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January 2013

News From the Clerk

Bankruptcy Filing

Breakdown

Page 2

Local Rules Have Been

Amended

Page 2

Bankruptcy Court Staff

Reductions

Page 2

Helpful Hints From the Clerk

Page 2

Who Says Depositions Are

Not fun

Page 3

Bud Tayman Bio

Page 13

Classified Ads

Page 15

Next Issue – Topic

Page 15

Articles Wanted

Page 15

Contact Editors

Page 15

The Hanging Paragraph

We are all very fortunate to be participants in a MSBA Section with such knowledgeable and distinguished members. The lead article this month is by another dean of the Maryland Bankruptcy Bar – Bud Tayman. Mr. Tayman has extensive experience and is known for his professionalism and exacting attention to detail. His complete bio can be found <here>.

THE IMPACT OF BANKRUPTCY ON A PERSONAL INJURY CLAIM -

WHOSE CLAIM IS THIS ANYWAY? By Bud Stephen Tayman

Your client has been injured and has suffered personal

injuries. There are unpaid medical bills and possibly

lost wages. After the injury has occurred but prior to

any recovery and regardless of whether or not a

personal injury lawsuit has been filed, the client files a bankruptcy case under

Chapter 7 or Chapter 13. What happens to the claim? Does the client still get

the recovery? Can you still represent the client in the personal injury claim?

Can you still get paid if there is a recovery? <Continued on page 4>

Calendar Year 2013 Court Holidays/Courthouse Closures

February 18th – Washington’s Birthday

May 27th – Memorial Day

July 4 – Independence Day

August 29th & 30th – (tentative) Baltimore Courthouse closed due to Grand Prix activity - staff will be working remotely. Greenbelt is not affected.

September 2nd – Labor Day

October 14th – Columbus Day

November 11th – Veteran’s Day

November 28th – Thanksgiving Day

November 29th – Day after Thanksgiving

December 25 – Christmas Day

January 1, 2014 – New Year’s Day

BANKRUPTCY SECTION NEWSLETTER January 2013

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Bankruptcy Filings for 2012

A total of 23,083 new bankruptcy cases were filed in Maryland for calendar year 2012. This is a decline

of 8.51% from 2011 filings. Nationally, bankruptcy filings declined by an average of 14%. Chapter 7 cases still

comprise 80% of our workload followed by Chapter 13 cases at 19%. Approximately 15% of all cases filed in

the District were filed without an attorney, or pro se. The majority of pro se cases were Chapter 7 cases filed

in Baltimore. A total of 2180 cases, or nearly one out of five new Chapter 7 cases in Baltimore was filed pro se.

One in ten new Chapter 7 cases in Greenbelt was filed pro se. <Back to Page 1>

Local Bankruptcy Rules Amended.

Administrative Order 13-01, dated January 3, 2013, amended the Local Bankruptcy Rules and Forms.

Local Bankruptcy Rule 3001-1 is obsolete due to revisions to FRBP 3001 (c). Additionally, Local Bankruptcy

Rule 5001-2 (a) is amended to change the Clerk’s Office open hours to 8:45 am to 4:00 pm. Local Bankruptcy

Form L is amended to specify that the debtor’s interest in the property is void. <Back to Page 1>

Budgetary concerns continue for the Federal Judiciary.

The Bankruptcy Court for the District of Maryland has reduced on-board staff from 73.6 to 64.6

positions since June of 2012. Our staffing formula which provides salary funds is partly related to the volume

of new cases filed over the previous two years. With continuing concerns about possible sequestration of

funding, funding for the rest of the fiscal year, pending changes to staffing formula, additional staff reductions

may be necessary. <Back to Page 1>

Helpful Hints for Bankruptcy Practitioners

1. To assist you in preparing and opening a new Voluntary Petition, use the guidelines on the court’s

website www.mdb.uscourts.gov under the Electronic Filing link. Under the Help section, click the

Video Demonstrations link, and then click Opening a Bankruptcy Case.

2. Remember, a good matrix means good mailings. To the greatest extent possible, when preparing the

mailing matrix, ensure that the debtor’s address and all creditors’ addresses on the matrix are accurate

and in proper format before uploading the matrix. This reduces additional processing by the

Bankruptcy Noticing Center (BNC) and returned mail to the attorney. To assist you in preparing and

uploading a quality matrix, use the guidelines on the court’s website www.mdb.uscourts.gov under

the Electronic Filing link. Under the Help section, click the Video Demonstrations link, and then click

Upload a Creditor Matrix.

NEWS FROM THE OFFICE OF THE CLERK SUBMITTED BY MARK D. SAMMONS

(THANK YOU MR. SAMMONS)

http://www.mdb.uscourts.gov/

http://www.mdb.uscourts.gov/


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3. What’s in a name? Everything, especially if that name belongs to the debtors’ case. Accurately review

the debtor’s name before uploading the voluntary petition to ensure this information is accurate. If

the debtor’s name or any pertinent information was incorrectly stated on the voluntary petition, an

amended voluntary petition with the correct information must be filed with the court as soon as

possible.

