United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
JORGE ALONSO, UNITED STATES DISTRICT JUDGE.
Elena Hernandez appeals to this Court, pursuant to 28 U.S.C.
§ 158(a)(1), from a decision of the United States
Bankruptcy Court denying debtor's claimed exemption of
her workers' compensation claim and associated proceeds.
For the following reasons, the bankruptcy court's
decision is affirmed.
December 1, 2016, Ms. Hernandez filed a Chapter 7 bankruptcy
petition in the United States Bankruptcy Court for the
Northern District of Illinois. On Schedule C, she claimed as
exempt a pending workers' compensation claim under 820
ILCS 305/21 (section 21 of the Illinois Workers'
Compensation Act), which states “[n]o payment, claim,
award or decision under this Act shall be assignable or
subject to any lien, attachment or garnishment, or be held
liable in any way for any lien, debt, penalty or
damages.” (See Appellant Designation of R. on
Appeal at 25, 76 (hereinafter, “R.”), ECF No.
4-1.) The claim, as valued by Ms. Hernandez, comprised $31,
000 of the $32, 300 total assets listed. (R. at 21.) On
December 3, 2016, Ms. Hernandez settled her workers'
compensation claim with her employer without trustee
knowledge or bankruptcy court approval. (R. at 72.)
creditors identified by Ms. Hernandez in her Chapter 7
bankruptcy petition consist solely of medical providers. (R.
at 29-32.) Included therein are Marque Medicos Fullerton,
LLC, Medicos Pain and Surgical Specialists, S.C., and
Ambulatory Surgical Care Facility, LLC (together, the
“Objecting Creditors”)-certain medical providers
who provided services to Ms. Hernandez for the injury
associated with her workers' compensation claim.
(Id.) On February 3, 2017, the Objecting Creditors
filed an objection to Ms. Hernandez's claimed exemption.
(Appellant Br. at 2 (citing R. at 71).)
April 12, 2017, the bankruptcy court held a hearing on the
objection. (Apr. 12, 2017 Tr. at 1, ECF 5.) Ms. Hernandez
maintained that “under Illinois law  a workers'
compensation claim award that is properly listed is 100
percent exempt.” (Id. at 8:23-25.) The
Objecting Creditors contended that exempting the claim would
“write [them] out of [their] statutory rights under
Illinois law to participate and protect [their] rights”
regarding payment for medical services rendered.
(Id. at 3:21-23.) The bankruptcy court sustained the
objection and denied Ms. Hernandez's claimed exemption of
the proceeds associated with her workers' compensation
claim. (R. at 90.)
April 27, 2017, Ms. Hernandez filed a motion for leave to
appeal an interlocutory order, which this Court granted. (R.
at 92-93.) This appeal followed.
an appeal from a bankruptcy court's decision, . . . the
bankruptcy court's findings of fact are upheld unless
clearly erroneous and the legal conclusions are reviewed
de novo.” In re A-1 Paving &
Contracting, Inc., 116 F.3d 242, 243 (7th Cir. 1997).
“A debtor's entitlement to a bankruptcy exemption
is a question of law.” Matter of
Yonikus, 996 F.2d 866, 868 (7th Cir. 1993),
abrogated on other grounds by Law v. Siegel, 134
S.Ct. 1188 (2014).
7 of the Bankruptcy Code provides “an insolvent debtor
the opportunity to discharge his debts by liquidating his
assets to pay his creditors.” Law, 134 S.Ct.
at 1192. The filing of a bankruptcy petition under Chapter 7
creates an estate inclusive of “all legal and equitable
interests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541(a)(1). Essentially all
the debtor's property, including any causes of action,
becomes property of the bankruptcy estate. Putzier v. Ace
Hardware Corp., 50 F.Supp.3d 964, 982 (N.D. Ill. 2014).
The bankruptcy estate is placed under the control of a
trustee, 11 U.S.C. § 704, who alone “is
responsible for managing liquidation of the estate's
assets and distribution of the proceeds.” Law,
134 S.Ct. at 1192. “This exclusive authority [to
administer and dispose of the estate] includes the right to
pursue the debtor's pre-petition causes of action.”
