UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF VIRGINIA

NORFOLK DIVISION

____________________________________

)

In re: ) Case No. 16-72070-SCS 

)

LARRY RUSSELL APFEL, JR., )

)

Debtor. ) Chapter 7

____________________________________)

MEMORANDUM OPINION

This matter came on for hearing on September 1, 2016, upon the Objection to Debtor’s

Claim of Homestead Exemptions (the “Exemptions Objection”) filed by the Chapter 7 Trustee, Tom

C. Smith, Jr. (the “Trustee”), on July 28, 2016, regarding exemptions claimed by the debtor, Larry

Russell Apfel, Jr. (the “Debtor”), pursuant to Virginia Code Ann. § 65.2-531.1

 A hearing on the

Exemptions Objection was held on September 1, 2016, and continued to September 29, 2016, on the

condition that the parties file a Stipulation of Facts at least ten days prior to the continued hearing

date. A Stipulation of Facts was timely filed on September 19, 2016. On September 27, 2016, two

days before the continued hearing date, the Trustee filed a Memorandum of Law (the

“Memorandum”) in support of the Exemptions Objection. Upon the filing of the Memorandum, the

Court continued the hearing generally and provided the Debtor the opportunity to file a response to

the Trustee’s Memorandum. On October 17, 2016, the Debtor, by counsel, timely filed a Response

to the Trustee’s Memorandum (the “Response”). Upon review of the Memorandum and the

Response, the Court took the matter under advisement. The Court has jurisdiction over this

1

 As represented by the Trustee at the September 1, 2016 hearing and as set forth in the

Stipulation of Facts, the Trustee withdrew his objections regarding the exemptions claimed by

the Debtor in the Wells Fargo checking account and the Capital One 360 savings account. The

only objection remaining for the Court’s consideration relates to a business loan the Debtor made

to Pro Tax, LLC, using his workers’ compensation proceeds.

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proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§

1408 and 1409(a). The Court makes the following findings of fact and conclusions of law pursuant

to Federal Rule of Bankruptcy Procedure 7052.

I. FINDINGS OF FACT

There are no disputed facts concerning the Trustee’s Exemptions Objection. The Debtor, by

counsel, and the Chapter 7 Trustee filed a Stipulation of Facts, which provides:

1. That in November 2015 the debtor settled a workman’s compensation claim

and received certain funds pursuant to the settlement in the amount of

$138,865.89 (“WC Proceeds”) which were deposited into debtor’s checking

account No.: XXXX6646 at Wells Fargo Bank, N.A., (“WF Checking

Account”) on November 17, 2015. A copy of the Order entered by the

Virginia Workers’ Compensation Commission in Case No.: VA00000614066

on November 5, 2015 is attached hereto as Exhibit 1.

2. That the debtor lent a portion of the WC Proceeds in the amount of

$100,000.00 to Pro Tax, LLC, a Virginia limited liability company, (“Pro

Tax”) on November 20, 2015. Pro Tax is owned by Andrea Zank, who is the

daughter of the debtor.

3. That Pro Tax executed a Promissory Note dated November 28, 2015

(“Note”) which was signed by Andrea Zank as President of Pro Tax and

received check number 5154 dated November 28, 2015 drawn on debtor’s

WF Checking Account (“Check”). Copies of the Note and the Check are

attached hereto as Exhibit 2.

4. That terms of the Note provide for interest at the rate of 4% per annum and

monthly payments of $1,740.00 commencing April 16, 2016.

5. That the debtor filed a chapter 7 bankruptcy petition with this Court on June

10, 2016. Tom C. Smith was appointed Trustee of the Bankruptcy Estate. The

first Meeting of Creditors Hearing was concluded on July 19, 2016.

6. That the debtor filed a Schedule C with his Bankruptcy Petition and

exempted pursuant to Virginia Code Section 65.2-531 the following assets:

A) Checking account - Wells Fargo - $8,062.00, Virginia Code

Section 65.2.-531

2

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B) Savings - Capital One 360 - $5,045.50 - Virginia Code Section

65.2-531

C) Business loan to Pro Tax, LLC - $87,545.50 - Virginia Code 

Section 65.2-531

7. That the Trustee filed an Objection to the debtor’s exemptions claimed

pursuant to Virginia Code Section 65.2-531. The Objection was filed with

the Court on July 28, 2016.

