Equity Does Not Permit Court to Fix Congress’ Mistake Nearly 40 Years Ago Regarding Exemptability of Personal Injury Awards

Equity Does Not Permit Court to Fix Congress’ Mistake Nearly 40 Years Ago Regarding Exemptability of Personal Injury Awards

We have known since 1978 that Congress made a mistake regarding the exemptability of personal injury awards when the injured party has landed in Bankruptcy Court. 11 U.S.C. §522(d)(11)(D), (E), then exempted “the Debtor’s right to receive, or property that is traceable to — (D) a payment, not to exceed $7500.00, 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; or (E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.”

Clear enough, but the legislative history said “Paragraph (11) allows the debtor to exempt certain compensation for losses. These include crime victim’s reparation benefits, wrongful death benefits (with a reasonably necessary for support limitation), life insurance proceeds (same limitation), compensation for bodily injury, not including pain and suffering. . ., and loss of future earnings payments (support limitation). This provision in subparagraph (D)(11) is designed to cover payments and compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant costs that accompany such a loss, such as medical payments, pain and suffering, or loss of earnings. Those items are handled separately by the bill.”[1][Emphasis mine.]

The problem is, Congress neglected to deal with the “attendant costs” anywhere else in the Bill, nor has it corrected that omission in the thirty-eight years since the effective date of the Bankruptcy Reform Act of 1978.

Long before this Debtor filed for relief under Chapter 7, she was injured in an automobile accident in which the “other driver” was under-insured. She received some compensation from that other driver’s insurance company, and proceeded mainly against her own insurance company under New York “no fault coverage” and the coverage that she had against her own policy for protection with regard to uninsured or under-insured “other” drivers.

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