Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
Aug. 22 — An unemployed, ill woman was able to claim a $2 million dollar pension she inherited from her father as exempt from administration in her Chapter 7 bankruptcy case, a bankruptcy court in California held Aug. 19 ( In re Williams, 2016 BL 270495, Bankr. C.D. Cal., No. 1:15-BK-11232-MT, 8/19/16 ).
Judge Maureen A. Tighe of the U.S. Bankruptcy Court for the Central District of California filed an amended memorandum of decision overruling the Chapter 7 trustee's objection to the woman's claim of exemption. The court distinguished the inherited pension from an inherited individual retirement account (IRA), which could not be claimed as exempt.
After Susanne Renee Williams filed a Chapter 7 bankruptcy case on April 9, 2015, she filed schedules in which she claimed an exemption in a California Public Employees Retirement System (CalPERS) pension she inherited from her deceased father.
In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors. State and federal law determine what property a Chapter 7 debtor can claim as exempt — that property is not included in the bankruptcy estate and remains outside of the reach and control of the Chapter 7 trustee and the debtor's creditors.
The debtor claimed the pension exempt under Section §703.140(b)(10)(E) of California's Code of Civil Procedure. That statute allows an exemption for a debtor's right to receive 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....”
Chapter 7 trustee Diane C. Weil objected to the claimed exemption.
As there was apparently no dispute that the monthly payments of about $2,200 were the debtor's only income and were reasonably necessary for her support, the crux of the dispute, the court explained, was “whether or not the right to receive payment must be on account of Debtor's own illness, disability, death, age or length of service.”
The court said, “Trustee's insistence that the statute should be construed to mean ‘ own illness, disability, age or service' would necessarily lead to the absurd implication that the statute includes ‘own death' as a basis for the exemption.”
The court noted that “exemptions are to be interpreted liberally and in the debtor's favor whenever possible,” and concluded that the reference to “death” in the exemption statute necessarily means the exemption must apply to the beneficiary of the payments due upon death.
The court acknowledged that inherited IRAs aren't exempt and distinguished those from the inherited pension. Aside from the plain language allowing for the exemption of a pension payable upon death, the court also noted that inherited IRAs can be taken in a lump sum and can't be rolled over into the beneficiary's own IRA. The debtor had no right to demand a lump sum payment of the CalPERS pension, and instead could only collect the monthly payments.
Michael F. Chekian, Los Angeles, represented the debtor. The trustee was represented by Carmela Pagay, Levene Neale Bender Yoo & Brill, Los Angeles.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)