8. That the Court conducted a Hearing on September 1, 2016 to consider and

act upon the Trustee’s Objection to Exemptions. At the hearing the debtor’s

attorney stated to the Court that the debtor’s exemptions in the WF Checking

Account and the Business Loan to Pro Tax, LLC were proper because the

funds in the bank accounts and the funds lent to Pro Tax, LLC were funds

derived from his workman’s compensation settlement. The Trustee indicated

to the Court that he did not wish to pursue his objection to the debtor’s

exemption for the debtor’s bank account but the Trustee believes the debtor

should not be permitted to exempt the funds lent to the debtor by Pro Tax,

LLC pursuant to Virginia Code Section 65.2-531.

See Stip. of Facts ¶¶ 1-8 (Docket entry 14).2

 The Trustee argues that the Virginia General Assembly

limited the exemption of traceable workers’ compensation benefits to shares purchased in a credit

union and deposits held by a financial institution; thus, the Debtor is prohibited from extending the

exemption to the proceeds of the business loan made using his workers’ compensation funds. See

Tr.’s Memo. at 2. The Debtor argues that Virginia Code Ann. § 65.2-531 is intended to be a

remedial statute and should be liberally construed in favor of the injured worker. Debtor’s Resp.

at 2 (citing Barker v. Appalachian Power Co., 163 S.E.2d 311, 314 (Va. 1968)). The Debtor

represents that the only reported case applying Virginia Code Ann. § 65.2-531 concluded that the

statute does not restrict the exemption status for workers’ compensation funds to the initial proceeds. 

2

 While Paragraph 8 of the Stipulation of Facts references “funds lent to the debtor by

Pro Tax, LLC” (emphasis added), the Court believes such reference constitutes a typographical

error by the parties. The Court will construe this stipulation to reference the loan by the Debtor

to Pro Tax, LLC.

3

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Id.; see In re Nelson, 179 B.R. 811 (Bankr. W.D. Va. 1994). The Debtor disagrees with the

limitations that would result from the Trustee’s interpretation of the statute, noting that the statute’s

examples pertain only to instances where the workers’ compensation payment is commingled with

other funds. Debtor’s Resp. at 3-4. 

II. CONCLUSIONS OF LAW

A. The Statute

The parties agree that the applicable statute in this matter is Virginia Code Ann. § 65.2-531. 

Entitled “Assignments of compensation; exemption from creditors’ claims,” the pertinent portion

of the statute provides:

A. No claim for compensation under this title shall be assignable. All compensation

and claims therefor shall be exempt from all claims of creditors, even if the

compensation is used for purchase of shares in a credit union, or deposited into

an account with a financial institution or other organization accepting deposits

and is thereby commingled with other funds. However, benefits paid in

compensation or in compromise of a claim for compensation under this title shall be

subject to claims for spousal and child support subject to the same exemptions

allowed for earnings in § 34-29.

Va. Code Ann. § 65.2-531(A) (2016) (emphasis added). The parties disagree, however, regarding

the proper interpretation of the statute, and specifically whether the statute may serve as the basis

for exempting property acquired by a debtor’s workers’ compensation funds.

B. In re Nelson

While the issue presently before the Court is the subject of few opinions, our sister court in

the Western District of Virginia has addressed the issue. Judge Pearson provides an in depth

discussion of Virginia Code Ann. § 65.2-531 in In re Nelson, 179 B.R. 811 (Bankr. W.D. Va. 1994). 

The debtor in Nelson sought to exempt a mobile home and a lot, both purchased using workers’

compensation benefits, under Virginia Code Ann. § 65.2-531. In re Nelson, 179 B.R. at 811. The

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chapter 13 trustee objected to the exemption, arguing that because the workers’ compensation

benefits had been invested in the mobile home and the lot, the resulting investments did not retain

an exempt status under the Virginia statute. Id.

“The rule of liberally construing a remedial statute like [Virginia Code Ann. § 65.2-531] in

favor of the debtor is recognized in Virginia as it pertains to the Virginia exemption statutes.” Id.

at 812 (citing In re Smith, 22 B.R. 866, 867 (Bankr. E.D. Va. 1982)). The Court acknowledged,

however, that it must be mindful to “‘neither reduce nor enlarge the exemptions or read into the law

an exemption not found there.’” Id. (quoting Goldburg Co. v. Salyer, 50 S.E.2d 272, 277 (Va.

1948)).

With these rules in mind, Judge Pearson concluded:

Section 65.2-531 is explicit and unambiguous. It simply states that no claim

for compensation and all compensation and claims therfor shall be exempt from all

claims of creditors. It does not say that once the funds are invested in other

properties they become nonexempt. That construction cannot be read into the

statute, which would be in violation of the authorities hereinabove cited. The Court

must also conclude that if the legislature had so intended, it would have so provided. 

Id. The Court concluded that the mobile home and lot purchased with the proceeds of the debtor’s

workers’ compensation benefits were exempt properties under Virginia Code Ann. § 65.2-531. Id.

