In a recent case, a federal court of appeals determined that a debtor’s monthly annuity payments were part of the bankruptcy estate and were not exempt under state law. The debtor filed a Chapter 7 bankruptcy claim and listed as an asset a $100,000 single premium annuity. She had purchased the annuity from Kansas City Life Insurance Company for $100,000 a few months after her husband died. She had sold her house and used the money to purchase the annuity. She elected to receive a monthly payment of $436 starting 30 days after she purchased the annuity, which would continue for the rest of her life. When the debtor filed her bankruptcy claim, she claimed the annuity as an exemption. The trustee objected, arguing it should not be exempted.
The debtor had claimed the exemption under a state bankruptcy exemption. The law allowed exemptions for plans that are necessary for the debtor’s support or the debtor’s dependent’s support, and that were made “on account of illness, disability, death, age or length of service.” In this case, the court found the plan was not made on account of illness, disability, death, age, or length of service.
The woman first argued she had purchased the annuity on account of death, since she purchased the annuity after her husband’s death to replace his income. The court explained that her reason for purchasing the plan was irrelevant. In contrast to a plan that is triggered upon the death of a certain person, here, the payments were not triggered by the husband’s death. For the same reason, the plan was also not made on account of age. The question the court asked was not what motivated her to purchase the annuity but instead what triggered her right to receive payments. In this case, the payments began 30 days after the annuity was issued, since that was when she chose the payments to begin. For these reasons, the court rejected the exemption and deemed the annuity part of the estate.
Exemptions for Pensions and Other Payment Plans
A bankruptcy estate is made up of all of the debtor’s legal and equitable interests in property. The Bankruptcy Code permits debtors to exempt some property from the bankruptcy estate. If a debtor claims an exemption, the trustee has the burden to show that the property is not exempt.
Under 11 U.S.C. 522(d)(10) of the Bankruptcy Code, a debtor may exempt certain property, such as the debtor’s right to receive:
- A Social Security benefit, unemployment compensation, or a local public assistance benefit;
- A veterans’ benefit;
- A disability, illness, or unemployment benefit;
- Alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; or
- A payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless an exception applies.
Exemptions may be defined by state law, as in the case above.
Are You Considering Bankruptcy?
If you or a loved one is considering bankruptcy, it is important to understand what you can claim as exemptions and which property will be subject to the bankruptcy estate. A skilled bankruptcy attorney can advise you on which property will be subject to the estate and which property may be exempt. At the Schwartz Bankruptcy Law Center, we can help you get your finances back on the right track. Let us help you get your financial freedom back on track by contacting us today. Call us at 866-366-3328 or contact us through our website to set up an appointment.
More Blog Posts:
Ex-Girlfriend’s Claim Against Debtor Seeking to Exempt Loan from Bankruptcy Fails Because Court Finds Debtor Did Not Make False Statement, Kentucky Bankruptcy Lawyers Blog, published May 8, 2017.
Debtor Refuses to Provide Tax Returns After Receiving Discharge, Court Finds Revocation of Discharge Is Appropriate, Kentucky Bankruptcy Lawyers Blog, published April 27, 2017.