629 B.R. 372
Bankr. E.D. Pa.2021Background
- Debtor Elizabeth Buffenmeyer was injured at work and pursued a workers’ compensation claim; she filed Chapter 7 on November 5, 2019.
- Post-petition the parties executed a workers’ compensation compromise for $85,000, paid December 13, 2019: $68,000 to Debtor and $17,000 contingency fee to her counsel (Wolf, Baldwin & Assoc.).
- The settlement was not approved by the bankruptcy court nor was the bankruptcy filing disclosed to the employer/insurer before funding; Debtor disclosed the claim on schedules and amended Schedule C to claim exemptions (including §522(d)(10)(C)).
- Trustee initiated an adversary to avoid the post-petition transfer under §549, recover funds under §§550/551, disallow claims, object to exemptions, and seek denial of discharge under §727.
- Debtor and counsel moved for summary judgment arguing the proceeds are exempt (thereby not estate property) and counsel is a good‑faith transferee; Trustee opposed and produced no evidence of fraudulent intent.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Debtor / Firm) | Held |
|---|---|---|---|
| 1) Are the workers’ comp settlement proceeds property of the bankruptcy estate? | The settlement is property of the estate and thus subject to trustee administration and avoidance. | The proceeds are excluded by §541(a)(6) (post‑petition earnings) or otherwise exempt. | Court: The payment covered post‑petition wage loss but did not fall within §541(a)(6)’s narrow exception; it was property of the estate. |
| 2) If estate property, is the settlement exempt under §522(d)(10)(C)? | Objection: exemption should be disallowed; Trustee sought to prevent exemption as a basis to recover funds. | Debtor: settlement is a disability benefit akin to future earnings and fully exempt under §522(d)(10)(C). | Court: Allowed full exemption under §522(d)(10)(C); workers’ comp proceeds are covered in their entirety. |
| 3) Can the Trustee avoid the post‑petition transfer and recover the contingency fee from counsel under §§549/550/551? | Trustee: transfer was unauthorized and avoidable; recoverable from counsel. | Debtor/Firm: exemption removes funds from estate; alternatively, Firm is a good‑faith transferee under §550(b)(1). | Court: Because the exemption was allowed, avoidance action was moot; contingency fee excluded as part of the exempt settlement and, alternatively, Firm shown to be a good‑faith transferee. |
| 4) Should Debtor’s discharge be denied under §727(a)(2)(B), (a)(4), (a)(6)? | Trustee: Debtor concealed the settlement and amended schedules to hide assets, showing intent to hinder/defraud. | Debtor: timely disclosed the claim and amended schedules once amount known; no evidence of intent or concealment. | Court: Grant summary judgment for Debtor — Trustee produced no admissible evidence of fraudulent intent; discharge not denied. |
Key Cases Cited
- Schwab v. Reilly, 560 U.S. 770 (2010) (exemptions affect what property remains in estate and trustee’s avoidance power).
- White v. Stump, 266 U.S. 310 (1924) (exemptions determined as of the petition date).
- In re Cain, 91 B.R. 182 (Bankr. N.D. Ga. 1988) (workers’ compensation benefits are disability benefits exempt in their entirety under §522(d)(10)(C)).
- In re Michael, 262 B.R. 296 (Bankr. M.D. Pa. 2001) (distinguishing pre‑petition deposited lump‑sum payments; recognizes §522(d)(10)(C) applicability to workers’ comp).
- In re O’Brien, 443 B.R. 117 (Bankr. W.D. Mich. 2011) (courts should determine exemptions before resolving avoidance actions).
- In re Jess, 169 F.3d 1204 (9th Cir. 1999) (payments for pre‑petition services can be estate property).
- In re Carlson, 263 F.3d 748 (7th Cir. 2001) (same principle regarding compensation tied to prepetition services).
- In re Polichuk, 506 B.R. 405 (Bankr. E.D. Pa. 2014) (trustee must produce admissible evidence at summary judgment; ‘put up or shut up’).