Disability benefits in bankruptcy face uncertainty under the current exemption system. The enumerated federal exemptions are poorly drafted, lack useful legislative history, and classify benefits depending on the benefit’s source. The opt out provision found in section 522(b) of the Bankruptcy Code allows jurisdictions to limit debtors to the state’s exemptions rather than the federal exemptions. Depending on which exemption the court places the disability benefits under, the benefits may be fully exempt from the bankruptcy estate, limited to the amount reasonably necessary for the debtor’s support, or unexempt. The bankruptcy courts struggle to uniformly apply the federal and state exemptions, resulting in three main issues. First is the classification of the disability benefits, which determines if the benefit will be fully exempt, unexempt, or partially exempt. Second is the poorly drafted federal exemptions create temporal issues for disability benefits, including past benefits and the right to future benefits. Third is the courts’ struggle with the form of the disability benefits, especially if the benefit is not cash, and struggle to decide whether the exemptions also cover funds deposited and goods purchased with the funds. This Comment proposes several amendments to the Code to combat the three main issues for disability benefits: first, defining the term disability benefit in section 101 of the Code; second, redrafting the exemptions in section 522; and third, eliminating the opt out provision solely for disability benefits in section 522(b). Finally, the proposed system is directly compared with the current exemption system, demonstrating the proposed system’s equity and ease of application.
Disorderly and Discriminatory: The Bankruptcy Code's Treatment of Disabled Debtors,
Emory Bankr. Devs. J.
Available at: https://scholarlycommons.law.emory.edu/ebdj/vol37/iss2/5