In re Damast

Decision Date27 December 1991
Docket NumberBankruptcy No. 90-1815.
Citation136 BR 11
PartiesIn re Melvin DAMAST, Debtor.
CourtU.S. Bankruptcy Court — District of New Hampshire

Dennis G. Bezanson, So. Portland, Me., trustee.

Charles A. Russell, Concord, N.H., for debtor.


JAMES E. YACOS, Bankruptcy Judge.

In this individual chapter 7 case, the debtor is seeking to either exclude from the estate — or claim as exempt — four retirement plans. Conversely, the trustee seeks to include the plans, totaling over $38,000 dollars, as non-exempt property of the estate. The questions presented are matters of first impression in this district. The Court of Appeals for the First Circuit likewise has not spoken on the subject.


Debtor's original B-4 schedule, "Property Claimed as Exempt," listed the four plans as exempt property under 11 U.S.C. § 541(c)(2) and "pertinent New York and Delaware law." The trustee objected, maintaining that neither applicable federal law nor New Hampshire's statutory exemptions supported the claimed exemptions. After hearing, the Court permitted the debtor to amend his claim of exemption. Debtor's amendment added 11 U.S.C. § 522(b)(2)(A), 26 U.S.C. § 401(a)(13), and N.H.Rev.Stat.Ann. § 512:21(IV), as additional statutory bases supporting exemption.


The four retirement plans originated from the debtor's former employer in New York. Prior to bankruptcy the debtor moved to New Hampshire, where he is a self-employed ophthalmologist. Since moving, the debtor has not made any further plan contributions, but has maintained them with himself as both the beneficiary and the "employer" for the plans.

The debtor has two "Delaware Group Retirement" plans, hereinafter the "Delaware plans," which are profit sharing/money purchase pension retirement plans. The debtor is the plan administrator of the Delaware plans and each contain ERISA-qualifying language that the beneficial interest is neither assignable nor alienable.1

A third plan, the "The Presidential Life Insurance Company Prototype Profit-Sharing Plan and Trust," hereinafter the "Presidential plan," is another self-employment retirement plan. Under this plan, the debtor is the employer, sole owner, and beneficiary of the plan. The plan may be terminated at any time. The Presidential plan also contains ERISA-qualifying language.

The fourth plan is the "Delaware Group IRA," hereinafter the "IRA," which is an individual retirement account which is non-forfeitable and can be terminated at any time.


The key statutory provisions cited as pertinent to the decision before this Court are as follows:

11 U.S.C. § 541(c)(2)
(c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law — . . .
(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title . . .
11 U.S.C. § 522(b)(2)(A)
(b) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (1) or, in the alternative, paragraph (2) of this subsection . . .
Such property is —
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative,
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor\'s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place;. . . .
N.H.Rev.Stat.Ann. § 511:2
511:2 Exemptions. The following goods and property are exempted from attachment and execution:
I. The wearing apparel necessary for the use of the debtor and his family.
II. Comfortable beds, bedsteads and bedding necessary for the debtor, his wife and children.
III. Household furniture to the value of $2,000.
IV. One cook stove, one heating stove and one refrigerator and necessary utensils belonging to the same.
V. One sewing machine, kept for use by the debtor or his family.
VI. Provisions and fuel to the value of $400.
VII. The uniform, arms and equipments of every officer and private in the militia.
VIII. The Bibles, school books and library of any debtor, use by him or his family, to the value of $800.
IX. Tools of his occupation to the value of $1,200.
X. One hog and one pig, and the port of the same when slaughtered.
XI. Six sheep and the fleeces of the same.
XII. One cow; a yoke of oxen or a horse, when required for farming or teaming purposes or other actual use; and hay not exceeding 4 tons.
XIII. Domestic fowls not exceeding $300 in value.
XIV. The debtor\'s interest in one pew in any meetinghouse in which he or his family usually worship.
XV. The debtor\'s interest in one lot or right of burial in any cemetery.
XVI. One automobile to the value of $1,000.
XVII. Jewelry owned by the debtor or his family to the value of $500.
N.H.Rev.Stat.Ann. § 511:2-a
511:2-a Nonavailability of Federal Bankruptcy Exemptions. In accordance with the provision of section 522(b) of the Bankruptcy Code of 1978 (11 U.S.C. § 522(b)), residents of this state shall be prohibited from using the federal exemptions provided in that section. Nothing in this section shall affect the exemptions given to residents of the state by the constitution of New Hampshire and New Hampshire statutory law.
N.H.Rev.Stat.Ann. § 512:21, "Exemption from Trustee Process"
512:21 List of Exemptions. The money, rights, and credits of the defendant shall be exempt from trustee process in the following instances, and the trustee shall not be chargeable therefor: . . .
IV. Any pension or bounty money of the defendant allowed by any law of the United States before it has come into his actual possession.

