This issue was recently addressed by the 10th Circuit Court of Appeals in Gillman v. Ford (In re Ford), 2007 U.S. App. LEXIS 11559 (10th Cir. 2007).

The Bankruptcy Appellate Panel of the 10th Circuit Court of Appeals affirmed the bankruptcy court’s denial of Ford’s (“Debtor”) exemption. This 10th Circuit Panel concluded that, under the preponderance of evidence standard of review, there was sufficient evidence supporting the court’s finding of bad faith in the Debtor’s concealment of her personal injury settlement. Therefore, the bankruptcy court did not abuse its discretion in denying the exemption for the Debtor.

After an auto accident, the Debtor filed a claim for personal injury damages in February of 2004. Soon thereafter, in May of 2007, the Debtor and her Husband filed a Chapter 7 voluntary petition for relief. In the schedules listing her assets and debts, filed with her petition for bankruptcy, she failed to disclose her damages in her pending personal injury case. Under, 11 U.S.C. § 521(a)(1), any claim with potential value must be must be disclosed in a bankruptcy proceeding, even if contingent. The Debtor’s bankruptcy case was closed in August 2004, while her personal injury claim was still pending. After being awarded a $50,000 settlement in her personal injury suit, the Debtor reopened her bankruptcy proceedings in order to file amended schedules listing her personal injury settlement and seeking an exemption for the proceeds under Utah Code Ann. § 78-23-5. The bankruptcy Trustee objected to this exemption, claiming that the Debtor had intentionally concealed her settlement in bad faith and disclosed the settlement only after she realized she would not have access to the settlement proceeds unless she disclosed the suit.

After holding an evidentiary hearing on the Trustee’s objection, the bankruptcy court found that the Debtor, a paralegal, acted in bad faith, with her non-disclosure, by intentionally concealing the personal injury proceeds to prevent scrutiny in her bankruptcy case, and she only disclosed this asset when she learned that the settlement proceeds could not be disbursed without reopening that bankruptcy case.

Thus, the Debtor could not exempt the proceeds from the non-disclosed personal injury suit.

Hunter