4. If you are filing documents to correct a previous error, i.e., Petition, Schedules, etc., be sure not to

open a new case. If you do happen to open a second case in error, you should immediately call the

help desk.

5. Capitalize on the ability to manage filing fees in CM/ECF -

Check system generated emails for fees due.

Check for outstanding fees in CM/ECF under Utilities, then Internet Payment.

Be sure to choose the final installment option in the system when making final payments.

Follow through all the screens to ensure credit card information transits and receipts are

issued.

Do not pay any fee you believe has been generated in error (i.e., duplicates) – it is easier for the

financial administrator to remove unpaid fees as opposed to refunding. Refunds are only given

for the Court’s error.

Once IFP status has been approved by the Court, fees are removed by the Court in the system.

If IFP is denied, full payment or installments may be made via CM/ECF or in person.

<Back to Page 1>

OUTRAGEOUS DEPOSITIONS

Who says depositions are not fun! < Click here for Video >

Here is the full link if the above does not work (copy and paste link to your browser): https://www.youtube.com/watch?v=oRIk1zEiGwM&playnext=1&list=PLE6647C9AA4210826&feature=results_main

<Back to Page 1>

https://www.youtube.com/watch?v=oRIk1zEiGwM&playnext=1&list=PLE6647C9AA4210826&feature=results_main

https://www.youtube.com/watch?v=oRIk1zEiGwM&playnext=1&list=PLE6647C9AA4210826&feature=results_main


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(Continued from page 1)

THE IMPACT OF BANKRUPTCY ON A PERSONAL INJURY CLAIM –

WHOSE CLAIM IS THIS ANYWAY?1

This article addresses these issues as they occur in a bankruptcy case filed in the District of Maryland

in which Maryland exemption law applies or a case filed in any other district in the federal judicial system

in which Maryland exemption law may apply.

TREATMENT OF THE PERSONAL INJURY CLAIM IN THE BANKRUPTCY CASE

1. Property Of The Bankruptcy Estate And Exemptions Generally

Under §541(a) of the United States Bankruptcy Code (the “Bankruptcy Code”), the filing of a

bankruptcy case creates an estate known as the bankruptcy estate. With exceptions not relevant here,

the bankruptcy estate consists of all legal and equitable interests of the debtor in property as of the date

the bankruptcy case is filed (the “Petition Date”). Bankruptcy Code, §541(a)(1). The assets which comprise

the bankruptcy estate are referred to as property of the bankruptcy estate. See, generally, Bankruptcy

Code, §541.

In a Chapter 7 case, a trustee is appointed and charged with the duty to liquidate non-exempt

property of the estate for the benefit of creditors. While a trustee is also appointed in a Chapter 13 case,

that trustee does not generally liquidate non-exempt assets. However, a Chapter 13 plan is often analyzed

through the liquidation value of the case, which involves a consideration of property of the estate and the

extent of exempt and non-exempt assets.

Property of the bankruptcy estate includes any personal injury claim possessed by a debtor as of,

and on, the Petition Date. Whether the claim is the subject of a pending personal injury lawsuit, is in the

pre- settlement or investigatory stage, or is wholly contingent or speculative is not relevant. It is sufficient

merely if the Debtor was involved in an incident prior to the Petition Date, regardless of whether or not

personal injuries had already manifested, or may manifest in the future. Any such claim is an asset of the

Debtor on the Petition Date and becomes property of the bankruptcy estate from the instant the

bankruptcy case is filed.

Notwithstanding that all of a debtor’s interests in assets become property of the bankruptcy estate

on the Petition Date, an individual debtor is entitled to exempt certain assets or specific values of assets

from property of the estate pursuant to Bankruptcy Code, §522(b)(1).

Exemptions are claimed on Schedule C filed in the bankruptcy case by a debtor. Once the

exemptions claimed become allowed exemptions, the assets or values so exempted are no longer

property of the bankruptcy estate and once again become property of the debtor. Subject to numerous

exceptions and qualifications, pursuant to Federal Rule of Bankruptcy Procedure

1 This article is an expanded version of an article which originally appeared in the January/February 2013 issue of the Maryland Bar

Journal and is reprinted with the express permission of the Maryland State Bar Association.


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(“F. R. Bankr. P.”) 4003(b)(1), an exemption is generally allowed (a) if it has been claimed, and (b) if

no objection to exemptions is filed within 30 days after the conclusion of the Meeting of Creditors held

pursuant to Bankruptcy Code, §341(a) or within 30 days after the filing of an amended schedule of

exemptions. See, Taylor v. Freeland and Kronz, 503 U.S. 638 (1992). Until an exemption is allowed,

therefore, the exemption is only proposed and the asset or values proposed to be exempted constitute

property of the bankruptcy estate along with all other assets in the case which have not been proposed to

be exempted. Notably, a Meeting of Creditors is not necessarily concluded after the close of the hearing.

