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Wednesday, March 23, 2011

Exempting proceeds from personal injury settlements in Chapter 7 or Chapter 13 bankuptcy cases

Midland Credit Management vs. Chatman, MN Court of Appeals filed 3/22/2011 is a case that reaffirms earlier decisions regarding the ability to exempt (protect) proceeds from personal injury settlements as distinguished from being able to exempt the "right of action" in personal injury matters as it pertains to bankruptcy filings.

The court followed earlier court decisions wherein they took a "plain meaning" interpretation of the statutory language and also looked at other exemption statutes that sought to exempt proceeds and payments traceable to exempt sources. Those other statutes (as opposed to one under review here which was Minn Stat. Section 550.37, subd. 22) specifically stated that for example "all money arising from any claim on account of the destruction of, or damage to, exempt property", or in another section under the statutes providing for exemptions that the "right to receive present or future payments, or payments received by the debtor" would be exempt. (Minn Stats. Sections 550.37, subd. 9 and 550.37, subd. 25). So there...the language is inclusive and is plain on it's face. The court determined that had the legislature wanted to provide the same treatment for payments received on account of personal injury that it could have provided the same or similar language in the pertinent statute. Since the legislature could have but didn't include that language the court decided that the intent was not to protect the actual payments received on account of personal injury types of funds/payments to give them exempt status and therefore, they are not exempt.

Lesson to take from this decision...and which has also been my practice for many years is that all the circumstances have to be taken into account when contemplating a bankruptcy. Exemptions are one important part of the analysis. When a client has a personal injury matter and it is of a level whereas the potential damage award is higher than what we can protect under the federal exemptions found in the Bankruptcy Code then we will most likely consider filing under the state exemptions....but ONLY IF it is an unsettled claim at the point of filing. If not...then we have to reassess as this court of appeals decision confirms the prior cases which have held that only the claim or the right to the action is exempt and not the proceeds themselves. The question I always ask is....where is this at? Has it been settled? Has pen been put to paper yet? If not, then all things being equal and we don't have other types of concerns with other assets and the way we need to exempt those to weigh in...then we are good to go. If there has been a settlement...then the funds need to be spent down or converted to exempt assets within the limitations allowed by law.

Be advised that this analysis is pertinent to Minnesota bankruptcy cases and none other. If you are in another state other rules or case law may apply.

If you've got questions and need some answers regarding issues involved in a chapter 7 or chapter 13 bankruptcy filings for either personal or small business bankruptcy cases we'd be glad to help. Please feel free to connect with my office at your convenience.

David D. Kingsbury Attorney at Law
-Bankruptcy Lawyer Kingsbury Law Office
14827 Energy Way Apple Valley, MN 55124
Tel. (952) 432-4388 Fax. (952) 432-4969

Tuesday, March 8, 2011

Judgment removal

Just got off the telephone with a client of mine from 2002. She had just done a credit check and surprised to find a judgment on her record for a debt that was included in her bankruptcy filing. She called my office all bent out of shape and yelled at my receptionist telling her that this was something we should have taken care of for her. I touched on this topic in an earlier post but will take some time to go over it now. As for the problem....we'll take care of it. I pointed out to her that we informed her in writing at the time she hired us that judgments are not removed from the record or credit reports because someone files a bankruptcy case. Of course, she didn't remember that...but that is why we lawyers hang on to every scrap of paper that is generated in a case. She has decided to hire us to perform a judgment removal for her.

First off, a person has to understand that bankruptcy takes care of debts. Judgments are simply not debts. They may seem like debts to the lay person but rather they are a legal artifice that helps judgment creditors collect their money. Typically you need a judgment to do a bank levy, wage garnishment or any of the other less commonly used methods to execute on assets in order to satisfy a judgment. Judgments then, are court orders that state that the court has made a finding after a hearing on the matter and agrees that you owe someone some money. However, and as discussed and of themselves they are not in the nature of debt. Since bankruptcy removes debts and not court orders a discharge of the debt in a bankruptcy case does not serve to remove the record of the judgment.

After the bankruptcy order has been issued and the debt has been discharged in Federal court (2 different court systems here) we can then file an action in state/district court where the order on the judgment was issued and request an order removing the record of the judgment. The argument is based on the fact that the underlying debt that supported the issuance of the order for judgment is now discharged. A certified copy of the bankruptcy discharge is attached to the application for judgment removal so there are a few steps to take in terms of paperwork, serving the appropriate parties in a timely manner and noticing them regarding a hearing on the matter. In the majority of cases there is no problem getting the judgment removed without any great difficulty.

If you have debt issues or questions about bankruptcy filing in regard to either Chapter 7 or Chapter 13 bankruptcy for either individuals or small business do not hesitate to contact us.

Offices Located in Apple Valley and Rochester, MN

Direct email for Dave Kingsbury is

Visit our web site at for information to common questions regarding filing bankruptcy or to download our document package if you'd like to schedule a consultation

David Kingsbury, attorney
14827 Energy Way
Apple Valley, MN 55124
(952) 432-4388
(507) 281-5255