The trustee's principal argument is that section 541(c)(2)'s operative phrase "applicable nonbankruptcy law," under which a debtor's beneficial interest in a trust is excluded from the estate if transfer of that interest by the beneficiary is restricted, is a limited exclusion applying only to the kind of restrictions on transfers of beneficial interests labelled as spendthrift trusts. Since ERISA and Internal Revenue Code ("IRC") restrictions on the transfer of a beneficial interest in a trust arise under federal law, the trustee concludes the retirement plans are not excluded under section 541(c)(2). Alternatively, the trustee argues that even if the restrictions required by ERISA and the IRC for qualifying pension trusts are the equivalent of a spendthrift trust, New Hampshire does not recognize spendthrift trusts.

The trustee also relies on specific terms in the plan documents to support his contention that the plans terminated by their own terms. Subparagraph 5(a) of Article XII of the Delaware plans, "Amendment and Termination," provides: "the Plan will terminate: (a) if the Employer is dissolved or deemed bankrupt or insolvent in appropriate proceedings." Upon termination, all amounts credited in the accounts are to be distributed to the employee. The trustee argues that the bankruptcy filing terminated the plans and any trusts created by the plans. The debtor's interest in the plans' assets was transformed into mere ownership of cash or securities, which according to the trustee, should be turned over to the estate.

The trustee argues that because the debtor is the employer under the Presidential plan and the employer may terminate the plan at any time, the debtor maintained such control over the plan, including the power to terminate the plan at any time and recover all plan assets, that the Presidential plan cannot be excluded under § 541(c)(2).

With respect to the debtor's claimed exemption of the plans under New York law, the trustee argues that even if the plans were established in New York, that state's exemption for trusts, custodial accounts, monies, and other retirement plans established by a corporation and which are qualified under IRC § 401 does not apply to this debtor because he is no longer a New York domiciliary.

Unlike the other three plans, the IRA contains no ERISA anti-alienation or spendthrift trust language. The IRA document does contain a one sentence declaration that "the applicant's interest in the balance in the Account is non-forfeitable."2 Distributions from the IRA account can commence at any time and may occur in a single lump sum payment. These features make the IRA nothing more than a savings account according to the trustee.

Furthermore, the trustee argues the IRA is not subject to exemption under either N.H.Rev.Stat.Ann. §§ 511:2 or 512:21(IV), "Exemptions" and "Exemption From Trustee Process" respectively. The trustee argues that an IRA is not exempted from property of the estate because the exemption provided by 512:21(IV) is from trustee process, not trustee execution. By contrast, New Hampshire's exemption statute for goods and property prohibits both attachment and execution. The trustee maintains that an IRA is neither "pension or bounty money" as that term is used in section 512:21(IV) and, even if it were, section 512:21(IV) does not exempt "pensions" from unsatisfied execution creditors. The trustee believes the debtor is now in "actual possession" of the IRA so that section 512:21(IV) is not an exemption and the trustee is entitled to execute on the IRA.

Lastly, the trustee urges this Court to embrace the dicta of In re Goff, 706 F.2d 574 (5th Cir.1983), that...

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