In those cases, the objection deadline does not begin to run with the adjourning of the hearing.

Exemptions are provided by both federal and state law. One of the major changes to the

Bankruptcy Code by the 2005 revisions is the method used to determine which state exemption laws apply

in a specific bankruptcy case. Pursuant to Bankruptcy Code, §522(b)(3)(A), the applicable state exemption

law will be the exemption law of the state in which the debtor’s domicile was located for the 730 days

immediately preceding the Petition Date. If the debtor’s domicile has not been located in a single state for

the entire 730 day period, then the applicable state is the state in which the Debtor's domicile was located

for the 180 day period immediately preceding the 730 day period or for the longer portion of such 180 day

period (91 days) than the domicile was in any other place. If this analysis does not result in the exemption

laws of a specific state being applicable and also available to non-residents of the state, the federal

bankruptcy exemptions provided by Bankruptcy Code, §522(d) apply in the case.

2. Maryland Exemptions And The Personal Injury Exemption Statute

In a bankruptcy case in which Maryland exemption law applies, pursuant to Md. Code Ann.,

Cts. & Jud. Proc. (“CJP”) §11-504(g), Maryland has opted out of the federal bankruptcy exemption scheme.

This opt out is permitted by federal bankruptcy law provided by Bankruptcy Code, §522(b)(2). As such, in

a bankruptcy case in which Maryland exemption law applies, a debtor must use the exemptions provided

by (a) Maryland law, (b) federal bankruptcy exemptions contained in Bankruptcy Code, §522(b)(3) which

expressly excludes the use of the federal bankruptcy exemptions contained in Bankruptcy Code, §522(d),

plus (c) any applicable federal non-bankruptcy exemptions. Under Maryland exemption law, the proper

exemption statute to use to exempt a personal injury claim is CJP §11-504(b)(2). Since 2011, this

exemption statute has been modified by the addition of CJP §11-504(i).

New introductory language in CJP §11-504(b)(2) as well as the addition of a new subsection

(i) were enacted by the General Assembly, effective on and after October 1, 2011. The 2011 statutory

changes provide for the amount of 25% of the debtor’s net recovery from a personal injury claim to be

subject to execution on a judgment for a child support arrearage. These revisions appear to represent the

General Assembly’s swift response to the result of Rosemann v. Salisbury, Clements, Beckman, Marder &

Adkins, LLC, 412 Md. 308, 987 A.2d 48 (2010).

Rosemann held that, based on CJP §11-504(b)(2), personal injury settlement proceeds held in

trust by the personal injury attorney were not subject to execution on a judgment for child support

arrearages owed by the injured parent. The 2011 revisions to CJP §11-504(b)(2) legislatively overrule this

result to the extent of 25% of the net recovery from the personal injury claim. Net recovery is defined in


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subsection (i)(1) as “ the sum of money to be distributed to the debtor after deduction of attorney’s fees,

expenses, medical bills, and satisfaction of any liens or subrogation claims arising out of the claims for

personal injury, ... .” .

Maryland exemption law is grounded in the Maryland Constitution, specifically Md. Const. Art. III,

§44, which states that “[l]aws shall be passed by the General Assembly, to protect from execution a

reasonable amount of the property of the debtor.” (emphasis added). This provision first appeared in the

Maryland Constitution of 1851 as Art. III, §39. At that time, it directed that protected property be of a “

reasonable amount. . . not exceeding. . . [$500.00].” The $500.00 limitation was deleted by the 1976

amendments thereto.

Md. Const. Art. III, §44 is the mandate to the General Assembly to enact exemption statutes

in Maryland. In furtherance of this mandate, the General Assembly enacted the first exemption statute by

the Acts of 1861. This first exemption statute was found in Maryland law at Art. 83, §1, Sales and Notices.

The first personal injury exemption statute appeared in the Acts of 1904, and was found in Maryland law

at Art. 83, §8, Sales and Notices. In 1981, Art. 83, §8, evolved into CJP §11-504(b)(2).

Since the enactment of the first personal injury exemption statute in 1904 through 2011, the

personal injury exemption statute had never contained any express limitation on the amounts exemptible

thereunder. The sole limitation was the requirement of reasonableness required by Md. Const. Art. III,

§44. Therefore, except as to the narrow 2011 revisions, the exemption statute must be construed in light

of the “ reasonableness” requirement of the Maryland Constitution. See generally, In re Butcher, 125 F.3d

238 (4th Cir. 1997).

Except as narrowly provided by the 2011 new subsection 11-504(i), CJP §11-504(b)(2) still

does not contain a stated monetary exemption limit. Under Maryland law, exemption statutes are to be

liberally construed to effect the purpose for which those statutes were enacted. Muhr v, Pinover, 67 Md.

