An odd quirk in California’s bankruptcy exemptions was eliminated when the exclusion for pain and suffering damages was deleted by the legislature.
Before January, 2013, someone filing bankruptcy could exempt money recovered for a personal injury up to $17,425. But no part of any recovery for pain and suffering associated with that injury was exempt.
Bankruptcy exemptions broadened
Assembly Bill 929, carried by Assemblyman Bob Wieckowski and now signed into law in California, changed that by removing the exclusion of pain and suffering damages. Bravo!
When someone is considering filing bankruptcy and has an unresolved personal injury claim, it’s hard to know how much the damages for bodily injury might be, as distinguished from pain and suffering. A settlement of the claim may never have to address that level of detail.
So this change is good news for bankruptcy debtors and for their attorneys. Not to mention that the amount of the exemption increased January 2013 to $24,060. Cal.Code of Civil Procedure 701.140(b)11(D).
Federal bankruptcy exemptions unavailable
When the Bankruptcy Code was first considered in 1978, there was such resistance from traditionally low exemption states to the perceived generosity of the proposed bankruptcy exemptions that a compromise was made. States were permitted to opt out of the exemptions found in federal bankruptcy law. A state could bar its citizens from taking advantage of this portion of the federal law.
It is the only place in bankruptcy law that is explicitly different from state to state.
California opted out of the federal exemptions, then turned around and enacted a set of California exemptions for bankruptcy that mirrored the federal exemptions.
Opt out and benefit
My Bay Area colleague James Pixton reported that his research on the history of the California bankruptcy exemptions suggest that the state legislature did it so as to give California debtors the additional protection of other federal exemptions found outside of the new Bankruptcy Code.
The new bankruptcy law provided that debtors who filed bankruptcy and elected the exemptions available to them under state law could also claim any other exemption found in federal law outside of the Bankruptcy Code as well as the state exemptions.
Going back to pain and suffering and exemptions, the exclusion for damages for pain and suffering remains in the bankruptcy exemptions found in section 522(d)(11)(D).
Image courtesy of Flickr and Jono Davis.