Bankruptcy: Exemption: Worker's Compensation Award

     In the case of In Re Nelson, the United States Bankruptcy Court at Big Stone Gap, Virginia, ruled that where a debtor used his worker's compensation award, which is exempt from the bankruptcy estate under Virginia Code §65.2-531, to purchase a mobile home and lot, the mobile home and lot are also exempt from the Court's consideration in determining whether the debtor's proposed plan is feasible under Bankruptcy Code §1322(a)(4).

     It was the trustee's position in Nelson that since the workers' compensation benefits had been invested in the mobile home and lot that the funds were no longer exempt under Virginia Code §65.2-531. The Court in Nelson stated that Virginia Code §65.2-531 is explicit and unambiguous. The statute simply states that all compensation and claims shall be exempt from all claims of creditors. It does not say that once the funds are invested in other properties they become nonexempt. The Court stated that such a construction cannot be read into the statute, which could be in violation of the authorities. The Court also concluded that if the Virginia legislature had intended to make the funds nonexempt upon investment, then it would have so provided.

     The Court, in deciding Nelson, stated that it found only one case bearing on this subject matter, which was a New Hampshire case, In Re: Williams; the Court found no prior reported Virginia cases. In the New Hampshire case a debtor was allowed to keep a corvette purchased with a worker's compensation award. The Court in Nelson stated that it would be useless to exempt workers' compensation benefits received by an employee who was injured, and yet that employee could not invest those funds in other properties without losing his exemption status. It is clear that the Virginia legislature in passing Virginia Code §65.2-531 and providing for exemptions therein fully intended that the proceeds from these funds, and the purchase of property from the said funds, would be exempt.

     Therefore, the Court in Nelson held that the mobile home and lot purchased from the proceeds of workers' compensation benefits, pursuant to Virginia Code §65.2-531, were exempt properties and were not to be considered in determining whether the plan of the debtor conforms to Bankruptcy Code §1325(a)(4).