In re Apfel

• Decision Date: 16 February 2017
• Docket Number: Case No. 16–72070–SCS
• Citation: 565 B.R. 349
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: IN RE: Larry Russell APFEL, Jr., Debtor.

565 B.R. 349

IN RE: Larry Russell APFEL, Jr., Debtor.

Case No. 16–72070–SCS

United States Bankruptcy Court, E.D. Virginia.

Signed February 16, 2017

Edward J. Sargent, Chesapeake, VA, for Debtor

MEMORANDUM OPINION

STEPHEN C. ST. JOHN, Chief United States Bankruptcy Judge

This matter came on for hearing on September 1, 2016, upon the Objection to Debtor's Claim of Homestead Exemptions (the "Exemptions Objection") filed by the Chapter 7 Trustee, Tom C. Smith, Jr. (the "Trustee"), on July 28, 2016, regarding exemptions claimed by the debtor, Larry Russell Apfel, Jr. (the "Debtor"), pursuant to Virginia Code Ann. § 65.2–531.¹ A hearing on the Exemptions Objection was held on September 1, 2016, and continued to September 29, 2016, on the condition that the parties file a Stipulation of Facts at least ten days prior to the continued hearing date. A Stipulation of Facts was timely filed on September 19, 2016. On September 27, 2016, two days before the continued hearing date, the Trustee filed a Memorandum of Law (the "Memorandum") in support of the Exemptions Objection. Upon the filing of the Memorandum, the Court continued the hearing generally and provided the Debtor the opportunity to file a response to the Trustee's Memorandum. On October 17, 2016, the Debtor, by counsel, timely filed a Response to the Trustee's Memorandum (the "Response"). Upon review of the Memorandum and the Response, the Court took the matter under advisement. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a). The Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. FINDINGS OF FACT

There are no disputed facts concerning the Trustee's Exemptions Objection. The Debtor, by counsel, and the Chapter 7 Trustee filed a Stipulation of Facts, which provides:

1. That in November 2015 the debtor settled a workman's compensation claim and received certain funds pursuant to the settlement in the amount of $138,865.89 ("WC Proceeds") which were deposited into debtor's checking account No.: XXXX6646 at Wells Fargo Bank, N.A., ("WF Checking Account") on November 17, 2015. A copy of the Order entered by the Virginia Workers' Compensation Commission in Case No.: VA00000614066 on November 5, 2015 is attached hereto as Exhibit 1.

2. That the debtor lent a portion of the WC Proceeds in the amount of $100,000.00 to Pro Tax, LLC, a Virginia limited liability company, ("Pro Tax") on November 20, 2015. Pro Tax is owned by Andrea Zank, who is the daughter of the debtor.

3. That Pro Tax executed a Promissory Note dated November 28, 2015 ("Note") which was signed by Andrea Zank as President of Pro Tax and received check number 5154 dated November 28, 2015 drawn on debtor's WF Checking Account ("Check"). Copies of the Note and the Check are attached hereto as Exhibit 2.

4. That terms of the Note provide for interest at the rate of 4% per annum and monthly payments of $1,740.00 commencing April 16, 2016.

5. That the debtor filed a chapter 7 bankruptcy petition with this Court on June 10, 2016. Tom C. Smith was appointed Trustee of the Bankruptcy Estate. The first Meeting of Creditors Hearing was concluded on July 19, 2016.

6. That the debtor filed a Schedule C with his Bankruptcy Petition and exempted pursuant to Virginia Code Section 65.2–531 the following assets:

A) Checking account—Wells Fargo—$8,062.00, Virginia Code Section 65.2.–531

B) Savings—Capital One 360—$5,045.50—Virginia Code Section 65.2–531

C) Business loan to Pro Tax, LLC—$87,545.50—Virginia Code Section 65.2–531

7. That the Trustee filed an Objection to the debtor's exemptions claimed pursuant to Virginia Code Section 65.2–531. The Objection was filed with the Court on July 28, 2016.

8. That the Court conducted a Hearing on September 1, 2016 to consider and act upon the Trustee's Objection to Exemptions. At the hearing the debtor's attorney stated to the Court that the debtor's exemptions in the WF Checking Account and the Business Loan to Pro Tax, LLC were proper because the funds in the bank accounts and the funds lent to Pro Tax, LLC were funds derived from his workman's compensation settlement. The Trustee indicated to the Court that he did not wish to pursue his objection to the debtor's exemption for the debtor's bank account but the Trustee believes the debtor should not be permitted to exempt the funds lent to the debtor by Pro Tax, LLC pursuant to Virginia Code Section 65.2–531.