480, 10 A. 289 (1887) and In re Taylor, 312 Md. 58, 537 A.2d. 1179 (1988). Notably, there is bankruptcy

law authority that an exemption statute which does not have a stated monetary exemption limit is strictly

construed in a bankruptcy case. See, In re Howland, 27 B.R. 896 (Bkrtcy. D. Md. 1983)(Mannes, J.). Strict

construction of an exemption is an exception to general bankruptcy law that exemptions are to be liberally

construed to afford a debtor the fresh start provided by the Bankruptcy Code.

The 2011 revisions to CJP §11-504(b)(2) are reprinted below in italicized text to distinguish

the 2011 statutory additions from the personal injury exemption statute which has been interpreted by

the district and bankruptcy courts for the District of Maryland and the United States Court of Appeals for

the Fourth Circuit. As of the writing of this article, no bankruptcy case interpreting the current version of

the personal injury exemption statute has been found.

CJP §11-504(b)(2), as modified by new subsection 11-504(i), provides as

follows:

§11-504. Exemptions from Execution.

* * *


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(b) In General.-The following items are exempt from execution on a

judgment:

* * *

(2) Except as provided in subsection (i) of this section, money payable

in the event of sickness, accident, injury, or death of any person, including compensation for

loss of future earnings. This exemption includes but is not limited to money payable on account

of judgments, arbitrations, compromises, insurance, benefits, compensation, and relief.

Disability income benefits are not exempt if the judgment is for necessities contracted for after

the disability is incurred.

* * *

(i)(1) In this subsection, “net recovery” means the sum of money to be

distributed to the debtor after deduction of attorney’s fees, expenses, medical bills, and

satisfaction of any liens or subrogation claims arising out of the claims for personal injury,

including those arising under:

(i) The Medicare Secondary Payer Act, 42 U.S.C. §1395y;

(ii) A program of the Department of Health and Mental

Hygiene for which a right of subrogation exits under §§15-120 and

15-121.1 of the Health-General Article;

(iii) An employee benefit plan subject to the federal Employee

Retirement Income Security Act of 1974; or

(iv) A health insurance contact.

(i)(2) Twenty-five percent of the net recovery by the debtor on a claim

for personal injury is subject to execution on a judgment for a child support arrearage.

3. Operation And Constitutionality Of The Maryland Personal Injury Exemption Statute

CJP §11-504 (b)(2) operates to exempt claims or proceeds to be received on account of both bodily

injuries and non-bodily injuries such as emotional injury and mental anguish. Three Maryland cases - the

bankruptcy court and Fourth Circuit Court of Appeals decisions in In re Butcher and the district court’s

decision in Niedermayer v. Adelman - clearly demonstrate the expansive scope and constitutionality of the

personal injury exemption statute. Two subsequent decisions by Judge Derby - In re Hurst and In re

Anderson - and one subsequent decision by Judge Mannes - In re Hernandez - provide the practical

limiting parameters of the bankruptcy court’s interpretation of CJP §11-504 (b)(2).

In regard to bodily injury, CJP §11-504 (b)(2) is intended to provide compensation to a debtor

commensurate with the injuries received. While the constitutional requirement of reasonableness is ever

present in the analysis of any amount proposed to be exempted under

CJP §11-504(b)(2), the amount to be exempted per se is not germane to the analysis. The

compensation will be reviewed against injuries received. The issue is whether the debtor is receiving a

reasonable amount of compensation vis- a -vis his or her injuries.

The purpose of the personal injury exemption is to provide funds necessary to recompense the


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debtor for injuries to his or her physical person, to make the debtor whole in the eyes of the law, and to

restore human capital to the extent monetarily possible. Governor Plaza Associates v. Butcher, (In re

Butcher), 125 F.3d 238, 241 (4th Cir. 1997) (Niemeyer, J.), aff’g 189 B.R. 357 (Bkrtcy. D. Md. 1995)

(Schneider, J.). In Butcher, the Fourth Circuit affirmed the bankruptcy court’s decision upholding the

constitutionality of CJP §11-504 (b)(2), notwithstanding that the debtors were receiving an amount in

excess of $4.5 million in settlement of a personal injury case. The creditor argued, inter alia, that CJP §11-

504(b)(2) was facially unconstitutional under Md. Const. Art. III, §44 and, alternatively, if the statute is

constitutional, exempting an amount of money in excess of $4.5 million is per se unreasonable under the

Maryland Constitution.

The Fourth Circuit agreed that only reasonable compensation for personal injuries was

exemptible under the personal injury exemption statute and concluded that the Maryland General

Assembly would not have intended for unreasonable amounts to be exemptible under CJP §11-504(b)(2)

in the face of the reasonableness requirement of the Md. Const. Art. III, §44. Butcher, 125 F. 3d at 241.

