In re Chapman

• Decision Date: 03 February 2010
• Docket Number: No. 08-35654.,08-35654.
• Citation: 424 B.R. 823
• Parties: In re Henry Glenn CHAPMAN, Barbara Ann Chapman, a/k/a Bobbie Chapman, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

424 B.R. 823

In re Henry Glenn CHAPMAN, Barbara Ann Chapman, a/k/a Bobbie Chapman, Debtors.

No. 08-35654.

United States Bankruptcy Court, E.D. Tennessee.

February 3, 2010.

COPYRIGHT MATERIAL OMITTED

Hodges, Doughty & Carson, PLLC, Kandi R. Yeager, Knoxville, TN, for Trustee.

Robert R. Rexrode, Knoxville, TN, for Debtors.

MEMORANDUM ON OBJECTION BY TRUSTEE TO DEBTORS' SCHEDULE C EXEMPTIONS

RICHARD STAIR, JR., Bankruptcy Judge.

This contested matter is before the court upon the Objection By Trustee to Debtors' Schedule C Exemptions (Objection to Exemption) filed by the Chapter 7 Trustee, Dean B. Farmer, on July 6, 2009, objecting to the Debtors' claimed $15,000.00 joint exemption in a "Personal Injury Lawsuit." The Trustee seeks to limit the exemption to $7,500.00, the amount he agrees is allowable to Barbara Chapman. Pursuant to an Agreed Order entered on October 6, 2009, the parties agreed that an evidentiary hearing was not necessary and that the issues could be decided on stipulations and briefs. Accordingly, the parties filed a Statement of Undisputed Facts on September 25, 2009. On September 29, 2009, the Trustee filed his Memorandum of Law in Support of Trustee's Objection to Debtors' Schedule C Exemptions and the Debtors filed the Debtors' Trial Brief.

This is a core proceeding. 28 U.S.C. § 157(b)(2)(B) (2006).

I

On December 17, 2004, the Debtor, Barbara Chapman, was involved in a motor vehicle accident, and on December 7, 2005, both Debtors commenced an action styled Barbara Chapman, and husband, H. Glenn Chapman v. Charles K. McConnell, Case No. L-15060, in the Circuit Court for Blount County, Tennessee (Personal Injury Lawsuit). In their Complaint, marked as Exhibit A to the Statement of Undisputed Facts, the Debtors sought a judgment for Mrs. Chapman not exceeding $200,000.00 to compensate her for personal injuries incurred in the accident and a judgment for Mr. Chapman not to exceed $50,000.00 for emotional distress and loss of consortium.

The Debtors filed the Voluntary Petition commencing their Chapter 7 bankruptcy case on December 15, 2008. On June 11, 2009, they filed an Amended Statement of Financial Affairs disclosing the Personal Injury Lawsuit together with an Amended Schedule C—Property Claimed as Exempt listing the value of the Personal Injury Lawsuit as $250,000.00 and claiming a joint exemption of $15,000.00. The Trustee filed his Objection to Exemption on July 6, 2009, objecting only to Mr. Chapman's claim to a $7,500.00 exemption grounded on his loss of consortium claim asserted in the Personal Injury Lawsuit.

Thereafter, on August 17, 2009, following the filing of an appropriate motion by the Trustee, the court entered an Order Approving Compromise and Settlement, authorizing the Trustee to settle the Personal Injury Lawsuit for the sum of $60,000.00. Of this amount, $22,210.95 was paid as an administrative expense to Steve Merritt, the attorney prosecuting the Personal Injury Lawsuit, and $16,500.00 was paid to The Rawlings Company/Aetna Health Plans for its subrogation interest. The remaining $21,289.05 is being held by the Trustee pending the resolution of this contested matter.

Pursuant to the Joint Statement of Issues filed on September 29, 2009, the issue before the court is whether,

in a joint Chapter 7 case, a Debtor-Husband is entitled to claim a $7,500 exemption, separate from the $7,500 bodily injury exemption claim by the Debtor-Wife, under Tennessee Code Annotated section 26-2-111(2)(B) for his loss of consortium claim arising from an automobile accident involving the Debtor-Wife?

II

The filing of a bankruptcy petition forms a debtor's bankruptcy estate, which consists of "all legal and equitable interests of the debtor in property as of the commencement of the case." See 11 U.S.C. § 541 (2006). This definition is intended to be broad and includes personal injury claims arising from a pre-petition automobile accident, regardless of whether the claim has been liquidated, legal action has been commenced, or settlement has been reached prior to the date the petition was filed. Crocker v. Calderon (In re Calderon), 363 B.R. 537, 540-41 (Bankr. M.D.Tenn.2003). However, to ensure that they retain "sufficient property to obtain a fresh start[,]" debtors are allowed to exempt certain property, which "is subtracted from the bankruptcy estate and not distributed to creditors[,]" In re Arwood, 289 B.R. 889, 892 (Bankr.E.D.Tenn.2003) (quoting Lawrence v. Jahn (In re Lawrence), 219 B.R. 786, 792 (E.D.Tenn.1998)), but "[w]hen debtors file a joint petition, their `estates are in legal effect separate or several' [and each] spouse can claim an exemption only in property from his or her separate estate." In re Hensley, 393 B.R. 186, 193 (Bankr.E.D.Tenn.2008).