The Court finds that the result in In re Nelson is supported by the plain language of the

statute. Subject to the enumerated limitation regarding spousal and child support, Virginia Code

Ann. § 65.2-531 allows for the exemption of workers’ compensation benefits regardless of the

recipient’s use of those funds. While the Trustee would deny the Debtor his exemption by arguing

that the Virginia General Assembly limited the exemption to the workers’ compensation funds

themselves, shares in a credit union, or a deposit into a financial account, the Trustee reads

limitations into the statute that are not there. Id. (citing Goldburg, 50 S.E.2d at 277). A liberal,

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plain language reading of the statute prohibits the Court from grafting the limitations onto it as

suggested by the Trustee. See In re Evans, 543 B.R. 213, 220 (Bankr. E.D. Va. 2016 (St. John,

C.J.)), aff’d, Case No. 4:16cv17, 2017 WL 150247 (E.D. Va. Jan. 13, 2017). This Court cannot limit

the Debtor’s exemption when it is rightfully provided to him by the clear and unambiguous statutory

language. Rather, the statute’s unambiguous wording requires the Court to conclude that the

Virginia General Assembly allowed for the broad exemption of workers’ compensation benefits,

despite its subsequent conversion or investment. S. Bank & Tr. Co. v. Alexander (In re Alexander),

Adv. Proc. No. 13-07146-SCS, 2014 WL 3511499, at *9 (Bankr. E.D. Va. July 16, 2014), aff’d, 524

B.R. 82 (E.D. Va. 2014) (“A court’s inquiry often begins and ends with plain language because

when ‘the statute’s language is plain, the sole function of the courts—at least where the disposition

required by the text is not absurd—is to enforce it according to its terms.’”) (quoting Hartford

Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000)).

C. In re Williams and In re Gardiner

The Nelson opinion relied heavily on a decision from the United States District Court for the

District of New Hampshire, In re Williams, 171 B.R. 451 (D.N.H. 1994). The debtor there suffered

a workplace injury and later received a $36,000.00 lump sum workers’ compensation award, a

portion of which he used to purchase a vehicle. In re Williams, 171 B.R. at 452. The debtor initially

scheduled the vehicle as an asset but later sought permission to amend his schedules to exempt the

vehicle under New Hampshire’s workers’ compensation law (the “New Hampshire law”).3 Id. The

3

 The New Hampshire law provides:

I. Claims for compensation under this chapter shall not be assignable, and the

compensation and any claim for compensation shall be exempt from all

claims of creditors except as provided in this section. Claims for payment by

physicians, hospitals, and for other remedial care chargeable to the employee

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chapter 7 trustee objected to the debtor’s attempted exemption of the vehicle, which the Bankruptcy

Court sustained, holding that “the car was not exempt because the benefit exemption provided by

[New Hampshire’s statute] did not extend to tangible assets purchased with benefit funds.” Id.

Noting that the New Hampshire law is liberally construed in favor of the injured worker, the

District Court found that “[b]enefits paid under New Hampshire’s Workers’ Compensation Law are

meant to compensate for loss of earning capacity. Those payments represent, or substitute for,

future earnings that would have been available to an injured worker and his or her family, but for

the workplace injury.” Id. at 453 (citations omitted). The Court reasoned that, if the exemption

statute was construed narrowly, the simple act of depositing workers’ compensation benefits into

a bank account would affect the character of the payment, and injured workers “would be incapable

of putting their exempt benefits to practical use if the exemption dissolved upon negotiation of the

benefit check itself, or upon its conversion into useful form, such as a bank demand deposit.” Id. at

453-54. Reversing the Bankruptcy Court’s earlier ruling, the District Court concluded that the

vehicle purchased with workers’ compensation benefits was exempt under the New Hampshire law. 

Id. at 454. The District Court found no basis upon which to distinguish a bank deposit comprised

of workers’ compensation benefits and a vehicle purchased using those funds: “In each case,

identifiable benefits are simply converted from one form of asset to another. In the latter example,

and rendered in connection with a compensated injury and claims of

attorneys for services rendered an employee in prosecuting a claim under this

chapter, when approved by the superior court, may be enforced against the

compensation award in such manner as the superior court may direct. 

II. Claims for child support payments, pursuant to RSA 458-B, may be enforced

against compensation awards. 

N.H. Rev. Stat. Ann. § 281-A:52 (2016). 

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the conversion would be entirely consistent with the benefit’s purpose . . . .” Id. The Williams Court

acknowledged that workers’ compensation benefits are expected to be used for “useful purposes,

such as buying food, clothing, shelter, transportation, and other necessities . . . .” Id. Such benefits

would be “‘next to futile’ if [the statute] operated only as a shield for benefits held in the form of

a payment check, or a demand deposit in a bank, but did not shield the things bought with the money

made available.” Id. (internal citation omitted). 