The bankruptcy court Butcher decision is more descriptive of the facts and, therefore, is described

here inasmuch as this case clearly underscores the humanitarian purpose of an uncapped personal injury

exemption statute limited solely by an organic concept of reasonableness by stating, as follows:

The claim had been incurred as a result of a hot water heater explosion which resulted in Mr. Butcher suffering 2nd and 3rd degree burns over 85% of his body. In front of a pregnant Mrs. Butcher and the couple’s son, Mr. Butcher emerged from the basement of his house, his body engulfed in flames. As a result of his extensive injuries, Mr. Butcher spent 9 weeks in the hospital under heavy sedation where he underwent extensive physical therapy and medical treatment. He was unable to walk independently for 7 months after the accident. For 18 months following the accident, he was required to wear a special suit designed to provide uniform pressure on the burned areas of his body virtually 24 hours a day. The suit covered him from head to toe and was painful to wear. The accident had produced severe emotional distress on Mr. Butcher, Mrs. Butcher, and their son. As a result of the accident, Mr. Butcher was permanently scarred and disfigured, and had undergone plastic surgery on numerous occasions. He would continue to require operations and medical treatment in the future. Scar tissue prevented full closure of his eyelids, and affected his vision. Scar tissue prevented him from fully opening his mouth. As a result of his burns, he suffered arthritis and could not tolerate hot or cold temperatures. Butcher, 189 B.R. at 365. As a result of these injuries, the Butchers received a settlement providing for a lifetime, tax free income of approximately $250,000.00 per year. The present value of the settlement was estimated to be $4,513,728.00. Id. at 362.

The bankruptcy court Butcher decision is additionally noteworthy for its interpretation of the law

governing the operation of the personal injury exemption statute. Judge Schneider found a two-fold

purpose of CJP §11-504 (b)(2). First, the statue is designed to prevent debtors and their families from

becoming financially dependent upon the state. Second, and more fundamental, the statute is a legislative

attempt to restore human capital and to preserve money that makes an injured debtor whole in the eyes

of the law. Butcher, 189 B.R. at 365. In so describing the purpose of the statute, Judge Schneider stated

that:


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A fundamental civility of our jurisprudence subordinates financial obligations to claims of life and liberty. Thus, without the citation of authority, our system does not permit incarceration to satisfy a debt. Nor does it permit the sale of human beings as chattels. We would never require, for example, the extraction of a pint of blood from a person for sale in satisfaction of a money judgment. Likewise, an exemption law that permits a debtor to retain his claim to recompense himself for personal injury avoids a creditor’s stripping him of his means of possibly becoming whole when injured in tort. The law will, within limits, allow for attachment of his property for the satisfaction of debts, and for that matter lawsuits that go with the property, but it will not allow for attachment of his person for such purpose. Under these principles we can expect that a car which is burned in an electrical fire will be subject to attachment, as would be any claim against the insurance company for the fire loss. On the other hand, a person is not a chattel subject to attachment in satisfaction of a debt, and so, too, a lawsuit seeking to recompense him for damage to his person is likewise protected from attachment. Id. (quoting Niedermayer v. Adelman, 90 B.R.146,148. (D. Md. 1988)).

The personal injury exemption statute is not limited to claims or proceeds received on account of

injuries solely to the physical person of a debtor. CJP §11-502(b)(2) also applies with equal force and

effect to claims and proceeds received for emotional injury, mental anguish, and such other non-tangible

injuries to a human being. See, generally, Niedermayer, supra. Niedermayer involved a trustee’s

objection to a proposed exemption under CJP §11-504(b)(2) of a lawsuit filed against the debtor’s former

employer. In the suit, the debtor claimed compensatory and punitive damages for false imprisonment,

malicious prosecution, invasion of privacy, defamation, intentional infliction of emotional distress,

negligent infliction of emotional distress, civil conspiracy, loss of consortium, and breach of contract.

The issue presented to the court was whether the term “injury of any person” as used in CJP

§11-504(b)(2) includes injury manifested by emotional distress or mental anguish through the torts alleged

in the lawsuit. The court concluded that the answer to the question presented could be determined by

looking to the context of the usage of the terms of the statute in conjunction with the underlying purpose

of the statute. Id. at 148. The court found that when reviewing the entire Maryland exemption scheme, it

was apparent that whether a claim for “injury of the person” is within the ambit of CJP §11-504 (b)(2)

depends on whether the claim is for injury of property of the debtor or whether the claim is for injury to

the debtor’s person. If the injury is to the debtor’s person, it will be exempt under CJP §11-504(b)(2). Id.

at 149. The court then determined that a personal injury claim is not a property claim. Therefore, since

CJP §11-504 (b)(2) does not expressly limit the claim to bodily injury, “it is difficult to assume that

the [debtor’s] person does not include both body and psyche”. Id. In this regard, the court found that

mental anguish, damage to reputation, and damages caused by false imprisonment and malicious

prosecution are injuries to the debtor’s person the same as would be a tangible, physical injury. Id.

