In re Demarco
| Decision Date | 10 May 2013 |
| Docket Number | No. 13–20729–L.,13–20729–L. |
| Citation | 491 B.R. 236 |
| Parties | In re Dennis Harry DeMARCO and Mary Sharon DeMarco, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Tennessee |
OPINION TEXT STARTS HERE
James E. Bailey, III, Butler Snow O'Mara Stevens & Cannada PLC, Memphis, TN, for Bettye Sue Bedwell, Bedwell Law Firm, Inc., Trustee.
Philip F. Counce, Memphis, TN, for Debtors.
ORDER SUSTAINING OBJECTION TO EXEMPTIONS
THE OBJECTION OF BETTYE SUE BEDWELL, Trustee in Bankruptcy (the “Trustee”), to the exemption claimed by the Debtors in four life insurance policies came on for hearing on May 9, 2013. Also pending is the motion of the Trustee to compel the Debtors to turn over the policies for liquidation and distribution of the net proceeds to creditors. The issue before the court is whether a debtor who is the owner but not the insured under a policy of life insurance may claim the exemption provided at Tennessee Code Annotated § 56–7–203. James E. Bailey, attorney, appeared for the Trustee. Phillip F. Counce, attorney, appeared for the Debtors.
The matter was submitted to the court on the following stipulated facts:
1. On January 12, 2013, Debtors filed a Voluntary Petition under chapter 7, title 11 of the United States Code (the “Bankruptcy Code”). [Dkt. Entry # 1].
2. Debtors listed on Schedule B–Personal Property, among other assets, an interest in several policies of life insurance and claimed an exemption in each on Schedule C–Property Claimed As Exempt underTennessee Code Annotated § 56–7–203 [Dkt. Entry # 1].
3. The Trustee timely filed an objection to Debtors' claims of exemptions [Dkt. Entry # 14] on March 15, 2013, as to four different life insurance policies that Debtors claimed as exempt. Debtors timely filed their response [Dkt. Entry # 23] on April 4, 2013, and subsequently amended same on April 9, 2013 [Dkt. Entry # 34].
4. The four life insurance policies were issued by The Northwestern Mutual Life Insurance Company. The policies were admitted into evidence as Exhibits A through D.
5. The policy referred to as Exhibit A insures the life of the Debtors' daughter, Elizabeth, and is owned solely by Mr. DeMarco, who is also the primary beneficiary. Mrs. DeMarco is the contingent beneficiary. The present cash surrender value of this policy is approximately $5,847.39. The ownership, beneficiary, and contingent beneficiary have not been changed since the policy was issued on September 17, 1984. Under paragraph 5.4 of the policy, the owner of the policy may surrender the policy for its cash surrender value, and withdrawal of the cash surrender value results in cancellation of the policy.
6. The policy referred to as Exhibit B insures the life of the Debtors' daughter, Maria, and is owned solely by Mr. DeMarco, who is also the primary beneficiary. Mrs. DeMarco is the contingent beneficiary. The present cash surrender value of this policy is approximately $3,889.58. The ownership, beneficiary, and contingent beneficiary have not been changed since the policy was issued on September 20, 1971. Under “Cash Value, Extended Term and Paid–Up Insurance,” paragraph 2 of the policy, the owner of the policy may surrender the policy for its cash surrender value, and withdrawal of the cash surrender value results in cancellation of the policy.
7. The policy referred to as Exhibit C insures the life of the Debtors' daughter, Elizabeth, and is owned solely by Mr. DeMarco, and Mr. DeMarco and Mrs. DeMarco are primary beneficiaries. There is no contingent beneficiary named on this policy. The present cash surrender value of this policy is approximately $2,164.42. The ownership, beneficiary, and contingent beneficiary have not been changed since the policy was issued on September 14, 1999. Under paragraph 5.4 of the policy, the owner of the policy may surrender the policy for its cash surrender value, and withdrawal of the cash surrender value results in cancellation of the policy.
8. The policy referred to as Exhibit D insures the life of the Debtors' daughter, Maria, and is owned solely by Mr. DeMarco, who is also the primary beneficiary. Mrs. DeMarco is the contingent beneficiary. The present cash surrender value of this policy is approximately $49.45. The ownership, beneficiary, and contingent beneficiary have not been changed since the policy was issued on September 26, 2011. Under paragraph 5.4 of the policy, the owner of the policy may surrender the policy for its cash surrender value. and withdrawal of the cash surrender value results in cancellation of the policy.
9. None of the policies vest or give the beneficiaries access to the cash surrender value until the death of the insured. Each of the policies does give Mr. DeMarco, as the owner of each of the policies, the unfettered right to surrender the policy and receive its cash value according to policy terms.
