely give leave when justice so requires.
The Court notes that the prayer of the original Objection requests that the claimed exemption of $40,400.00 under 11 U.S.C. § 522(d)(11)(D) be dismissed and denied. The Court finds that the Debtors were put under adequate notice by the prayer of the original Objection that the exemption was being attacked by the Trustee under the entirety of 11 U.S.C. § 522(d)(11)(D). It appears, perhaps out of an abundance of caution, that the Trustee felt it necessary to amend the Objection to specifically call attention to that portion of subparagraph (d)(11)(D) referencing that the exemption could not include pain or suffering or compensation for actual, pecuniary loss. Regardless of the Trustee’s motivation, the Court finds that the Debtors were not prejudiced in any manner by the filing of the Amendment and that their due process rights to defend the Objection were not compromised by the filing of the Amendment to the Objection and the timing of the Amendment. It is for these reasons that the Court will overrule the Debtors’ Objections to the asserted untimeliness of the Trustee’s Amendment to its original Objections to the Exemptions.

Having determined to permit the Trustee to amend the objections to the underlying exemption as set forth above, I will now address whether personal bodily injury needs to be permanent and, secondarily, whether a “loss of consortium” also qualifies under this exemption. The plain reading of the exemption and the accompanying legislative history provides no definitive conclusion that the “personal bodily injury” must be of a permanent nature. Addressing the issue of defining personal bodily injury, the following is provided in the case of In re Scotti, 245 B.R. 17 (Bankr.D.N.J. 2000):

Therefore the key to understanding and applying § 522(d)(11)(D) is defining “personal bodily injury,” as that term is used in the statute. The statute, unfortunately, fails to provide such a definition. Case law, however, suggests that in order for a debtor to utilize § 522(d)(11)(D) the debtor must have suffered at least “appreciable” or “cognizable” physical injury. See In re Barner, 239 B.R. 139, 142 (Bankr.W.D.Ky. 1999); In re Ciotta, 222 B.R. at 633. Damages for loss of a limb, physical disability, bone fractures and dislocations, and loss of consortium have all qualified for exempt status under the statute. See In re Lester, 141 B.R. 157, 157 (S.D.Ohio 1991); In re Territo, 36 B.R. at 669-670; In re Blizard, 81 B.R. 431 (Bankr.W.D.Ky. 1988); In re Lynn, 13 B.R. at 361.
Scotti, 245 B.R. at 20.

The permanency of injury issue was further addressed in the case of In re Lawton, 324 B.R. 20 (Bankr.D.Conn. 2005). The Court, based upon both the reading of the statute and the legislative history, concluded that personal bodily injury did not need to be permanent to be exemptible under 522(d)(11). Also, in support, the Court cited In re Barner, 239 B.R. 139, 145 (Bankr.W.D.Ky. 1999) and In re Ciotta, 222 B.R. 626 (Bankr.C.D.Cal. 1998). See further, In re Claude, 206 B.R. 374 (Bankr.W.D.Pa. 1997).

In this case, the Debtors allege that as a result of the automobile accident, the Debtor suffered a cartilage tear of the left wrist and synovitis of the right wrist. Furthermore, the injuries caused the Debtor to experience wrist pain with radiation into his arms and fingers. Debtor alleges that he was unemployed for a period of nearly three months due to the severity of the personal injuries and continues, two years after the injury, to experience wrist pain. The Court finds that the injuries suffered by the Debtor are the type of “personal bodily injury” covered by that term as used in § 522(d)(11)(D). Addressing the female Debtor’s exemption for loss of consortium, the Court has found very little case law addressing this issue. Several bankruptcy courts interpreting the exemption statute have found a loss of consortium to be exempt because it is derived from the spouse’s personal bodily injury. See In re Dealey, 204 B.R. 17, 18 (Bankr.C.D.Ill. 1997).

Nursing Home Abuse & Neglect Attorney Steven Peck

About the Author

Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.


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