In re Burns
482 B.R. 164
| Bankr. E.D. La. | 2012Background
- Debtors filed for Chapter 7 relief; a prepetition lawsuit (for lost wages from asbestos exposure) was listed as exempt property.
- Postpetition, case converted to Chapter 13; hearing on the trustee’s timely objection to the exemption occurred July 24, 2012.
- Louisiana exemptions apply because Debtors are Louisiana residents; 75% of disposable earnings are exempt under La. Rev. Stat. § 13:3881.
- Disputed issue: whether settlement proceeds for lost wages constitute exempt earnings as a substitute for the lost exempt property rather than as nonexempt passive income.
- Louisiana jurisprudence allows exemption for proceeds that replace an exempt asset; Ballard conflicted with Thompson-Ritchie and Laurencio and is distinguished accordingly.
- Judge Denies Trustee’s Objection to Exemption, holding that the settlement proceeds retain the exempt character of wages under Louisiana law when they replace lost exempt earnings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the settlement proceeds exempt as a substitute for lost wages under La. R.S. 13:3881? | Burns: proceeds replace exempt wages and stay exempt. | Trustee: proceeds are not wages; they are passive income not exempt. | Exemption denied the objection; proceeds exempt as substitute for lost wages. |
| Should proceeds be treated as active wages under Louisiana law given Burns is not employed? | Proceeds replace earned wages; maintain exemption. | Not active earnings, thus not exempt. | Proceeds remain exempt as substitute for earnings of a wage earner. |
| Does Ballard control the characterization of settlement proceeds as nonexempt passive earnings? | Ballard misreads; proceeds substitute for property, not merely income. | Ballard supports treating proceeds as nonexempt. | Ballard distinguished; not controlling; exemption favored. |
| Do public policy and Thompson-Ritchie bolster broad exemptions for substitutes of exempt assets? | Exemption should be read broadly to protect subsistence. | Exemption narrowly tailored to asset-based rationale. | Court—policy supports exemption of replacement proceeds. |
| Is Laurencio’s view on wages exempt after becoming due applicable here? | Wages due remain exempt (80% or 75% depending on statute). | Same reasoning; conversion to 13:3881 (75%) applies. | Exemption applies to wages lost and collected as damages. |
Key Cases Cited
- Thompson-Ritchie & Co. v. Graves, 120 So. 634 (La. 1925) (funds from an exempt asset's insurance are themselves exempt as substitutes for the asset)
- Laurencio v. Jones, 180 So.2d 803 (La.App.4 Cir.1965) (80% of wages exemption; wages due remain exempt)
- Laurencic v. Jones, 180 So.2d 803 (La.App.4 Cir.1965) (exemption applies to wages when due; substitution concept supported)
- Shelley v. Accounts Supervision Co., 53 So.2d 520 (La.App.2 Cir.1951) (tools-of-the-trade exemption preserved despite non-use)