10. The Debtors state that the life insurance policies were purchased by Mr. DeMarco to make provision for himself and/or his spouse in the event of the death of a child. The Trustee, however, does not stipulate that the purposes asserted are in fact true or relevant to the determination of the exemption question.
Jurisdiction over a contested matter arising under the Bankruptcy Code lies with the district court. 28 U.S.C. § 1334(b). Pursuant to authority granted to the district courts at 28 U.S.C. § 157(a), the district court for the Western District of Tennessee has referred to the bankruptcy judges of this district all cases arising under title 11 and all proceedings arising under title 11 or arising in or related to a case under title 11. In re Jurisdiction and Proceedings Under the Bankruptcy Amendments Act of 1984, Misc. No. 81–30 (W.D.Tenn. July 10, 1984). The determination of objections to exemptions are core proceedings arising under the Bankruptcy Code. See28 U.S.C. § 157(b)(2)(B). The bankruptcy court has authority to enter an order determining whether a debtor is able to claim an exemption in particular property of the estate subject only to appellate review.
Tennessee is an “opt out” state; thus Tennessee debtors must claim the exemptions provided by Tennessee law. See11 U.S.C. § 522(b); Tennessee Code Annotated § 26–2–112. The Debtors claim that the four insurance policies are exempt from claims of creditors in their bankruptcy case by virtue of Tennessee Code Annotated § 56–7–203. That statute provides:
56–7–203. Life insurance or annuity for or assigned to spouse or children or dependent relatives exempt from claims of creditors.—The net amount payable under any policy of life insurance or under any annuity contract upon the life of any person made for the benefit of, or assigned to, the spouse and/or children, or dependent relatives of the persons, shall be exempt from all claims of the creditors of the person arising out of or based upon any obligation created after January 1, 1932, whether or not the right to change the named beneficiary is reserved by or permitted to that person.
In support of their position, the Debtors rely upon the decision In re Olien, 256 B.R. 280 (Bankr.E.D.Tenn.2000). In that case joint debtors claimed an exemption in the cash surrender value of three life insurance policies. One was owned by the husband, who was the named insured. The primary beneficiary was his wife. The other two policies were owned by the wife, who was the named insured. The primary beneficiary was her husband. Under these facts, the court held that the debtors, as owners, were entitled to exempt the cash value of the policies, but that the debtors, as beneficiaries, were not entitled to any exemption.
The Debtors concede that the Debtors as beneficiaries have no interest in the insurance policies that could become propertyof their bankruptcy estate.1 Therefore, it is the interest of Mr. DeMarco as owner of the policies that is in dispute. The Debtors argue that the holding in Olien should be applied in the present case even though the owner of the policies and the insured are not the same person. There does not appear to be a decision by the Tennessee Supreme Court (or any other court) directed to the question presented in this case.
The decision in Olien turned on the referents of the term “person” in the applicable statute. The term “person” appears four times. For ease of discussion, the applicable parts of the statute will be separately listed to highlight the use of this term:
(4) arising out of or based upon any obligation created after January 1, 1932, whether or not the right to change the named beneficiary is reserved by or permitted to that person.
Counsel agree that the first and third instances of the term “person” refers to the insured. They also agree that the second instance, in which the term is used in the plural, refers to the spouse and/or children of the insured, i.e., the statute applies to a policy made for the benefit of, or assigned to, dependent relatives of the spouse and/or children of the insured.2 Counsel disagree about the referent for the fourth use of the term “person.” Mr. Counce, as counsel for the Debtors, argues that the referent can only be the owner of the policy, whether or not that person is also the insured, and therefore, that the first and third instances should also be read to include an owner who is not the insured. Mr. Counce insists that since an insured who is not the owner of a policy of insurance would never have the right to change the named beneficiary, the fourth use of the term “person” must include the concept of ownership in reference to the insured. Therefore, he concludes that the drafters of the statute intended to include owners who are not...
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In re Bauman, 11 B 32418
...15(a). An objection to a debtor's claim of exemption is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). In re DeMarco, 491 B.R.236, 239 (Bankr. W.D. Term. 2013). The bankruptcy court is therefore empowered to enter a final judgment. 28 U.S.C. § 157(b).II. Facts The evidence at the h......
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In re Bauman
...15(a). An objection to a debtor's claim of exemption is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). In re DeMarco, 491 B.R. 236, 239 (Bankr. W.D. Tenn. 2013). The bankruptcy court is therefore empowered to enter a final judgment. 28 U.S.C. § 157(b).II. Facts The evidence at the ......
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