Similarly, the debtor in In re Gardiner, 332 B.R. 891 (Bankr. S.D. Cal. 2005), received

approximately $40,000.00 in workers’ compensation benefits, which he and his wife used (along

with other funds) to purchase a home. In re Gardiner, 332 B.R. 891, 892 (Bankr. S.D. Cal. 2005). 

Following the divorce of the debtor and his wife and the subsequent sale of the home, an amount

representing the workers’ compensation funds used to purchase the home was returned to the debtor

and deposited in his bank account. Id. at 892-93. The debtor sought to exempt the amount of the

funds returned to him pursuant to California Code of Civil Procedure § 704.160 (the “California

law”).4 Id. at 893. The chapter 7 trustee objected to the exemption, arguing that the workers’

compensation benefits lost their exempt status when the debtor commingled the award with other

funds to purchase a home with his now-former wife. Id.

Noting that the Bankruptcy Code and California law require exemptions to be construed

liberally in favor of the debtor, the Court also reminded that when “‘there are ambiguities in the state

4

 The relevant portion of California Code of Civil Procedure § 704.160 provides:

[B]efore payment, a claim for workers’ compensation or workers’ compensation

awarded or adjudged is exempt without making a claim. Except as specified in

subdivision (b), after payment, the award is exempt. 

Cal. Civ. Proc. Code § 704.160 (2016). The referenced subsection (b) of § 704.160 addresses

the application of workers’ compensation benefits to judgments for child support.

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[exemption] law they are to be resolved in favor of the bankrupt unless to do so would do violence

to the purpose of the statutory scheme.’” Id. at 894 (alteration in original) (quoting In re Sanford,

8 B.R. 761, 765 (N.D. Cal. 1981)). However, the Court found California’s exemption statute to be

unambiguous:

[The California law] simply states that a workers’ compensation award after payment

is exempt without any limitations specified. It does not say once the award is

invested in other property it becomes nonexempt. The Court cannot read into the

statute a restriction that is not there. Presumably if the legislature had intended to

place a restriction on a workers’ compensation award’s exempt status after payment,

it would have said so as it did in other exemption statutes. 

Id. The Court’s conclusion was additionally supported by a specific statute allowing the exempt

funds to remain so even if those funds are converted from one asset to another, so long as the funds

can be traced. Id. at 894-95 (citing Cal. Civ. Proc. Code § 703.080). Based on this analysis, the

Gardiner Court concluded that the debtor’s workers’ compensation award retained its exemption

status, despite the funds having been converted in form multiple times. Id. at 895.

Just as in Nelson, the analyses espoused in Williams and Gardiner are equally applicable to

the instant case. Both rely heavily on the principles that an exemption statute must be read liberally

in favor of the debtor and that the legislative intent, as demonstrated by the statutory language, must

control. Both principles should be followed in the instant case. The Court agrees with the Debtor’s

argument that the statute, read as a whole, merely gives examples of circumstances under which the

workers’ compensation funds would still be exempt. Debtor’s Resp. at 3. The General Assembly’s

choice of the phrase “even if” in the statute clearly signals, when taken in context with the rest of

the statute, examples of situations where the funds would still be considered exempt. The Court

must assume that the General Assembly intended “even if” to have “its normal, everyday meaning.” 

See In re Hasse, 246 B.R. 247, 253 (Bankr. E.D. Va. 2000); see also Tate v. Commonwealth, No.

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0042-99-2, 2000 WL 33241661, at *3 (Va. Ct. App. 2000) (“It is a basic rule of statutory

construction that a word in a statute is to be given its everyday, ordinary meaning unless the word

is a word of art.”) (quoting Stein v. Commonwealth, 402 S.E.2d 238, 241 (Va. Ct. App. 1991)). The

Merriam-Webster Dictionary defines “even if” as: “used to stress something will happen despite

something else that might prevent it.” Even if, Merriam-Webster Dictionary (11th ed. 2017). The

Oxford English Dictionary similarly defines the term as: “despite the possibility that; no matter

whether.” Even if, Oxford English Dictionary (3d ed. 2016). These definitions support the

contention that the language in Virginia Code Ann. § 65.2-531 is explanatory, rather than limiting,

language.5

 As such, the Court finds the Debtor’s argument—that the lack of a tracing provision in

5

 Although addressing a different Virginia exemption statute, In re Webb, 210 B.R. 266