See Stip. of Facts ¶¶ 1–8 (Docket entry 14).² The Trustee argues that the Virginia General Assembly limited the exemption of traceable workers' compensation benefits to shares purchased in a credit union and deposits held by a financial institution; thus, the Debtor is prohibited from extending the exemption to the proceeds of the business loan made using his workers' compensation funds. See Tr.'s Memo. at 2. The Debtor argues that Virginia Code Ann. § 65.2–531 is intended to be a remedial statute and should be liberally construed in favor of the injured worker. Debtor's Resp. at 2 (citing Barker v. Appalachian Power Co. , 209 Va. 162, 163 S.E.2d 311, 314 (1968) ). The Debtor represents that the only reported case applying Virginia Code Ann. § 65.2–531 concluded that the statute does not restrict the exemption status for workers' compensation funds to the initial proceeds. Id.; see In re Nelson , 179 B.R. 811 (Bankr. W.D. Va. 1994). The Debtor disagrees with the limitations that would result from the Trustee's interpretation of the statute, noting that the statute's examples pertain only to instances where the workers' compensation payment is commingled with other funds. Debtor's Resp. at 3–4.

II. CONCLUSIONS OF LAW

A. The Statute

The parties agree that the applicable statute in this matter is Virginia Code Ann. § 65.2–531. Entitled "Assignments of compensation; exemption from creditors' claims," the pertinent portion of the statute provides:

A. No claim for compensation under this title shall be assignable. All compensation and claims therefor shall be exempt from all claims of creditors, even if the compensation is used for purchase of shares in a credit union, or deposited into an account with a financial institution or other organization accepting deposits and is thereby commingled with other funds. However, benefits paid in compensation or in compromise of a claim for compensation under this title shall be subject to claims for spousal and child support subject to the same exemptions allowed for earnings in § 34–29.

Va. Code Ann. § 65.2–531(A) (2016) (emphasis added). The parties disagree, however, regarding the proper interpretation of the statute, and specifically whether the statute may serve as the basis for exempting property acquired by a debtor's workers' compensation funds.

B. In re Nelson

While the issue presently before the Court is the subject of few opinions, our sister court in the Western District of Virginia has addressed the issue. Judge Pearson provides an in depth discussion of Virginia Code Ann. § 65.2–531 in In re Nelson , 179 B.R. 811 (Bankr. W.D. Va. 1994). The debtor in Nelson sought to exempt a mobile home and a lot, both purchased using workers' compensation benefits, under Virginia Code Ann. § 65.2–531. In re Nelson , 179 B.R. at 811. The chapter 13 trustee objected to the exemption, arguing that because the workers' compensation benefits had been invested in the mobile home and the lot, the resulting investments did not retain an exempt status under the Virginia statute. Id.

"The rule of liberally construing a remedial statute like [Virginia Code Ann. § 65.2–531 ] in favor of the debtor is recognized in Virginia as it pertains to the Virginia exemption statutes." Id. at 812 (citing In re Smith , 22 B.R. 866, 867 (Bankr. E.D. Va. 1982) ). The Court acknowledged, however, that it must be mindful to " ‘neither reduce nor enlarge the exemptions or read into the law an exemption not found there.’ " Id. (quoting Goldburg Co. v. Salyer , 188 Va. 573, 50 S.E.2d 272, 277 (1948) ).

With these rules in mind, Judge Pearson concluded:

Section 65.2–531 is explicit and unambiguous. It simply states that no claim for compensation and all compensation and claims therefor shall be exempt from all claims of creditors. It does not say that once the funds are invested in other properties they become nonexempt. That construction cannot be read into the statute, which would be in violation of the authorities hereinabove cited. The Court must also conclude that if the legislature had so intended, it would have so provided.

Id. The Court concluded that the mobile home and lot purchased with the proceeds of the debtor's workers' compensation benefits were exempt properties under Virginia Code Ann. § 65.2–531. Id.

The Court finds that the result in In re Nelson is supported by the plain language of the statute. Subject to the enumerated limitation regarding spousal and child support, Virginia Code Ann. § 65.2–531 allows for the exemption of workers' compensation benefits regardless of the recipient's use of those funds. While the Trustee would deny the Debtor his exemption by arguing that the Virginia General Assembly limited the exemption to the workers' compensation funds themselves, shares in a credit union, or a deposit into a financial account, the Trustee reads limitations into the statute that are not there. Id. (citing Goldburg , 50 S.E.2d at 277 ). A liberal, plain language reading of the statute prohibits the Court from grafting the limitations onto it as suggested by the Trustee. See In re Evans , 543 B.R. 213, 220 (Bankr. E.D. Va. 2016 (St. John, C.J.)), aff'd , Case No. 4:16cv17, 564 B.R. 513, 2017 WL 150247 (E.D. Va. Jan. 13, 2017). This Court cannot limit the Debtor's exemption when it is rightfully provided to him by the clear and unambiguous statutory language. Rather, the statute's unambiguous wording requires the Court to conclude that the Virginia...