Courtney B. Williams and Deena L. Williams

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
COURTNEY B. WILLIAMS and
DEENA L. WILLIAMS,
DEBTORS 	CASE NO. 08-02284-8-JRL
Chapter 7
____________________________________________________________________________
ORDER
This case is before the court on the Chapter 7 trustee’s objection to the debtors’ claim of
exemptions. On December 17, 2008, the court conducted a hearing on this matter in Wilmington,
North Carolina. This order confirms and provides the rationale for the oral ruling at the conclusion
of the hearing overruling the Chapter 7 trustee’s objection to the debtors’ exemptions.
On April 3, 2008, the debtors filed for relief under Chapter 7 of the Bankruptcy Code. On
their Schedule C, the debtors claimed exemptions for, inter alia, a life insurance policy, an
individual retirement account (“IRA”), two college savings plans qualified under section 529 of the
Internal Revenue Code (“529 College Plans”), and income earned during the 60 day period prior to
petition in the amount of $9,868.28. On July 18, 2008, the Chapter 7 trustee (the “Trustee”) filed
an objection to the debtors’ claims of exemptions as to the life insurance policy, IRA, 529 College
SO ORDERED.
SIGNED this 05 day of January, 2009.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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Plans, and earnings. On the same day, the Trustee filed a motion to compel the debtors to turnover
certain property, including commissions earned during the 60-day period prior to filing bankruptcy
that the debtors failed to disclose in their schedules. Subsequently, on August 21, 2008, the debtors
filed an amended Schedule C which modified their gross wages earned during the 60-day period
prior to petition to $43,189.49. On September 19, 2008, the Trustee filed an amended objection to
exemptions in which the Trustee objected to the debtors’ claim for amended earnings.
At hearing, the Trustee withdrew its objection to exemptions as to the life insurance policy
and IRA. 	Similarly, the Trustee withdrew its objection to the debtors’ exemptions for the 529
College Plans after hearing testimony from the male debtor. Additionally, the Trustee established
that the total amount of earnings at issue was $35,629.53, including $11,387.17 in income received
prior to filing and $24,242.30 in commissions earned pre-petition but received after filing. Thus,
the issue before the court is whether the debtors are entitled to an exemption for income earned
during the 60-day period prior to petition in the amount of approximately $35,629.53.
Under North Carolina law, a debtor may claim an exemption for income earned during the
60-day period prior to filing bankruptcy if it is necessary to support the debtor’s family. N.C. GEN
STAT . § 1-362. See also In re Howell, No. 07-01549-5-ATS (Bankr. E.D.N.C. Nov. 29, 2007).
North Carolina’s exemption laws are liberally construed in favor of the debtor. See In re Laues, 90
B.R. 158, 161 (Bankr. E.D.N.C. 1988) (citing Elmwood v. Elmwood, 295 N.C. 168, 185, 244 S.E.2d
668, 678 (1978).
The Trustee contends that the debtors are precluded from claiming an exemption for earnings
in the amount of $35,629.53 and asserts that this amount is unnecessary for family support. At
hearing, the Trustee established that the male debtor’s wages earned over a 60-day period, in the
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amount of $35,629.23, are equivalent to the median annual income for an individual in North
Carolina and are grossly excessive. In addition, the Trustee contends that the debtors acted in bad
faith by failing to disclose the full amount of their earned income when they filed their petition. The
Trustee argues that because the debtors and their attorney engaged in extensive pre-petition
consultation and were aware that the male debtor was paid on a commission basis, the debtors’
failure to disclose these funds on Schedules B or C was inexcusable. The Trustee further contends
that it “should not be required to play hide and seek” with the debtors and that full disclosure should
not be contingent on a motion for turnover of property.
In response, the debtors contend that their failure to disclose certain commissions earned pre-
petition was due to a misunderstanding and was not deliberate, and that the wages at issue are
necessary for the support of their family. At hearing, the male debtor, Courtney Williams, testified
before the court. Mr. Williams admitted that his original schedules failed to accurately reflect the
total amount of income earned during the 60-day period prior to filing. However, Mr. Williams
established that he amended his Schedule C in order to account for commissions he earned in March
and early April that were distributed post-petition. Mr. Williams further established that he was
aware of his pre-petition commissions but was unsure of the amount at the time of filing and
believed he was required to report only those earnings actually received. As a result, the debtors
argue that their failure to disclose certain wages in their initial petition did not constitute bad faith.
The debtors also assert that the total amount of their exempted wages will be used to support their
family. 	In support of this contention, Mr. Williams submitted a signed affidavit outlining his
family’s projected income and expenses through March 2009. The projections account for the pre-
petition wages at issue and estimated that the family’s projected expenses will outweigh their
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income. Thus, the debtors contend that the wages earned during the 60-day period prior to petition
are necessary for use by their family.
The court finds that the debtors did not act in bad faith in failing to disclose the wages at
issue on the date of petition. Mr. Williams established that he had no intention of misrepresenting
his income on his schedules. 	The debtors’ attorney admitted that he simply overlooked the
omission. Significantly, the court recognizes that the debtors had no reason to hide their earnings
because the wages at issue would have been exempted in full had they been disclosed initially.
Although this is a close case, exemptions are liberally construed and the court finds that the debtors
are entitled to the exemption for wages claimed on their amended Schedule C. The court also finds
that the debtors presented credible evidence that the wages at issue are necessary for the debtors and
their family.
Pursuant to the foregoing, the Trustee’s objection to the debtors’ exemption as to earnings
is OVERRULED. The debtors are entitled to retain and use the funds claimed as exempt pursuant
to North Carolina General Statute § 1-362.
“END OF DOCUMENT”
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