4. The Hurst - Anderson - Hernandez Analysis Of The Personal Injury Exemption Statute

Notwithstanding that in a Maryland bankruptcy case, an injured debtor may be found to be

entitled to exempt a substantial financial recovery under the personal injury exemption statute without

violating the constitutional dictate that the amount of property exempted must be reasonable, the

personal injury exemption statute is not without limitations. As stated above, the Hurst, Anderson, and


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Hernandez decisions provide the practical limiting parameters of the bankruptcy court’s interpretation of

the extent of the exemption in regard to this routine but controversial area of bankruptcy practice. The

Hurst, Anderson, and Hernandez analysis of the personal injury exemption statute has been uniformly

accepted by any of the Maryland bankruptcy judges who have had occasion to opine on the issues

involved. See, e.g, In re Dobbins, 249 B.R. 849 (Bkrtcy. D. Md. 2000) (Schneider, J.) and In re Short, 2010

WL 4736209 (Bkrtcy. D. Md. 2010)(Keir, J.).

In September, 1999, Judge Derby wrote two opinions which together restrict the scope of

CJP §11-504 (b)(2) such that amounts recovered for both prepetition lost wages and prepetition

unpaid medical expenses are not exempt thereunder. In re Hurst, 229 B.R. 89 (Bkrtcy. D. Md.1999) and In

re Anderson, Case No. 99-5-6749-SD (order entered September 28, 1999) (unreported). In In re

Hernandez, 272 B.R. 178 (Bkrtcy. D. Md. 2001), Judge Mannes adopted Judge Derby’s reasoning in

Anderson and held that the amount of prepetition unpaid medical expenses was not exempt under the

personal injury exemption statute. Id. at 180-81. Since both Hurst and Hernandez are reported decisions

and Anderson is not reported, the cases speak in terms of the Hurst and Hernandez cases. That

notwithstanding, Anderson is the seminal Maryland bankruptcy case holding that unpaid prepetition

medical expenses are not exempt under the personal injury exemption statute.

The debtor in Hurst had a prepetition personal injury claim worth approximately $15,000.00.

Included in this valuation was prepetition lost wages in the amount of $12,000.00. The debtor proposed

to exempt the amount of $15,000.00 under CJP §11-504(b)(2). Judge Derby held that the prepetition lost

wages were not exempt under CJP §11-504(b)(2) for three reasons:

First, the debtor’s right to receive wages is a property right which is not exempt under CJP §11-504

(b)(2). Under Niedermayer, only injuries to the debtor’s person are exempt under CJP §11-504(b)(2).

Hurst, supra at 91. (citing Niedermayer, supra at 148-49).

Second, CJP §11-504(b)(2) does not expressly forbid attachment of money awarded for lost wages.

Id. Notably, CJP §11-504(b)(2) expressly provides for exemption of “compensation for loss of future

earnings.” (emphasis added).

Third, Judge Derby found that had the debtor not been injured, but had worked and possessed

unspent wages on the petition date, the unspent wages would not be fully exempt unless the debtor had

room to exempt those wages under the remaining general exemption statutes, to wit: CJP §§11-504(b)(5)

and (f). If the debtor would be able to fully exempt lost wages in an unlimited amount under CJP §11-

504(b)(2) solely due to having been injured, the debtor would be receiving a windfall to which he or she

would not have been entitled had he or she not been injured. Id. at 91-92.

Anderson was decided 19 days after Hurst. In Anderson, the prepetition unpaid medical expenses

were in an amount of at least $34,500.00. On her exemption schedule, the debtor scheduled the value of

her proposed exemption in the personal injury claim at $20,000.00.

In Anderson, Judge Derby extended the reasoning set forth in Hurst to include amounts included in

the claim based on the amount of prepetition unpaid medical expenses. As with prepetition lost wages,


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Judge Derby stated that if the debtor were allowed to exempt amounts received for prepetition unpaid

medical expenses, with those expenses being discharged by the bankruptcy proceeding, the debtor would

receive a windfall at the expense of her creditors.” Anderson, supra at 2. In adopting the reasoning of

Anderson, Judge Mannes more specifically added that if the amount of prepetition unpaid medical

expenses would be covered by CJP §11-504(b)(2), the debtor’s windfall would be at “ the expense of those

creditors who extended the medical care that made the recovery possible.” Hernandez, supra at 180.

5. Effect of Hurst - Anderson - Hernandez On Maryland Bankruptcy Practice.

The Hurst- Anderson - Hernandez decisions have expanded the range of assets available for

distribution to creditors in many bankruptcy cases with a personal injury claim. Under Hurst- Anderson -

Hernandez, it has not been be possible to merely exempt a personal injury action per se under CJP §11-

504 (b)(2). Bankruptcy counsel should now always consider the extent of prepetition special damages

comprising the personal injury claim and provide for the exemption of those amounts under the remaining

general exemption statutes, to wit: CJP §§11-504(b)(5) and (f) to the extent of available exemption

availability up to the monetary cap of those exemption statutes, currently the respective amounts of

$6,000.00 and $5,000.00 per debtor. To the extent amounts for prepetition unpaid medical expenses and

prepetition lost wages cannot be exempted under CJP §§11-504(b)(5) and (f), those amounts could be

found to be non-exempt portions of the personal injury claim and available for distribution to creditors.