(Bankr. E.D. Va. 1997), provides additional guidance for the Court. The debtor in In re Webb

sought to exempt, under Virginia Code Ann. § 34-28.1, a $25,000.00 settlement payment that

arose from a gender discrimination suit brought against the debtor’s former employer. In re

Webb, 210 B.R. 266, 268 (Bankr. E.D. Va. 1997). The chapter 7 trustee objected to the

exemption, arguing that the debtor did not receive the settlement payment from a claim arising

from a “personal injury” and that Virginia Code Ann. § 34-28.1 applied only to personal injury

claims recognized under state law. Id. at 269. Rejecting the chapter 7 trustee’s argument that

only personal injury actions arising under Virginia law were exempt under the statute, the Court

concluded:

The plain language of [Virginia Code Ann. § 34-28.1] does not distinguish between

state and Federal causes of action, or between those recognized at the time the statute

was enacted, and those subsequently recognized; it states simply that all personal

injury causes of action are exempt from creditor process. The use of the descriptive

qualifier “all” and the lack of any limiting language strongly suggests that the

General Assembly did not intend to create an exemption solely limited to state law

causes of action or those causes of action expressly recognized at the time the statute

was enacted. 

Id. at 274 (second alteration in original). Applying analogous reasoning here, the General

Assembly’s use of “all” to modify “compensation” and “even if” in Virginia Code Ann. § 65.2-

53 must be read and considered together. The use of “all” demonstrates that the General

Assembly intended for all workers’ compensation to be exempt from creditors’ claims. The

phrase “even if,” in its normal convention, indicates that, despite the usage of the funds in either

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Virginia Code Ann. § 65.2-531 does not change the result here—to be persuasive. See id. The

Court must read the statute to allow the Debtor to exempt his workers’ compensation proceeds

despite those proceeds being invested and converted into a different asset.6

 A literal reading of the

statute necessitates this determination. 

Additionally, both the Williams and Gardiner decisions are grounded in the overriding public

policy that workers’ compensation proceeds should be available for workers to support themselves

and their dependents. Workers’ compensation awards replace a steady income stream that is lost

due to a workplace injury. In turn, that award may be used to supply the injured worker with

necessary food, clothing, and shelter. See In re Williams, 171 B.R. at 454; see also In re Gardiner,

332 B.R. at 894-95 (relying on the reasoning in In re Williams). Although the loan the Debtor here

of the delineated examples, the totality of the funds will remain exempt. Further, there is no

evidence to support the Chapter 7 Trustee’s argument that the examples listed in the statute are

the only examples of what a debtor may do with a workers’ compensation award, once received,

without defeating the exemption. The Trustee’s argument appears to rely upon the statutory

interpretation principle expressio unius est exclusio alterius, which “‘justif[ies] the inference that

items not mentioned were excluded by deliberate choice, not inadvertence.’” United States v.

Garcia-Ochoa, Nos: 2:08cr104, 2:08cr153, 2009 WL 331282, at *10 n.6 (E.D. Va. Feb. 9, 2009)

(alteration in original) (quoting Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003)). 

However, this principle “is fallible and is but a guide that can be overcome by ‘contrary

indications that adopting a particular statute was probably not meant to signal any exclusion of

its common relatives.’” Id. (quoting United States v. Vonn, 535 U.S. 55, 65 (2002)). The

wording of the statute and the well-established principle of liberal statutory construction

regarding exemption statutes indicate the General Assembly did not intend for its enumerated

examples to signal an exclusion of other similar possibilities. Accordingly, this reading of the

statute gives meaning to the totality of its language and upholds the principle of liberally

construing the statute in favor of the debtor.

6

 Based on the reasoning above, the Court believes, based on the totality of the statutory

language, that the Debtor may rightfully exempt the business loan made to Pro Tax, LLC. 

However, even if the statute is ambiguous, “where there is doubt as to whether property is

exempt, it should be resolved in favor of the exemption.” In re Foster, 556 B.R. 233 n.14

(Bankr. E.D. Va. 2016) (citations omitted).

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made to ProTax, LLC, is a unique way of utilizing such proceeds, investing workers’ compensation

proceeds in the form of a business loan is analogous to the investment examples in Virginia Code

Ann. § 65.2-531.7

 If the Court adopted the Trustee’s reasoning and restricted the Debtor’s use of

the funds, such result would limit an injured debtor’s ability to provide for himself, rather than

provide the intended remedy. It would be antithetical to the purpose of workers’ compensation to

argue that the Debtor cannot now use his exemption because the proceeds were converted into

another asset. The exemption would perish once a debtor invested or converted his workers’

compensation award into a different asset. For these reasons, the Court adopts the rationale set forth

in Williams and Gardiner and likewise concludes that reading the statute to disallow an exemption

based on an asset conversion would be inconsistent with the underlying purpose of such exemption

statutes. See In re Gardiner, 332 B.R. at 895; In re Williams, 171 B.R. at 454-55. The Debtor’s use

of the workers’ compensation proceeds to make a business loan to ProTax, LLC, is indistinguishable

from using such funds to purchase a mobile home, an automobile, or a house. Any other reading

of Virginia Code Ann. § 65.2-531 would render the statute useless to those it serves to protect.

