Lost Earnings From Personal Injury Not Exempt in New York

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

A “mistake” by Congress regarding exemptions of personal injury awards was adopted by New York when it copied the legislation, a bankruptcy court said. The result is an ongoing mistake that prevents debtors from claiming as exempt past lost earnings caused by a personal injury ( In re Roth , 2017 BL 227952, Bankr. W.D.N.Y., No. 17-10002 MJK, 6/30/17 ).

The June 30 opinion by Judge Michael J. Kaplan of the U.S. Bankruptcy Court for the Western District of New York opens by explaining the congressional mistake. Section 522(d)(11) of the Bankruptcy Code says that a debtor can claim as exempt from a bankruptcy estate up do $7,500 for compensation for actual financial loss resulting from personal bodily injury.

However, as the court points out, the legislative comment corresponding to that section of the bankruptcy bill says that the provision “is not intended to include the attendant costs that accompany such a loss, such as medical payments, pain and suffering, or loss of earnings. Those items are handled separately by the bill.”

The problem is that Congress never did deal with those “attendant costs” elsewhere in the bankruptcy law, “nor has it corrected that omission” years since the Bankruptcy Reform Act of 1978 took effect, it said.

Claude and Robin Roth filed a Chapter 7 bankruptcy case. In Chapter 7, a trustee is appointed to administer the debtors’ assets for the benefit of creditors.

The debtors tried to exempt from the trustee’s reach $7,500 of between the $12,000 and $20,000 Robin expected to recover from her insurance company for lost wages resulting from a personal injury she sustained “long before” the bankruptcy.

New York has opted out of the federal bankruptcy laws regarding the amount and extent of exemptions, but it copied verbatim the same personal injury award provision into its own laws setting forth applicable exemptions.

Because New York didn’t correct the mistake that existed in the federal law, the law carries the same problem for the debtor.

“‘Past lost wages’ are not exempted under the federal statute, and because the state statute adopted the federal statute verbatim, along with its failings, the Debtor’s effort to exempt up to [$7,500] of the ... award for ‘past lost wages’ must fail,” the court said.

The Chapter 7 trustee, Mark J. Schlant, appeared without counsel. The Roths were represented by Regina A. Walker, Williamsville, N.Y.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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