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
Posted by NCBRC - November 7th, 2019
The District Court for the District of Maine adopted the “complete snap-shot” rule for treatment of a homestead exemption attached to property the debtor owned at the time of his chapter 13 petition and sold during the pendency of that case, even though he failed to reinvest the proceeds within six months as required by state exemption law, and converted his case to chapter 7. Hull v. Rockwell, No. 18-385 (D. Me. Sept. 24, 2019).
When Jeffrey Rockwell filed his chapter 13 petition in August, 2015, he claimed an exemption on his residence for the maximum amount of $47,500. During the course of his chapter 13 plan, in March, 2017, Mr. Rockwell sold the property and contributed the proceeds over and above the amount of his exemption to his plan. In August, 2017, Mr. Rockwell converted his case to chapter 7. He received a discharge in November, 2017. In December, 2017, the trustee filed an objection to Mr. Rockwell’s homestead exemption because he had not reinvested the funds in a new homestead within six months as required by state exemption law. After a hearing, the bankruptcy court overruled the objection. Read More
Posted by NCBRC - October 30th, 2019
The creditor’s judgment lien impaired the debtor’s federal homestead exemption even though she did not reside on the property, where her dependent son lived on the property part-time with the debtor’s ex-husband. Donovan v. Maresca, No. 18-1146 (D. Conn. Sept. 30, 2019).
When Melissa Maresca filed for chapter 7 bankruptcy, her divorce attorney held a judgment lien against real property Ms. Maresca owned with her ex-husband. Although Ms. Maresca did not use the property as her residence, her ex-husband resided there and her dependent son used the home as his part-time residence. In her bankruptcy, Ms. Maresca elected to use the federal exemptions and she sought to avoid the lien as impairing her federal homestead exemption under section 522(f). The creditor objected arguing that because Ms. Maresca did not actually reside on the property, she was not entitled to use the homestead exemption. The bankruptcy court granted Ms. Maresca’s motion to avoid the lien. Read More
Posted by NCBRC - October 11th, 2019
The Bankruptcy Court for the District of Massachusetts applied the totality-of-the-circumstances test to find that the chapter 7 debtor was entitled to have her student loans discharged in bankruptcy notwithstanding the fact that she had substantial exempt equity in her home. Schatz v. U.S. Dept. of Ed., No. 14-30825, Adv. Proc. No. 15-3001 (Bankr. D. Mass. Oct. 2, 2019).
When the debtor, Audrey Schatz, was in her fifties she attempted to improve her earning potential by attending law school, for which she incurred $106,000 in student loans. After becoming a lawyer, however, she was unable to find satisfactory employment and was earning approximately $25,000 when she filed for bankruptcy. The bankruptcy court rejected her position that the student loan debt caused her undue hardship and found that the loans were nondischargeable under section 523(a)(8). Read More
Posted by NCBRC - August 21st, 2019
Where state exemption law does not specifically apply to a contingent future interest in a tenancy by the entirety, the interest is not exempt under bankruptcy law and the debtor cannot avoid a judgment lien under section 522(f). In re Jaffe, No. 18-2726 (7th Cir. Aug. 5, 2019).
Including a mini-tutorial on the history of women’s property rights, from coverture (married woman’s property interests absorbed by her husband), to tenancy by the entirety (co-ownership and transfer to surviving spouse), to the Married Women’s Property Acts (providing means for women to own property and emerge from financial and social dependency), the circuit court explored the interaction of bankruptcy exemptions and Illinois property law.
The debtor entered bankruptcy owning his residence with his wife as a tenant in the entirety. When his wife died post-bankruptcy, he sought to exempt his entire fee simple interest in the property and avoid his creditor’s judgment lien under section 522(f) as impairing his exemption. The district court found that he could do so, and the creditor appealed.
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