D. Other Fourth Circuit Cases

A survey of Fourth Circuit case law provides additional support for the result in this case. 

In Maryland, the workers’ compensation exemption statute allows a debtor to exempt compensation

paid “in the event of sickness, accident, injury, or death of any person, including compensation for

7

 Lending the workers’ compensation proceeds to ProTax, LLC, presumably allows the

Debtor to presumptively yield a higher return on funds than available from a bank. As these

funds are intended to help support the Debtor for a long period of time, it is expected that the

Debtor find ways to improve his financial position using those funds. The loan to Pro Tax, LLC,

is no different than the Debtor investing his money in a portfolio or interest-bearing savings

account.

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loss of future earnings.” Md. Code Ann., Cts. & Jud. Proc. § 11-504(b)(2) (2016). In In re

Massenburg, 508 B.R. 362 (Bankr. D. Md. 2014), Judge Catliota employed the liberal construction

principles espoused in the three aforementioned cases and determined that a deposit of exempt funds

into a commingled account did not affect the debtor’s exemption rights in those funds. In re

Massenburg, 508 B.R. 362, 365, 369 (Bankr. D. Md. 2014). Although In re Massenburg construed

a different subsection of Maryland’s exemption statute (subsection (h), which addresses qualified

pension plan payments), the Bankruptcy Court uncategorically pronounced, “Neither the legislature

nor the court can control what a debtor does with exempt funds.” Id. Examining the same statute

in Wolff v. Gibson (In re Gibson), 300 B.R. 866 (D. Md. 2003), the District Court affirmed the

Bankruptcy Court’s determination that the exempt status of a debtor’s interest in a tax exempt

retirement account did not expire immediately upon distribution of account funds to the debtor or

when the debtor had not rolled over the funds to an exempt individual retirement account at the time

of bankruptcy filing but later did so within the statutorily permitted time frame. Wolff v. Gibson (In

re Gibson), 300 B.R. 866, 871 (D. Md. 2003). The Court based its determination on the broad

language of the exemption statute, as well as its underlying purpose: “to ensure that workers have

sufficient funds with which to support themselves and their dependents during their retirement

years.” Id. (citing Solomon v. Cosby (In re Solomon), 67 F.3d 1128, 1133 (4th Cir. 1995)). 

These cases provide further analytical support for the decision in the instant case. First, In

re Massenberg makes clear that it is not in the purview of a court to determine what a debtor should

or should not do with his workers’ compensation proceeds. Rather, a court must interpret the

exemption statute as written. Here, § 65.2-531 clearly places no restrictions or conditions on a

debtor’s use of exempt workers’ compensation proceeds, except as set forth in subsection (A)

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regarding claims for spousal and child support. See Va. Code Ann. § 65.2-531(A) (“[B]enefits paid

in compensation or in compromise of a claim for compensation under this title shall be subject to

claims for spousal and child support subject to the same exemptions allowed for earnings in § 34-

29.”). If the Virginia General Assembly intended to additionally restrict or otherwise regulate a

debtor’s use of exempt funds, the legislature certainly could have included such limitations in the

statute. See In re Nelson, 179 B.R. at 812 (“[Virginia Code Ann. § 65.2-531] does not say that once

the funds are invested in other properties they become nonexempt. That construction cannot be read

into the statute, which would be in violation of the authorities hereinabove cited. The Court must

also conclude that if the legislature had so intended, it would have so provided.”). The purpose of

§ 65.2-531 is to ensure that injured debtors have sufficient funds to support themselves and their

dependents. Accepting the Trustee’s argument that the Debtor’s use of the workers’ compensation

proceeds to make a loan results in a loss of the exempt status of the loan’s proceeds would

contravene that purpose.8

8

 Within the Fourth Circuit, only West Virginia’s interpretation of its exemption statute

parallels the Trustee’s argument that the Debtor is prohibited from extending his exemption to a

business loan. West Virginia’s statute, West Virginia Code § 23-4-18, exempts workers’

compensation paid to employees or their dependents from creditor claims but does not provide

specific examples like those enumerated in the Virginia statute. See W. Va. Code Ann. § 23-4-

18 (2016) (“Except as provided by this section, compensation shall be paid only to the

employees or their dependents and is exempt from all claims of creditors and from any

attachment, execution or assignment other than compensation to counsel for legal services . . .

