Posted by NCBRC - September 15th, 2020
The Bankruptcy Court correctly used the first-in first-out approach to determine how much of a commingled account could be attributed to exempt funds. Tydings v. Reed (In re Tydings), No. 20-4057 (W.D. Mo. Sept. 3, 2020).
After her husband died, the chapter 7 debtor received surviving widow’s social security benefits which she deposited into her bank account where she also deposited her weekly pay checks. Prior to receiving the social security payments, the debtor had $581.27 in her bank account. In the three months prior to her bankruptcy filing, the debtor deposited $15,171.57 in social security funds and $6,670.38 in wages into the account. During that same period, the debtor withdrew $13,461.07 from the account, leaving a balance of $8,939.15 on the petition date. The debtor claimed the entire balance in her account as exempt in bankruptcy. The trustee objected on the grounds that not all the funds in account were exempt. The trustee argued that the court should apply a first-in first-out (FIFO) analysis which would allow the debtor to exempt $3,981. The bankruptcy court sustained the objection and the debtor appealed to the district court. Read More
Posted by NCBRC - June 29th, 2020
The debtor’s uncashed loan check from her retirement account was property of the estate and was not exempt under section 522(d)(12). Ostrander v. Brown (In re Brown), No. 19-24 (B.A.P. 1st Cir. May 21, 2020).
Prior to filing her bankruptcy petition, the debtor received, but did not cash, an $18,000 check representing a loan from her retirement account. The chapter 7 trustee sought turnover of the check. The bankruptcy court denied the turnover motion finding that, because the funds were from an exempt retirement account and the debtor had not yet cashed the check, the check was likewise exempt. Read More
Posted by NCBRC - June 1st, 2020
The IRS’s right to set off the debtors’ tax overpayment against their pre-existing tax debt superseded the debtors’ right to exempt the anticipated refund. Copley v. U.S.A., No. 18-2347 (4th Cir. May 12, 2020).
When the Copleys filed for chapter 7 bankruptcy they listed a debt to the IRS of over $13,500. They also claimed their anticipated tax refund as exempt under Virginia’s exemption for “money and debts due the householder not exceeding $5,000.” They subsequently filed their tax returns which showed that their withheld income exceeded the amount they owed by over $3,000. Instead of sending the Copleys a refund, however, the IRS notified them that it had used the overpayment to set off the pre-existing tax debt. The debtors filed a complaint in the bankruptcy court seeking an order requiring the IRS to turn over the tax refund to the debtors. The bankruptcy court found that the refund was part of the bankruptcy estate and that the exemption superseded IRS’s right to set-off. The district court affirmed. Read More
Posted by NCBRC - May 6th, 2020
The bankruptcy court properly reduced the debtor’s homestead exemption and imposed a constructive trust on the property where the debtor paid off her mortgage using funds from the sale of a vehicle she did not own and to which the creditor had the right of possession. Graybill v. Thomas (In re Bentley), No. 19-14758 (11th Cir. Apr. 22, 2020) (unpublished).
This case involved a 1930 Cord Phaeton automobile. Originally, the car was owned by the debtor’s son Lynford Bentley. Dr. Susan Kolb lent Lynford $50,000, which loan was secured by the car. Lynford stopped paying on the loan, then he died. Dr. Kolb sued Lynford’s girlfriend to obtain the car or its value. But Lynford’s mother, and the debtor in this case, Catherine Bentley, took possession of the car and removed it from Georgia to Florida. A Georgia judge issued an order giving Dr. Kolb the right to possession of the car, and Dr. Kolb informed Catherine of that order. Notwithstanding her knowledge of Dr. Kolb’s right to possession of the vehicle, Catherine sold it at auction, clearing $112,947.81. She used the majority of the funds to pay off her mortgage. Dr. Kolb sued Ms. Bentley for fraudulent transfer. Ms. Bentley filed for chapter 7 bankruptcy and claimed a homestead exemption under Florida law.
Finding that Ms. Bentley never owned the vehicle and therefore had no right to the funds she used to pay off her mortgage, the bankruptcy court sustained the trustee’s objection to the exemption claim, reducing the amount of the exemption by $112,947.81. The bankruptcy court also overruled the debtor’s objection to Dr. Kolb’s claim, and imposed a constructive trust on the debtor’s homestead property. On appeal, the district court affirmed. Read More
Posted by NCBRC - February 14th, 2020
Incorrectly relying on the decision in Clark v. Rameker, the Eighth Circuit found that the chapter 7 debtor was not entitled to exempt funds in his ex-spouse’s IRA and 401(k) which he obtained through a dissolution agreement but which had not been transferred to his name at the time of his bankruptcy petition. Lerbakken v. Sieloff & Assoc., P.A. (In re Lerbakken), No. 18-3415 (8th Cir. Feb. 7, 2020).
The debtor acquired his ex-wife’s IRA and half of her 401K in a dissolution. When the debtor failed to pay his divorce attorney’s fees, his lawyer obtained an order from the court placing an attorney’s lien on the funds in the IRA and the 401K. The lien exceeded the value of the accounts. Six months later, Mr. Lerbakken filed for chapter 7 bankruptcy seeking to exempt the two accounts under section 522(b)(3)(C). At the time of his petition, he had not filed a Qualified Domestic Relations Order (QDRO), nor had the accounts been transferred to his name. Upon objection by the divorce attorney, the court found the two accounts were not “retirement funds” and disallowed the exemption. The BAP affirmed. Lerbakken v. Sieloff & Assoc., P.A. (In re Lerbakken), 590 B.R. 895 (B.A.P. 8th Cir. 2018). Read More
Posted by NCBRC - January 28th, 2020
Answering a question certified to it from the Seventh Circuit Court of Appeals, the Illinois Supreme Court held that, under Illinois law, “the proceeds of a workers’ compensation settlement are still exempt from the claims of medical-care providers who treated the illness or injury associated with that settlement,” notwithstanding 2005 amendments to the Workers’ Compensation Act. In re Hernandez, 2020 IL 124661 (Sup. Ct. Ill. Jan. 24, 2020). The Seventh Circuit found “that authoritative holding of the state supreme court is dispositive. The proceeds of Hernandez’s workers’ compensation settlement are exempt from the claims of the healthcare providers who treated her workplace injuries.” In re Hernandez, No. 18-1789 (7th Cir. Feb. 11, 2020).