The amount exemptible for personal injury under CJP §11-504(b)(2) will always be determined on a

case by case basis. As has been seen by Butcher, supra, it may well be impossible to meritoriously

challenge the amount proposed to be exempted for compensatory damages under CJP §11-504(b)(2) as

being unreasonable and, thereby, unconstitutional. The same may not be said for special damages as a

result of the Hurst - Anderson - Hernandez decisions.

The practical result of Hurst - Anderson - Hernandez is that the debtor may be sharing the recovery

from his or her personal injury claim with the bankruptcy estate. Often the trustee will seek to employ the

Debtor’s personal injury attorney to prosecute or settle the claim for the benefit of both the debtor and

the bankruptcy estate, with due regard for, and after serious consideration of, the possibility of a conflict

of interest for the personal injury attorney. Alternatively, depending on the circumstances presented by

the case, the trustee may determine that the best interests of the bankruptcy estate mandate that he or

she take over the prosecution or settlement of the personal injury claim to ensure that the appropriate

amounts thereof go to the bankruptcy estate along with the remaining amounts going to the debtor.

Finally, it is too soon to know the impact, if any, of the 2011 revisions to the personal injury

exemption statute on the Hurst - Anderson - Hernandez analysis.

(A) On the one hand, an argument can be made on behalf of a debtor that with the 2011

revisions, the General Assembly has finally spoken and defined a single narrow exception of a claim to

which the exemption does not apply, to wit: 25% of the debtor’s net recovery from a personal injury

claim being now subject to execution on a judgment for a child support arrearage. The argument would

continue with the position that had the General Assembly intended for lost wages and unpaid medical

expenses to additionally not be subject to the exemption, it could have provided for those exceptions as


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well.

(B) On the other hand, an argument can be made on behalf of the bankruptcy estate that

at no time since the inception of Hurst - Anderson in 1999 through Hernandez in 2001, has the General

Assembly seen fit to take the swift action it took to undo or overrule the result of those cases, as it

apparently did in regard to the Rosemann decision leading directly to the 2011 revisions to the personal

injury exemption statute. As such, this argument would continue, Hurst - Anderson – Hernandez reflect

the intent of the General Assembly and are correctly decided.

It appears certain, however, that arguments in regard to the impact, if any, of the 2011

revisions will now become a standard component in proceedings to resolve the issues in regard to the

exemption of personal injury claims in bankruptcy cases in which Maryland exemption law applies.

WHAT DOES THIS MEAN FOR THE PERSONAL INJURY ATTORNEY

All is not lost for the debtor’s personal injury attorney, albeit, the filing of the bankruptcy case will

alter relationships, responsibilities, and the authority to proceed in the first instance. Notably, the total

personal injury claim is property of the estate until some aspect thereof becomes property of the debtor.

This includes the portion of the claim for medical expenses. It also includes the portion of the claim which

otherwise would be allocable to the personal injury attorney’s fees and costs. As such, there is no

authority to disburse any of the claim proceeds for either medical expense or for the personal injury

attorney’s fees and costs. Moreover, as of the Petition Date, the debtor no longer has the authority to

prosecute and settle the claim.

The way this usually works in a Chapter 7 case is that the trustee will determine the best way to

proceed. In the event the claim is deemed of inconsequential value, the debtor will simply be allowed to

continue with it. In all other cases, however, the trustee will take steps to preserve the bankruptcy

estate’s rights to receive its portion of any proceeds from the liquidation of the claim.

While the trustee has authority to litigate the personal injury claim, he or she has no authority to

settle the claim. This does not mean that the claim cannot be settled. Rather, the settlement must be

approved by the bankruptcy court before it is final. The trustee, therefore, has the authority to enter into

settlement negotiations and to recommend the approval of the settlement.

Usually, the trustee will seek bankruptcy court permission pursuant to Bankruptcy Code, §327(e) to

employ the personal injury attorney as special counsel to the estate to continue with the case so that a

recovery is obtained, with the understanding that a later determination of the split of the proceeds

between the debtor and the bankruptcy estate will have to be made.

This employment as special counsel will routinely be approved by the bankruptcy court. The

usual terms of employment will generally be a 1/3 contingent fee plus reimbursement of reasonable

expenses. Most importantly, all fees and expenses of special counsel must be approved by the bankruptcy

court pursuant to Bankruptcy Code, §330(a)(1)(A), prior to any payment being made. Therefore, whether

the trustee or special counsel holds the claim proceeds pending approval and distribution, no funds may

be paid to special counsel until the fees and expenses have been approved by the bankruptcy court.


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There are no exceptions to this.

While the same rules are operative in Chapter 13 case, rarely does the Chapter 13 trustee

take an active role in the liquidation of assets. A discussion with the Chapter 13 trustee is essential prior

to the personal injury counsel continuing with the representation to ascertain the extent to which the

matter will proceed.

