454 B.R. 565
Bankr. W.D.N.Y.2011Background
- Debtors filed a Chapter 7 petition on February 4, 2010; Trustee appointed to administer the estate.
- Debtors disclosed a $150,000 Workers' Compensation Proceeds payment received September 17, 2009 and a $57,000 Chemung Account containing those funds.
- Debtors claimed the Chemung Account funds exempt under NYS Workers' Compensation Law §33 and NYS Labor Law §595(2).
- Trustee filed an objection to exemptions on March 31, 2010.
- Trustee later filed a Turnover Motion under §542 claiming the funds are not exempt and should be turned over.
- Court heard the Turnover Motion and related briefing, including arguments invoking Herald and NY legislative history, and reserved decision prior to granting turnover.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Workers' Compensation funds in the Chemung Account are exempt under NY law. | Wydner asserts the funds are exempt as Workers' Compensation proceeds per §282(2)(c). | Trustee argues funds are not exempt post-petition or traceable as exempt, relying on Herald and statutory history. | No exemption for the Chemung Account funds under §282(2)(c). |
| Whether pre-petition Workers' Compensation funds can be exempted under §282(2)(c) with a traceable analysis. | Debtors rely on the broad language allowing exemption of the debtor's right to receive or interest in benefits. | Court should limit exemption to post-petition rights or traceable funds per legislative history. | Pre-petition funds deposited in the Chemung Account are not exempt under §282(2)(c). |
| Impact of 1989 amendment adding 'the debtor's right to receive or the debtor's interest in' to §282 on Workers' Compensation funds. | Amendment intended to protect ERISA plans and expand exemptions. | Amendment does not create exemption for pre-petition Workers' Compensation funds; it addresses ERISA plans. | Amendment concerns ERISA plans; does not create exemption for pre-petition Workers' Compensation funds. |
| Whether NY's 5205(l)/(l)(2) or 5222-a authorize or create exemptions for these funds. | Exemption provisions support shielding statutorily exempt payments, including Workers' Compensation. | Those provisions either require direct electronic deposits or do not create substantive exemptions for these funds. | Neither 5205(l)/(l)(2) nor 5222-a provide a basis to exempt the funds. |
Key Cases Cited
- In re Herald, 294 B.R. 440 (Bankr.W.D.N.Y. 2003) (disability benefits exemption under §282(2)(c) for post-petition funds; distinctions with pre-petition funds)
- In re Panza, 219 B.R. 95 (Bankr.W.D.Pa. 1998) (frequently cited on §522(d)(10) interpretation; informs distinction between right to receive and traceable property)
- In re Chapman, 177 B.R. 161 (Bankr.D. Conn. 1994) (discusses debtor's right to receive and exemptions under §522; informs interpretation parity with §282)