Land and Mobile Home Purchased With Workers' Comp Proceeds by NC Bankruptcy Debtor is Not Exempt
The U.S. Bankruptcy Court for the Western District of North Carolina, construing the state statute on exemptions, held that a Chapter 13 Debtor was not entitled to claim an exemption in real property and a mobile home purchased with her workers’ compensation award, since the clear language of the specific exemption provision in the state’s Workers’ Compensation Act, N.C. Gen. Stat. § 97-21, was limited to the compensation alone; it did not extent to property acquired with the proceeds of the award [In re Usery, 2020 Bankr. LEXIS 2765 (W.D. N.C. Oct. 5, 2020)].
Background
Prior to filing her bankruptcy petition, the Debtor sustained injuries in a work-related accident and filed a claim for workers’ compensation benefits with the North Carolina Industrial Commission. She disclosed the workers’ compensation claim on her Schedule C — Property Claimed as Except — filed on January 8, 2015, along with her Chapter 13 bankruptcy petition. On the Schedule C, the Debtor claimed an exemption of $100 regarding the claim, indicating its value was unknown.
On September 16, 2015, the Debtor resolved her workers’ compensation claim for $200,000. Subsequently, the Debtor used a portion of her workers’ compensation award to purchase real property and a mobile home. The Debtor filed a motion in the Bankruptcy Court requesting it to deem the real property and mobile home exempt because the Debtor purchased them with funds from her workers’ compensation award and those funds are exempt under N.C. Gen. Stat. § 97-21.
Bankruptcy Court’s Analysis
The court initially noted that North Carolina elected to opt out of the federal exemptions provided in 11 U.S.C. § 522(d). The court further noted that N.C. Gen. Stat. § 97-21 provides that the workers’ compensation claim may not be assigned, and “all compensation and claims … shall be exempt from all claims of creditors and from taxes.” While the Debtor acknowledged that the statute did not explicitly extend an exemption to property purchased with workers’ compensation proceeds, she argued that the intent of the statute would be thwarted if a debtor lost the exemption the moment she used her workers’ compensation award to purchase other property.
Statute is Unambiguous
The court indicated the statute was clear and unambiguous. The court’s task, therefore, was simple: apply the plain language. While the Debtor claimed an exemption in real property and a mobile home purchased with her workers’ compensation award, § 97-21 limited the exemption to compensation and claims for compensation and did not extend the exemption to property acquired with the proceeds of a workers’ compensation award. The claimed exemption, therefore, exceeded the scope of the exemption established by the plain language of N.C. Gen. Stat § 97-21. The court, therefore, denied the Debtor’s motion to claim the exemption.