Exemptions, which are determined as of the date upon which the bankruptcy case is commenced, are construed liberally in favor of debtors, and "when it is possible to construe an exemption statute in ways that are both favorable and unfavorable to a debtor, then the favorable method should be chosen." In re Garbett, 410 B.R. 280, 284 (Bankr.E.D.Tenn.2009) (quoting In re Lichtenberger, 337 B.R. 322, 324 (Bankr.C.D.Ill.2006)); see also In re Nipper, 243 B.R. 33, 35 (Bankr.E.D.Tenn. 1999). In order to claim property as exempt, debtors must file a statement listing the property along with the amount of the claimed exemption and the statutory basis therefor, subject to objection by a party in interest. FED. R. BANKR. P. 4003(a), (b). As the objecting party, the Trustee bears the burden of proof by a preponderance of the evidence that the Debtors' exemption has been improperly claimed, FED. R. BANKR.P. 4003(c), otherwise it retains its prima facie presumption of correctness and will stand. Garbett, 410 B.R. at 284.

Because Tennessee has "opted out" of the federal exemptions allowable under 11 U.S.C. § 522(d) (2006), the Debtors in this case must use Tennessee's statutory exemptions. See TENN.CODE ANN. § 26-2-112 (2000).¹ As the basis for his claimed exemption, Mr. Chapman relies upon the following Tennessee statutory exemption:

Additional exemptions— ... Awards— ... In addition to the property exempt under § 26-2-103[²], the following shall be exempt from execution, seizure or attachment in the hands or possession of any person who is a bona fide citizen permanently residing in Tennessee:

....

(2) The debtor's right not to exceed in the aggregate fifteen thousand dollars ($15,000) to receive or property that is traceable to:

....

(B) A payment, not to exceed seven thousand five hundred dollars ($7,500) on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent[.]

TENN.CODE ANN. § 26-2-111(2)(B) (Supp. 2009). In support of his Objection to Exemption, the Trustee argues that Mr. Chapman's loss of consortium claim does not fall within the scope of the statute as a bodily injury claim and that Mr. Chapman is not a dependent of Mrs. Chapman.³ On the other side, the Debtors argue that because Mr. Chapman's loss of consortium claim is derivative from Mrs. Chapman's claim of bodily injury, his claimed exemption of $7,500.00 should likewise be allowed.

"The cardinal rule of statutory construction is to effectuate legislative intent, with all rules of construction [aiding] to that end." Browder v. Morris, 975 S.W.2d 308, 311 (Tenn.1998); see also Owens v. State, 908 S.W.2d 923, 926 (Tenn. 1995) ("The most basic principle of statutory construction is to ascertain and give effect to the legislative intent without unduly restricting or expanding a statute's coverage beyond its intended scope."). In order to ascertain legislative intent, courts should "look to the language of the statute, its subject matter, the object and reach of the statute, the wrong or evil which it seeks to remedy or prevent, and the purpose sought to be accomplished in its enactment[,]" State v. Collins, 166 S.W.3d 721, 726 (Tenn.2005) (internal quotation marks and citation omitted), and if "unambiguous, the legislative intent shall be derived from the plain and ordinary meaning of the statutory language." State v. Wilson, 132 S.W.3d 340, 341 (Tenn.2004); see also Schering-Plough v. State Bd. of Equalization, 999 S.W.2d 773, 775 (Tenn. 1999) ("Legislative intent is to be ascertained whenever possible from the natural and ordinary meaning of the language used, without forced or subtle construction that would limit or extend the meaning of the language.").

The ultimate goal is to "adopt a reasonable construction which avoids statutory conflict and provides for harmonious operation of the laws[,]" Carver v. Citizen Utils. Co., 954 S.W.2d 34, 35 (Tenn.1997), and when the parties derive different interpretations from the statutory language, "the court must look to the statutory scheme as a whole, as well as legislative history, to discern its meaning." Parks v. Tenn. Mun. League Risk Mgmt. Pool, 974 S.W.2d 677, 679 (Tenn.1998); see also Galloway v. Liberty Mut. Ins. Co., 137 S.W.3d 568, 570 (Tenn.2004) ("When interpreting statutes, a reviewing court must ascertain and give effect to the legislative intent without restricting or expanding the statute's intended meaning or application."). Although "on account of" is not defined by the statute, it has been interpreted within the Bankruptcy Code "to mean `because of,' thereby requiring a causal connection between the term that the phrase `on account of' modifies and the factor specified in the statute at issue." In re Vickers, 408 B.R. 131, 138 (Bankr.E.D.Tenn.2009) (quoting In re Green, 2007 Bankr.LEXIS 1182, at *3, 2007 WL 1031677, at *1 (Bankr.E.D.Tenn. Apr. 2, 2007)).

There is no legislative history concerning the enactment of § 26-2-111(2)(B); however, the language of § 26-2-111(2)(B) is practically identical to that of 11 U.S.C. § 522(d)(11)(D),⁴ and "where a state has borrowed from similar...