Putzier, 50 F.Supp.3d at 982.
to 11 U.S.C. § 522(b), a debtor may exempt certain
property. Exempt property is “removed from the sweeping
scope of the bankruptcy estate” and not liquidated to
satisfy creditor claims. 11 U.S.C. § 522(c); Matter
of Yonikus, 996 F.2d at 870. Illinois has opted out of
the federal exemption scheme in 11 U.S.C. § 522(d) of
the Bankruptcy Code, 735 ILCS 5/12-1201, and an Illinois
debtor can “utilize only those exemptions allowed under
Illinois law.” In re Swiontek, 376 B.R. 851,
864 (Bankr. N.D.Ill. 2007). To exempt property, debtors must
claim the property as exempt in the schedule of assets of
their bankruptcy petition. Fed.R.Bankr.P. 4003(a). An
exemption can only be claimed on property after it is first
part of the bankruptcy estate. Matter of Yonikus,
996 F.2d at 869. Once the debtor claims property as exempt,
the trustee or creditors may object to the claimed exemption.
11 U.S.C. §522(1). The bankruptcy court then determines
whether the property is exempt. See Fed. R. Bankr.
P. 4003(c). Under Illinois law, the court may exempt property
with respect to certain claims, without exempting it with
respect to all claims. In re Fisherman, 241 B.R.
568, 574-75 (Bankr. N.D.Ill. 1999) (exemptions may be
“valid as to some claims” but “invalid as
to others”); see also In re Eichhorn, 338 B.R.
793, 797 (Bankr. S.D. Ill. 2006) (property held in tenancy by
the entirety is exempt from claims against only one of the
tenants, but not exempt from claims in which all tenants are
liable). Such a result does not run afoul of the Bankruptcy
Code, which broadly empowers states to define the scope of
their exemptions. See In re Ondras, 846 F.3d 33,
35-36 (7th Cir. 1988) (holding that 11 U.S.C. § 522 does
not prohibit state exemption scheme that “place[s]
property beyond the reach of only certain creditors
(i.e. contract creditors) while keeping the property
within the reach of other creditors [i.e.] tort
Hernandez, relying on In re McClure, 175 B.R. 21
(Bankr. N.D.Ill. 1994), contends that her claim and any
associated proceeds are entirely exempt under section 21 of
the Illinois Workers' Compensation Act
(“WCA”). In McClure, the bankruptcy
court held the language of section 21-“[n]o payment,
claim, award or decision under [the WCA] shall be assignable
or subject to any lien, attachment or garnishment, or be held
liable in any way for any lien, debt, penalty or
damages”-exempts workers' compensation claims from
any bankruptcy estate, even though it does not explicitly
mention bankruptcy or “employ the words
‘exemption' or ‘exempt.'”
Id. at 23.
Court fully agrees with the McClure decision that,
based on section 21, workers' compensation claims are
exempt from a debtor's bankruptcy estate as against
general creditors. But critically, in 2005, eleven years
after McClure was decided, the Illinois General
Assembly amended the WCA. The Court agrees with the Objecting
Creditors that, based on the text of the 2005 Amendments,
workers' compensation claims and associated proceeds are
not exempt with respect to pertinent medical providers.
2005 amendments significantly altered the WCA by establishing
a fee schedule limiting what medical providers can collect
for certain procedures, 820 ILCS 305/8.2(a), and adding
several provisions governing how medical providers bill and
receive payment. Medical providers, upon becoming aware an
injury is work-related, are required to bill employers
directly, instead of employees. 820 ILCS 305/8.2(d). During
the pendency of any dispute between the employee and employer
over whether the injury is compensable under the WCA, medical
providers are to “cease any and all efforts to collect
payment” from the employee, 820 ILCS 305/8.2(e-5),
(e-10), but any statute of limitations or statute of repose
applicable to the provider's collection efforts is
tolled. Id. Although collections must cease while
the dispute is pending, “[u]pon a final award or
judgment by an Arbitrator or the [Illinois Workers'
Compensation] Commission, or a settlement agreed to by the
employer and the employee, a provider may resume ...