Date Decided: Jan 25th, 2011

Decided By: U.S. Court of Appeals, Tenth Circuit(Bankruptcy) (Federal)

Court: United States Bankruptcy Court for the District of Kansas

Citation: 446 B.R 466


Background:

Ricky Joe Jones ("Jones") was severely injured while
employed by Kansas City Southern Railway ("KCS"). He brought a FELA claim in
1987 alleging KCS was negligent and sought damages for a permanent disability.
The parties ultimately settled the suit, whereby KCS agreed to pay Jones
monthly payments of $700, and increasing lump sum payments every 5 years. Per the
settlement agreement, payments owed to Jones pursuant to the Railroad
Retirement Act ("RRA"), 45 U.S.C. 231a
were reduced, and Jones waived his seniority rights and future employment with
KCS.

In 1998, Jones and his spouse ("Debtors") sold the rights to
all of the lump sum payments with the exception of one $200,000 payment due in
2023. In 2001, Debtors filed for bankruptcy. Debtors informed their bankruptcy
council of the $200,000 payment, but failed to disclose it for the purposes of
the bankruptcy proceedings.

In 2003, Debtors attempted to sell the rights to the
$200,000 payment. The potential buyer informed the bankruptcy Trustee and the
Trustee filed a motion to reopen the bankruptcy proceedings. The Trustee sought
to include the $200,000 payment into the schedule of assets available to
creditors. In response, Debtors claimed the remaining payment was exempt.

The Trustee objected to Debtors' exemption. Trustee claims
that the settlement was for personal injury, which proceeds are not exempt
under Kansas state law. Additionally, it claims the exemptions for disability
benefits and employment-related benefits under the bankruptcy code do not apply
to Debtors' settlement.

Debtors argue that the injury disabled Jones, thus the
settlement should be exempt because it was a disability benefit under the
bankruptcy code.


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