The foregoing describes the general rules applicable to the handling of personal injury claims

in a bankruptcy case. It is not an exhaustive list. A personal injury attorney whose client is contemplating

the filing of a bankruptcy case or has filed a bankruptcy case is strongly cautioned to seek advice from a

competent bankruptcy practitioner to avoid the pitfalls and problems which may result from proceeding in

violation of bankruptcy law. Just remember that it is generally easy to work within the rules and

procedures as long as those rules and procedures are known. Unfortunately, it is just as easy to run afoul

of them as well.

BUD STEPHEN TAYMAN, ESQUIRE

Bud Stephen Tayman is the principal of the law firm of Bud Stephen Tayman, P.A., Greenbelt,

Maryland. He received his undergraduate degree from the University of Florida in 1974 and his law degree

from the Washington College of Law, American University, in 1983. Mr. Tayman’s practice focuses

exclusively on bankruptcy law. Mr. Tayman is engaged as a transactional bankruptcy practitioner in all

aspects of consumer and commercial bankruptcy cases under Chapters 7, 11, and 13 of the bankruptcy

code. He routinely represents consumer and business debtors, creditors, and trustees. Mr. Tayman was a

Chapter 7 Trustee for the District of Maryland, Northern Division from 1998 to 2012. Mr. Tayman has

participated in bankruptcy cases in Maryland, the District of Columbia, Virginia, New York, Pennsylvania,

California, Texas, and Delaware.

Mr. Tayman was admitted to the Maryland Bar in 1983, the District of Columbia Bar in 1985, and

the Virginia Bar in 1993. He is a charter member of the Bankruptcy Bar Association for the District of

Maryland and a Sustaining Member of the American Bankruptcy Institute. He is also a member of the

Maryland State Bar Association, the Bar Association of Montgomery County, Maryland, and the American

Bar Association. Mr. Tayman is one of the founding members of the Consumer Bankruptcy Section of the

Maryland State Bar Association and, except for a one year hiatus, has served on the section council from

inception to present. Mr. Tayman is board certified in both business and consumer bankruptcy law by the

American Board of Certification.

Mr. Tayman has been a frequent speaker before the Bankruptcy Bar Association at the annual

Spring Break and before the Greenbelt Chapter at breakfast meetings on a wide range of bankruptcy

issues. Mr. Tayman was the Program Chair for the first two MICPEL seminars on the 2005 revisions to the

bankruptcy code and has also delivered presentations on bankruptcy law as either presenter or Program

Chair of the Consumer Bankruptcy Section’s seminar at the Annual Meeting of the Maryland State Bar

Association in Ocean City, Maryland. Mr. Tayman has been selected to D.C. Super Lawyers from 2007


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through 2009 and to Maryland Super Lawyers from 2008 through 2009.

Publications authored by Mr. Tayman include, but are not limited to, the following:

Chapter, entitled, “Successful Strategies For Handling Consumer And Small

Business Bankruptcy Cases,” as part of publication entitled Trends In Consumer

Bankruptcy Filings, published by Aspatore Books/Thomson Reuters (2010).

Chapter, entitled, “After BAPCPA: New Challenges For Chapter 13 Filers And Their

Attorneys,” as part of publication entitled Best Practices For Filing Chapter 13,

published by Aspatore Books/Thomson Reuters (2010).

Seminar materials entitled, "Personal Injury Exemption Statute, Historical

Perspective and Recent Developments," were included in the materials

compilation given to persons registered for the 12th annual seminar of the

Bankruptcy Bar Association for the District of Maryland held at Annapolis,

Maryland on May 5th and 6th, 2000.

Seminar materials entitled, "Selected Good Faith Issues in the Chapter 13

Confirmation Process," were included in the materials compilation given to

persons registered for the 11th annual seminar of the Bankruptcy Bar Association

for the District of Maryland held at Annapolis, Maryland on May 7th and 8th, 1999.

Notably, these materials were given specific mention at the seminar by the

standing Chapter 13 trustee and one of the bankruptcy judges and continued to be

used as a research and practice manual by local consumer bankruptcy

practitioners through the inception of BAPCPA.

Mr. Tayman maintains offices in Greenbelt, Maryland and may be reached at

[email protected].

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Send your ad to: [email protected]

Also, MSBA does have a Legal Career Center for employers to post positions and members to post resumes and look for positions. It is at http://www.jobtarget.com/home/index.cfm?site_id=12317

NEXT ISSUE - ARTICLES WANTED

The next issue of The Hanging Paragraph will focus on Chapter 11. However, articles on any topic and

of any length are welcome! The publication date is planned for 4/15/13. Please send your submissions

and photos to: [email protected]

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The Hanging Paragraph is the newsletter of the MSBA Consumer Bankruptcy Committee.

Articles and news items are welcome! Send to [email protected]

Classified ads – help wanted; office for rent; position wanted etc. - are free

Editors: Jeff Nesson [email protected] - Daniel Press [email protected]

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Wayne Clark [email protected]


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