506 F.2d 1024 (5th Cir. 1975), 74-1361, In re Nunnally

Docket Nº:74-1361.
Citation:506 F.2d 1024
Party Name:In the Matter of Roy Stewart NUNNALLY, Bankrupt. Mary Elizabeth NUNNALLY, Appellant-Cross Appellee, v. Roy Stewart NUNNALLY, Appellee-Cross Appellant.
Case Date:January 08, 1975
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1024

506 F.2d 1024 (5th Cir. 1975)

In the Matter of Roy Stewart NUNNALLY, Bankrupt.

Mary Elizabeth NUNNALLY, Appellant-Cross Appellee,


Roy Stewart NUNNALLY, Appellee-Cross Appellant.

No. 74-1361.

United States Court of Appeals, Fifth Circuit

January 8, 1975

         Rehearing and Rehearing En Banc Denied Feb. 13, 1975.

Page 1025

        Before DYER, SIMPSON and GEE, Circuit Judges.

        GEE, Circuit Judge:

        In October 1972, Roy Stewart Nunnally filed a voluntary petition in bankruptcy. His principal creditor and the one pursuing this appeal is his former wife, Mary Elizabeth Nunnally, whose claim stems from earlier divorce proceedings. In granting divorce, the court had divided the separate and community property between the spouses under the authority of Section 3.63 of the Texas Family Code, V.T.C.A. In addition to various items of personal property and title to real estate, Mary Elizabeth Nunnally was awarded 60% Of certain life insurance policies, $46,779.41 representing an advance to the community from her separate estate, and $5,000 in attorney's fees incurred as a result of the divorce proceedings. The trial court granted Mrs. Nunnally a lien on Roy Nunnally's remaining interest in his Navy retirement benefits to secure the $46,779.41. 1

        A few months later Nunnally's petition in bankruptcy presented Mrs. Nunnally with the possibility that parts of the divorce decree might be rendered of little worth. Those fears were reinforced by the bankruptcy referee's decision and the district court's affirmance. The referee found that the Navy retirement benefits becoming due after the filing of the voluntary petition in bankruptcy were not property passing to the trustee in bankruptcy. Further, he held that the $41,779.41 was a dischargeable debt, as was the award of attorney's fees. Mrs. Nunnally's application for a stay of the bankruptcy proceedings to permit her to proceed in state court to enforce her lien against the Navy retirement pension was denied. Mrs. Nunnally appeals these decisions, while Mr. Nunnally complains of the referee's finding that the life insurance policies were not exempt from creditors under Vernon's Tex.Rev.Civ.Stat.Ann. art. 3832a.

        Under Section 70a(5) of the Bankruptcy Act, 11 U.S.C. 110(a)(5), the trustee of the bankrupt's estate is vested on appointment with title to all property of the bankrupt which could have been transferred by the bankrupt or which could have been levied upon prior to the filing of the petition in bankruptcy. This provision is a broad one, covering vested rights in property, both of corporeal and incorporeal nature. 1A Collier Bankruptcy Manual P70.11 at 946 (2d ed. rev. I. Hall & R.D, Agostino 1974) (hereinafter cited as Collier). It is too late in the day to find that vested interests in retirement pensions are not property rights. Texas divorce courts so regard them, Busby v. Busby, 457 S.W.2d 551 (Tex.1970), and by implication the federal government does also. For example, specific federal legislation exempts benefits due under laws administered by the Veterans' Administration from attachment, levy or seizure.

Page 1026

38 U.S.C. 3101. Similar exemptions exist for railroad retirement benefits, 2 social security payments, 3 and military retired pay annuities. 4 These federal exemptions are of no benefit to the bankrupt in this case. Exemption is a matter of federal or state legislative grace. Either through legislative oversight or through intentional deletion, Congress has failed to provide that Navy retirement pensions are free from levy and attachment. 5 Nor is it provided by statute that pensions are not transferable. See Segal v. Rochelle, 382 U.S. 375, 381-385, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966).

        One argument remains for the bankrupt. Some interests, though 'property,' do not pass to the trustee for purposes of Section 70a(5). Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970). The pertinent considerations derive from the Bankruptcy Act itself. Section 70a(5) is...

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