Since Debtors’ Failure to Disclose Personal Injury Claim was Not the Result of Excusable Neglect, the Court Did Not Allow them to Amend Schedules to Exempt the Asset

Since Debtors’ Failure to Disclose Personal Injury Claim was Not the Result of Excusable Neglect, the Court Did Not Allow them to Amend Schedules to Exempt the Asset

Debtors filed their chapter 7 bankruptcy case in 2015 but did not disclose a personal injury claim they owned. After the case was closed, Debtors received a $8,000 settlement from the insurance company. They moved to reopen their case so the claim could be listed, and the $8,000 “exempted.” The case trustee objected to the exemption.

Turstee  examined the Debtors at a § 341 meeting held May 23, 2016. During the examination, Montoya asked Debtors: “Do either of you have any reason to sue someone else?” Both answered “No.” Trustee continued: “An example would be a car accident where you were injured, or any reason at all?” Again, both Debtors answered “No.”

Trustee filed a report of no distribution on May 25, 2016. Shortly thereafter (perhaps May 31 or thereabouts), a doctor contacted Debtor about his unpaid bills for the treatments he gave her after the car accident her March 25, 2015 “close out” date.

On October 14, 2016, State Farm sent Debtor a letter, enclosing a release and an affidavit for her to sign. She signed the documents on October 18, 2016. In the affidavit Debtor swore that she was “no longer . . . under the care of a person licensed to practice the healing arts.” The documents memorialize a settlement of all claims, including Dr. Fackrell’s $6,250.71 bill, for $14,250.71.

State Farm paid Debtor $8,000 on October 25, 2016, and paid Straight Chiropractic $6,250.71 on October 26, 2016. Debtor deposited the money in her bank account.

On November 22, 2016, State Farm sent a letter to Debtor’s bankruptcy counsel, informing him of the settlement. The record does not indicate how State Farm obtained the address, nor the purpose of the letter.

On April 3, 2017, Debtors moved to reopen their bankruptcy case to schedule and exempt the claim against Davis. The Court granted the motion to reopen. On April 12, 2017, Debtors filed amended schedules B and C. Amended schedule B states, in response to the requirement to disclose claims against third parties:

$14,250.71 recovery for accident 8/13/14 caused by Dawn Davis/ State Farm Insurance; subject to chiropractor lien of $6250.71 Net to Sandy Armijo $8000.00 on 10/14/16

Amended schedule C exempts the claim under 11 U.S.C. § 522(d)(11)(D).

Trustee timely objected to the amended exemption.

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