.”). The Supreme Court of Appeals of West Virginia has held that the debtor’s placement of a

workers’ compensation award in a certificate of deposit (a “CD”) divested the proceeds of its

statutory exemption. Feliciano v. McClung, 556 S.E.2d 807, 811 (W. Va. 2001). Although the

court “acknowledge[d] that the distinction between a bank account and ‘an investment’ is

exceedingly fine,” the court determined that the debtor’s investment of his workers’

compensation award in a CD was, under the facts in that case, inconsistent with the award’s

original purpose, and stripped the award of its statutory exemption protection to allow the

plaintiff to recover on her personal injury judgment against the debtor. Id. at 810-11. This Court

has concluded, however, that the Debtor’s use of his workers’ compensation proceeds to make a

business loan to Pro Tax, LLC, does not change the character of the compensation in a way that

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E. Case Law Relied Upon by the Chapter 7 Trustee

In his Memorandum, the Trustee cites two cases from the United States Bankruptcy Court

for the Western District of Michigan and two cases from Florida (one, a bankruptcy decision and

the other, a state court opinion) that he argues dictate a different result. The Trustee’s reliance on

the holdings of these cases is misplaced given the applicable law and the facts presented in the

instant case.

In In re Williams, 181 B.R. 298 (Bankr. W.D. Mich. 1995), the Court disallowed a debtor’s

exemption pursuant to 11 U.S.C. § 522(d)(11)(D) in cash and certain assets (a vehicle and sporting

equipment) acquired with workers’ compensation proceeds. In re Williams, 181 B.R. 298, 301

(Bankr. W.D. Mich. 1995). The Court determined that, based upon the legislative history of the

Code subsection, the exemptions under § 522(d)(11)(D) applied only to compensation received as

a result of tort liability. Id. at 300. Although the Court explained that § 522(d)(10)(C) allows a

debtor to exempt a workers’ compensation award, that Code section applies only to the right to

receive the award itself, not to traceable assets purchased with funds from a workers’ compensation

award. Id. at 301.9

 Section 522(d)(10)(C) was thus inapplicable because the debtor had already

received the workers’ compensation award. Id. at 301-02. Since In re Williams addresses federal

makes it inconsistent with the purpose of Virginia’s exemption statute. The business loan made

by the Debtor to Pro Tax, LLC, is an investment, for which the Debtor is repaid $1,740.00 per

month at an annual interest rate of 4.00%. This provides the Debtor with a continued source of

support, which is the purpose of statutorily protecting workers’ compensation proceeds from

creditors.

9

 “[T]he plain language of [11 U.S.C.] § 522(d)(10) and the contrasting language of 11

U.S.C. § 522(d)(11) (permitting exemption of ‘property that is traceable to’ certain assets),

dictate that only a debtor’s right to receive a benefit to which § 522(d)(10) applies, and not

benefits already received prepetition, can be claimed exempt under § 522(d)(10).” In re Kemp,

No. 09-00907, 2011WL 4434996, at *1 (Bankr. D.D.C. Sept. 22, 2011) (alteration in original)

(quoting In re Cesare, 170 B.R. 37, 39 (Bankr. D. Conn. 1994)).

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law exemptions, it is not directly on point with the instant case, which involves the Debtor’s use of

a state law exemption. Substantively, however, the Trustee bases his argument on the existence of

a tracing provision contained in § 522(d)(11)(D), upon which In re Williams relies, and the lack of

such provision in Virginia Code Ann. § 65.2-531.10 As explained above, however, such provision

is unnecessary due to the breadth of the Virginia exemption statute. 

The Trustee also relies on Lasich v. Wickstrom (In re Wickstrom), 113 B.R. 339 (Bankr.

W.D. Mich. 1990), where the Bankruptcy Court held that the debtor could not exempt property (e.g.,

a marital home, held as tenants by the entireties, and a recreational camp) that he preferentially

transferred to his parents and his son prior to filing his bankruptcy petition. Lasich v. Wickstrom (In

re Wickstrom), 113 B.R. 339, 351-52 (Bankr. W.D. Mich. 1990). Wickstrom is factually

distinguishable from the instant case because it involves a debtor making preferential transfers prior

to filing bankruptcy; thus, the Court concluded that the debtor lost his ability to exempt the property

upon the transfer. Id. at 345-46. Further, the Michigan exemption statutes at issue in Wickstrom

limit the exemption to benefits yet to be received by an injured individual; once received, those

10 Federal exemptions pursuant to § 522 of the Bankruptcy Code are not applicable to

Virginia debtors. “If a state chooses to opt out of the federal exemption scheme detailed in 11

U.S.C. § 522(d), ‘any property that is exempt under . . . State or local law’ is excluded from the

estate. Because the Commonwealth of Virginia has opted out of the federal exemption scheme, .

