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How are Personal Injury Settlements and Recoveries Treated in a Bankruptcy Case Filed in Maryland

How are Personal Injury Settlements and Recoveries Treated in a Bankruptcy Case Filed in Maryland

The Legislature of the State of Maryland has enacted numerous exemption statutes that protect the property of its citizens from creditors seeking to seize citizen property in satisfaction of debts owed by them. These exemptions are claimed in Schedule C of a bankruptcy petition as discussed in our previous blog article regarding Schedule C. Settlements and awards that arise from personal injury claims that are paid to State residents are also partially exempt from creditor seizure pursuant to Md. Code Ann., Cts. & Jud. Proc. § 11-504 (b)(2), which protects monies payable to a state resident in the event of accident, sickness, injury or death. At first glance, this exemption statute may lead one to believe that any money payable in the event of accident, sickness, injury or death is protected, however, two bankruptcy court opinions decided in the United States Bankruptcy Court for the District of Maryland have whittled away at the protections once thought to have been provided by this exemption statute.

The case of In re Hurst, decided in September of 1999 by the Honorable Judge E. Stephen Derby, was the first of these decisions that chipped away at the seemingly blanket protection afforded by the Maryland personal injury exemption statute. In Hurst, the Court was asked to determine whether or not the Debtor, Ms. Hurst, could properly exempt and protect monies from a personal injury settlement that sought to repay her for lost wages that arose as a result of her personal injury incurred before the filing of her bankruptcy case. The Court reasoned that in determining whether a claim for "injury of the person" falls within the exemption provided within this statute is whether the claim is for injury to property of the debtor or whether it is for injury to the person proper. Only injury to the person proper will be exempt under this statute. As a result, monies payable for lost wages in connection with a personal injury claim cannot be exempt under this statute as lost wages are considered injury to property of the debtor, but may be afforded limited protection under the real/personal property or wildcard exemption statutes found at Md. Code Ann., Cts. & Jud. Proc. § 11-504 (f) (real/personal property exemption limited at $5,000.00 total) and Md. Code Ann., Cts. & Jud. Proc. § 11-504 (b)(5) (wildcard exemption limited at $6,000.00 total). Seemingly unfair, absent the application of another exemption statute we are left with a result that may leave unprotected lost wages recovered under these circumstances.

Several years later, the Court once again whittled away the protection afforded under Maryland's personal injury exemption statute. The case of In re Hernandez, decided in November of 2001 by the Honorable Judge Paul Mannes, created another category of monies payable in connection with a personal injury claim that could no longer be claimed as exempt under the statute. In Hernandez, the Court reasoned that any monies payable to Mr. Hernandez for medical expenses that arose prior to the filing date of the bankruptcy petition which were dischargeable and could not be exempted under Maryland's personal injury exemption statute. The Court reasoned that to allow the Debtor to receive money on account of medical bills that were being discharged in his bankruptcy case would act as a windfall to the Debtor at the expense of those creditors who extended medical care that made the recovery possible. Again, money payable for pre-petition medical bills may be afforded limited protection under the real/personal property or wildcard exemption statutes found at Md. Code Ann., Cts. & Jud. Proc. § 11-504 (f) (real/personal property exemption limited at $5,000.00 total) and Md. Code Ann., Cts. & Jud. Proc. § 11-504 (b)(5) (wildcard exemption limited at $6,000.00 total). Unless and until someone challenges the result achieved by these two opinions, monies payable for lost wages and pre-petition dischargeable medical bills will continue to not be afforded protections under the Maryland personal injury exemption statute.

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