In re Hernandez
918 F.3d 563
7th Cir.2019Background
- Debtor Elena Hernandez filed Chapter 7 in Dec 2016, listing a pending workers' compensation claim (~$31,000) as exempt under 820 ILL. COMP. STAT. 305/21. Two days later she settled the claim for about $30,566 without notifying the trustee.
- Three medical providers (Ambulatory Surgical Care Facility, Marque Medicos Fullerton LLC, and Medicos Pain & Surgical Specialists) held unpaid bills totaling well over the settlement and objected to the claimed exemption.
- The providers argued 2005 amendments to the Illinois Workers' Compensation Act (notably 305/8 and new 305/8.2) allow providers to collect from an award/settlement after adjudication or settlement; Hernandez argued section 21 still exempts such proceeds.
- The bankruptcy court denied the exemption without a written opinion; the district court affirmed, holding section 21 does not block medical providers from collecting after a settlement under the 2005 amendments.
- The Seventh Circuit found competing plausible interpretations of the amended Act, identified substantial state-law uncertainty (including whether §21 is an exemption), and certified the dispositive question to the Illinois Supreme Court. Further proceedings in the Seventh Circuit were stayed.
Issues
| Issue | Hernandez's Argument | Providers' Argument | Held |
|---|---|---|---|
| Whether, after the 2005 amendments (305/8 & 305/8.2), §21 of the Illinois Workers' Compensation Act continues to exempt workers' compensation settlement proceeds from claims by medical-care providers who treated the injury | §21's plain text bars assignment or attachment of payments; the General Assembly did not amend §21 or expressly create an exception, so settlements remain exempt | The 2005 amendments (fee schedule, billing rules, and §8.2(e-20)) implicitly allow providers to resume collection after an award/settlement, so §21 should not shield providers from collection post-settlement | The Seventh Circuit declined to resolve the issue, finding reasonable arguments on both sides and certified the question to the Illinois Supreme Court |
Key Cases Cited
- In re McClure, 175 B.R. 21 (Bankr. N.D. Ill. 1994) (construed §21 as a state-law exemption applicable in bankruptcy)
- Mentzer v. Van Scyoc, 599 N.E.2d 58 (Ill. App. Ct. 1992) (held courts generally cannot require workers' compensation benefits be applied to a claimant's debts absent specific statutory provision)
- In re Estate of Callahan, 578 N.E.2d 985 (Ill. 1991) (interpreted §21 to prevent reaching a workers' compensation award in guardianship context)
- In re Yonikus, 996 F.2d 866 (7th Cir. 1993) (debtors' entitlement to bankruptcy exemptions is a question of law)
- Clark v. Chicago Municipal Employees Credit Union, 119 F.3d 540 (7th Cir. 1997) (explains interplay of federal bankruptcy exemptions and state exemptions)