. . [the debtor] had to claim his exemptions in compliance with Virginia law.” Mayer v. Nguyen

(In re Nguyen), 211 F.3d 105, 107 (4th Cir. 2000) (citing Va. Code Ann. § 34-3.1) (additional

internal citations omitted).

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benefits lose the ability to be exempted.11 Id. at 344. No such limitation exists in the Virginia

exemption statute.

The two Florida cases cited by the Trustee are also distinguishable from the instant case. In

Jensen v. Captiva Limousine Service (In re Rajkovic), 289 B.R. 197 (Bankr. M.D. Fla. 2002), the

Bankruptcy Court disallowed the exemption of a debtor’s workers’ compensation funds, which the

debtor preferentially transferred to a corporation held by the debtor, his wife, and children prior to

filing his chapter 7 bankruptcy. Jensen v. Captiva Limousine Serv. (In re Rajkovic), 289 B.R. 197,

201 (Bankr. M.D. Fla. 2002). The Bankruptcy Court in Jensen determined that the debtor could not

exempt his workers’ compensation funds because the debtor’s preferential transfer of the funds to

his corporation prepetition constituted a voidable transfer under 11 U.S.C. § 548(a)(1)(B). Id. Any

other outcome, the Court determined, would run counter to the underlying purpose of the state

exemption statute. Id. Unlike the debtors in Wickstrom and Jensen, there was no preferential

transfer of workers’ compensation funds by the Debtor in the instant case. 

In Sullo v. Cinco Star, Inc., 755 So. 2d 822 (Fla. Dist. Ct. App. 2000), the District Court of

Appeals affirmed the circuit court’s decision that Florida’s statute exempting workers’ compensation

proceeds did not extend to funds pledged by the debtor as collateral for a loan. Sullo v. Cinco Star,

Inc., 755 So. 2d 822, 823 (Fla. Dist. Ct. App. 2000). The Trustee’s reliance on Sullo is also

inapplicable given the facts in the instant case. In Sullo, the petitioner lost his ability to exempt his

11 Unlike the Williams case decided by the same court, the debtors in Wickstrom claimed

property as exempt under state law. Section 522(b)(1) of the Bankruptcy Code allows a debtor

to chose between using either a state’s exemption provisions or the federal exemption statute, §

522(d), unless a state specifically “opts out” of the federal exemption scheme. See 11 U.S.C. §

522(b)(2) (2016). In Michigan, a debtor has his choice between federal or state law exemptions. 

In re Wickstrom, 113 B.R. at 348. The debtors in Wickstrom elected to exempt their property

under Michigan state law because there was no federal exemption regarding entireties properties. 

Id. at 343.

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workers’ compensation proceeds because he specifically pledged a certificate of deposit acquired

with those proceeds. Id. Once the certificate of deposit was pledged as security for the loan, the

petitioner lost the ability to claim an exemption in it, despite the source of the funds for the purchase

being traceable to the workers’ compensation proceeds. Id. The Debtor here did not pledge his

workers’ compensation funds as collateral; he invested them.12 The Trustee notes in his own

Memorandum the Sullo court’s pronouncement that a recipient of workers’ compensation proceeds

is unrestricted in the use of those proceeds. Tr. Memo. at 4; see also Sullo, 755 So. 2d at 823 (“Once

workers’ compensation benefits have been received by a beneficiary, no statutory restrictions apply

to the use of those benefits by the beneficiary. The beneficiary may preserve or squander the

proceeds; he or she is in total control.”). Such principle holds especially true in the instant matter,

where the applicable statute does not restrict the ability to exempt workers’ compensation funds if

they are converted into another asset. Therefore, the Court concludes this principle must be

followed in this case. 

III. CONCLUSION

For the reasons stated above, the Court concludes that the Debtor’s use of his workers’

compensation proceeds to make a business loan to Pro Tax, LLC, is proper, and the Debtor may

properly exempt the asset, scheduled as a business loan, under Virginia Code Ann. § 65.2-531. 

Accordingly, the Court finds that the Trustee’s Objection to Debtor’s Claims of Homestead

Exemption should be OVERRULED. 

A separate order will be issued consistent with these findings. 

12 Given the breadth of the Virginia exemption statute here, it is unclear that a

subsequent pledge of proceeds traceable to a workers’ compensation award would defeat the

exemption. However, that question is not presented by the instant matter. 

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Date: Feb 16 2017

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