In re Lowenthal
| Decision Date | 18 December 1996 |
| Docket Number | Bankruptcy No. 96-111985R. |
| Citation | 203 BR 576 |
| Parties | In re Rodger LOWENTHAL, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Andrew Schwartz, Chapter 7 Trustee, Philadelphia, PA.
Daniel P. Bernstein, Philadelphia, PA, for debtor.
Frederic J. Baker, Asst. U.S. Trustee, Philadelphia, PA.
Introduction:
Before the Court is the Objection of Chapter 7 trustee Andrew N. Schwartz ("Trustee") to an exemption claimed by debtor Rodger Lowenthal ("Debtor") pursuant to § 522(b) of the United States Bankruptcy Code ("Code"), 11 U.S.C. §§ 101-1330, and 42 Pa.C.S.A. § 8124(c)(7). The exemption claimed is for certain monies that were paid to the Debtor under an accident insurance policy in satisfaction of a judgment he obtained against the individual with whom he was involved in an automobile accident in 1992. The Court heard oral argument on the Objection at a hearing held on September 25, 1996. After the conclusion of the hearing, the matter was taken under advisement. For the reasons set forth below, the Objection is denied.
The Court has jurisdiction over the parties and subject matter of this core proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a), 157(b)(1), (b)(2)(A) and (B).
At the hearing held on September 25, 1996, the parties submitted a stipulation of facts ("Stipulation") to be considered by the Court in ruling on the Trustee's Objection. As set forth in the Stipulation, the pertinent facts in this matter are relatively straightforward and not in dispute. The stipulated facts relevant to the matter follow.
On or about November 8, 1992, the Debtor was involved in an automobile accident with Horace Sheppard, Sr. ("Sheppard") within the city limits of Philadelphia. The Debtor suffered physical injuries in the accident that included abrasions, neck and back pains, and a concussion. As a consequence of the foregoing, the Debtor was unable to work or perform any work related services for a period of about eight weeks. In October 1994, the Debtor instituted a lawsuit against Sheppard, and other parties, in the Court of Common Pleas of Philadelphia.
Thereafter, on or about April 3, 1996, the Debtor was awarded a judgment in his favor against Sheppard in the amount of $65,000. In the same action, the Debtor's wife Ellen Lowenthal, not a debtor in this case, obtained a judgment against Sheppard in her favor in the amount of $10,000. In order to expedite payment and avoid an appeal by Sheppard, the Debtor agreed to accept the sum of $60,000 in full settlement of the amount awarded to him. It appears, however, that the settlement did not affect the amount awarded to the Debtor's wife.
At all times relevant to this proceeding, both Sheppard and the Debtor maintained automobile accident liability policies. Sheppard's policy, number 37ARA0226037, was with the Brotherhood Mutual Insurance Company ("Brotherhood Insurance"). The Debtor's policy, number SD749259, was with the American Insurance Company ("American Insurance"). On or about April 17, 1996, Brotherhood Insurance paid to the Debtor and his wife the sum of $70,000 pursuant to its obligations under Sheppard's policy. The check from Brotherhood, a copy of which was attached to the Stipulation, was made payable to "Rodger and Ellen Lowenthall individually and as husband and wife and Allen Feingold their attorney."
Although not a part of the Stipulation, the following facts, which appear in the official record of this case as maintained by the Clerk of the Court on the case docket, do not appear to be in dispute. The Debtor filed the petition commencing this Chapter 7 case on February 13, 1996. Mr. Schwartz, who was initially appointed to serve as the interim trustee on February 16, 1996, continues to serve in the case as the statutory Chapter 7 trustee pursuant to Code § 702(d). Nowhere in the schedules and statements required to be filed pursuant to Rule 1007 of the Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P.") did the Debtor list the personal injury action against Sheppard that was pending in the state court at the time that the petition was filed.
The first Code § 341 meeting of creditors in this case was held on May 6, 1996, at which time, the Trustee alleges, it was first disclosed by the Debtor that he had received proceeds from the above litigation with Sheppard. Thereafter, on May 9, 1996, the Debtor filed an amended schedule "C" which listed "proceeds of litigation re: auto accident Lowenthal v. Sheppard, et al." as exempt property under 42 Pa.C.S.A. § 8124(c)(7).