Elena Hernandez filed for chapter 7 bankruptcy owing over $120,000.00 in medical bills incurred for treatment of work injuries. In her bankruptcy schedules she listed a pending workers’ compensation claim. Shortly after filing her petition, and without consulting the bankruptcy trustee, Ms. Hernandez settled the workers’ compensation claim with her employer for approximately $30,000.00. Ms. Hernandez maintained that, under the state Workers’ Compensation Act (WCA), the settlement was exempt from liability to creditors. Her medical creditors objected to the exemption arguing that 2005 amendments to the Illinois exemption law had made such settlements accessible to health care providers. The creditors also argued that the settlement was the product of fraud.
The bankruptcy court sustained the objection on process grounds rather than on application of the Illinois exemption. Affirming, the district court relied on its interpretation of the 2005 amendments to the state WCA. On appeal to the Seventh Circuit, (case no. 18-1789), that court determined that both sides offered seemingly valid interpretations of the exemption statute. It certified the question to the state supreme court. Read More
Posted by NCBRC - January 3rd, 2020
The chapter 7 debtor was entitled to avoid a judicial lien that impaired her homestead exemption where the home, which had been damaged by fire pre-petition, was valued as of the petition date rather than after post-petition restoration had enhanced the residence’s value. Waltrip v. Sawyers (In re Sawyers), No. 19-6016 (B.A.P. 8th Cir. Dec. 19, 2019).
Prior to filing for bankruptcy, Ruby Sawyers’s home was damaged by fire and she received insurance proceeds in the amount of over $132,000 for its restoration. At the time of her petition, she had not yet restored the home and it was valued at $3,000 – $6,000. She claimed a homestead exemption on 100% of the fair market value of the residence to the maximum exemption of $15,000. After the fire and prior to the bankruptcy petition, David Waltrip and the debtor entered into a consent judgment in the amount of $256,739.31 which resulted in lien against the property. The trustee made no distributions and abandoned all assets. The case was closed. Using the insurance proceeds, Ms. Sawyers then made improvements to the residence increasing its value to $95,000 – $103,000. The judgment creditor instituted a sheriff’s sale of the property. Ms. Sawyers reopened her bankruptcy and moved to avoid the judgment lien as impairing her homestead exemption. Mr. Waltrip objected. Using a formula under which the value of the property was subtracted from the sum of the liens and the exemption amount, the bankruptcy court found that the judicial lien impaired Ms. Sawyers’s homestead exemption and granted her motion for summary judgment to avoid the lien in full. The creditor appealed to the bankruptcy appellate panel for the Eighth Circuit. Read More
Posted by NCBRC - December 31st, 2019
Reversing the courts below, the Seventh Circuit found that unpaid vacation wages that were exempt under state law were also exempt under bankruptcy law notwithstanding the lack of explicit reference to bankruptcy in the state statute. In re Burciaga, No. 19-2246 (7th Cir. Dec. 13, 2019).
The debtor filed for bankruptcy shortly after losing his job and at a time that his employer owed him $24,000 in unused vacation pay. The debtor sought to exempt 85% of the unpaid vacation time under an Illinois law which allows creditors to reach only 15% of unpaid wages. It was undisputed that Illinois law treats vacation time as wages. The trustee objected to the exemption arguing that there was no suggestion that the state legislature intended the exemption to apply in the federal bankruptcy context. The bankruptcy court sustained the objection, and the district court, agreeing with the trustee’s position, affirmed. Read More
Posted by NCBRC - December 13th, 2019
In answer to a question certified from the Bankruptcy Court for the District of Rhode Island, the Rhode Island Supreme Court determined that “under the plain and ordinary meaning of the language in § 9-26-4(11) and § 408, an inherited IRA is defined under § 408, and it is, therefore, exempt under § 9-26-4(11).” In re Kapsinow, No. 2018-94-M.P. (R.I. Dec. 11, 2019) (Bankr. D. R.I. 16-11859).
Chapter 7 debtor, Lynette Kapsinow, inherited an IRA from her mother which she sought to exempt from her bankruptcy estate under the Rhode Island exemption laws. It was undisputed that the account when held by the debtor’s mother was a qualified retirement account under 408 of the Internal Revenue Code. Once her mother died, Ms. Kapsinow had access to the funds without penalty, could not make contributions to the account, and was required to take minimum distributions. Read More
Posted by NCBRC - December 6th, 2019
Based on Law v. Siegel the bankruptcy court properly overruled the trustee’s objection to the debtor’s amendment to his exemptions without regard to whether the debtor concealed assets in bad faith. Rucker v. Belew (In re Belew), No. 18-3045 (8th Cir. Nov. 26, 2019).
In his bankruptcy schedules, the debtor initially failed to disclose that he had $30,000 in cash in a home safe. When the trustee learned of the cash, the debtor sought to amend his exemptions to exempt the money. The trustee objected on the grounds that the debtor had intentionally concealed the asset and was therefore precluded from amending on the basis of bad faith. The bankruptcy court overruled the objection and the BAP affirmed. Read More