The Trustee filed the instant Objection on June 5, 1996. The hearing on the Objection, although originally scheduled for July 17, 1996, was held on September 25, 1996. Simply put, the Trustee contends that the monies paid to the Debtor are not exempt under 42 Pa.C.S.A. § 8124(c)(7) because they represent the proceeds of litigation, and as such, do not constitute an "amount payable under any accident . . . insurance" as required by that statute. The Trustee alternatively contends that because the source of the payment was Sheppard's insurance, rather than an accident insurance policy maintained by the Debtor, the payment falls outside of the scope of the exemption. The Trustee cites no legal authority for either argument. With respect to the latter position, however, the Trustee posits, in what appears to be an argument based on public policy, that failing to limit the exemption to funds paid to a debtor pursuant to the debtor's own accident insurance could lead to anomalous results in different, yet factually similar, situations. The Trustee hypothesizes, for example, that while a payment from either the debtor's or the liable party's accident insurance could arguably be claimed as exempt in the absence of the limitation he suggests, the situation would be markedly different had the payment come from the liable party directly. The Trustee contends that under these circumstances the payment could not be claimed as exempt simply because its source had not been one of the insurers, despite the fact that the circumstances giving rise to the liability would have been the same in both situations.
The Debtor responds to the foregoing by arguing that the plain language of the statute, as well as the general policy favoring the liberal interpretation of exemption statutes, require the Court to find that the monies paid by Sheppard's insurance are exempt under 42 Pa.C.S.A. § 8124(c)(7). In addition, likening the above payment to a hypothetical payment made under the now repealed No Fault Automobile Insurance Act, 40 P.S. §§ 1009.101 to 1009.701 (repealed by 75 Pa. C.S.A. § 1731), the Debtor contends that just as the hypothetical no-fault insurance payment to the Debtor would have been exempt under 42 Pa.C.S.A. § 8124(c)(9), so should the payment from Sheppard's insurance.
The commencement of a case under Title 11 of the United States Code creates an "estate" comprised of all equitable or legal interests of the debtor in property. Code § 541(a). So extensive is the estate's interest in property of the debtor, that it encompasses even property that may be necessary for a fresh start after bankruptcy. E.g. In re Nudo, 147 B.R. 68, 70 (Bankr.N.D.N.Y.1992). In order to foster this fresh start, however, and to promote the debtor's self sufficiency after the bankruptcy case has ended, § 522 of the Code permits the debtor to exempt from the reach of creditors some of the property that was swept into the estate under Code § 541.
Pursuant to Code § 522(b), the debtor may choose between the set of statutory exemptions provided under Code § 522(d), or the exemptions provided under the law of the state in which the debtor's domicile is located unless the state has "opted out" of the federal exemption scheme as permitted under Code § 522(b)(1). In instances where the state has opted out, the residents of the state are limited to the exemptions provided under state law. Since Pennsylvania has not opted out of the federal exemptions, debtors in this state may choose either the federal exemptions or the exemptions provided under Pennsylvania state law.
In the instant case, the Debtor has elected the Pennsylvania exemptions and seeks to exempt, inter alia, certain insurance proceeds under 42 Pa.C.S.A. § 8124(c)(7). In pertinent part, that statute provides as follows:
The Trustee, as the party objecting to the exemption claimed by the Debtor bears the burden of proving that the exemption should be denied. Fed.R.Bankr.P. 4003(c). The Trustee contends that the exemption must be denied in this case for two principal reasons. First, the Trustee posits that payment should be viewed as litigation proceeds, rather than an "amount paid under any accident . . . insurance", since it was rendered only after liability had been determined at trial. Second, the Trustee contends that even if the payment is viewed as an amount paid under accident insurance, it should nonetheless be viewed as falling outside of the scope of the exemption since its source was Sheppard's insurance, rather than a policy maintained by the Debtor.
The Trustee cites no authority in support of either of the positions asserted above. Indeed, the Court's own independent research has revealed no cases at either the state or federal level that interpret or apply 42 Pa.C.S.A. § 8124(c)(7). The instant case, therefore, is a matter of first impression involving this particular provision of the Pennsylvania exemption statute. The Court notes that although the right to exempt certain property from the bankruptcy estate is a right created by...
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