In re Holt

• Decision Date: 17 March 1988
• Docket Number: HA 86-197F.,Bankruptcy No. HA 86-183F
• Citation: 84 BR 991
• Parties: In re Marcia Nell HOLT. In re Marvin Joe HOLT, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

84 B.R. 991 (1988)

In re Marcia Nell HOLT In re Marvin Joe HOLT, Debtors.

Bankruptcy Nos. HA 86-183F, HA 86-197F.

United States Bankruptcy Court, W.D. Arkansas, Harrison Division.

March 17, 1988.

Jacoway Law Firm, Ltd. by Jill Jacoway, Fayetteville, Ark., for debtors, Marcia Nell Holt and Marvin Joe Holt.

Rose Law Firm, P.A. by Charles W. Baker, and Michael R. Johns, Little Rock, Ark., for Federal Sav. and Loan Ins. Corp.

MEMORANDUM OPINION

ROBERT F. FUSSELL, Chief Judge.

Before the Court are the objections to exemptions filed by the Federal Savings and Loan Insurance Corporation (FSLIC) in the above cases. FSLIC has objected to the claims of exemption of certain assets by the separate debtors, Marcia Nell Holt and Marvin Joe Holt. Because the objections involve a determination of similar issues, the Court has consolidated the cases for purposes of hearing and decision. At the time the objections were set for hearing and the parties agreed to submit written stipulations of fact and to provide the Court with legal briefs regarding the following issues: (1) whether Marcia Nell Holt may claim insurance policy proceeds payable to her as beneficiary and the cash value of life insurance policies on her life as exempt pursuant to A.C.A. § 16-66-218(b)(7) (Supp.1987) and A.C.A. § 16-66-209 (1987); and (2) whether Marvin Joe Holt may claim the cash value of life insurance policies on his life as exempt pursuant to A.C.A. § 16-66-218(b)(7) (Supp.1987) and A.C.A. § 16-66-209 (1987).¹

Stipulations and briefs were filed August 25, 1987. Based upon the stipulations of the parties and the legal briefs, the Court makes the following ruling.

Jurisdiction

Because this matter involves a determination of whether the debtors are entitled to claim certain assets as exempt, this Court has jurisdiction over the matter pursuant to 28 U.S.C. § 157(b)(2)(B). This Court makes the following findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

Findings of Fact

The Court adopts the following stipulations of fact submitted by the debtors and FSLIC.

A. APPLICABLE STATUTES.

1. The parties agree that Ark.Stat. Ann. §§ 66-3228; 66-3231; 66-4410; and 66-4514 now codified at A.C.A. §§ 23-79-131; XX-XX-XXX; XX-XX-XXX; and XX-XX-XXX (1987) provide no basis for claiming an exemption of these assets under Arkansas law. Accordingly the debtors are no longer claiming that these assets are exempt under such statutes. The only statutory basis now urged by the debtors is Ark. Stat.Ann. § 30-208 now codified at A.C.A. § 16-66-209.

2. The Arkansas State Highway Department Retirement Plan of Marcia Nell Holt is not exempt. Ms. Holt has agreed to withdraw her exemption claim with respect to her interest in such retirement plan.

B. THE PARTIES

3. Marcia Nell Holt is the debtor in HA 86-183F which was filed December 5, 1986. Marcia Nell Holt is the mother of Marvin Joe Holt.

4. Marvin Joe Holt is the debtor in HA 86-197F filed December 19, 1986. Marvin Joe Holt is the son of Marcia Nell Holt.

5. FSLIC is a creditor of Marcia Nell Holt and Marvin Joe Holt on a note signed by both debtors and Rebern Joe Holt, husband to Marcia Nell Holt and father of Marvin Joe Holt. The note was signed by others, not a party sic to this matter.

6. FSLIC has objected to exemptions claimed by both debtors, Marcia Holt and Marvin Holt.

7. The bankruptcy cases of Marvin Holt and Marcia Holt were consolidated because the parties are related, but both jointly liable on the same note to FSLIC, the facts in the cases are substantially the same and the same legal arguments apply.²

C. MARCIA NELL HOLT

8. Marcia Nell Holt\'s bankruptcy petition lists as an asset the proceeds of insurance policies on her husband, Rebern Joe Holt, who died October 4, 1986. Upon Mr. Holt\'s death, Mrs. Holt was entitled to collect insurance policies on Mr. Holt\'s life as follows: Ohio National — $250,000 plus $2,052.52 interest; Ohio National — $20,000 plus $561.00 interest; Ohio National — $3,000.00 plus $760.86 interest; Farm Bureau — $11,629.75 (Mr. Holt had borrowed against a $25,000 policy and after the loan was repaid, the net proceeds payable to Mrs. Holt were $11,629.75); Arkansas Highway Department — $2,000.00. The total amount received by Mrs. Holt as the beneficiary of the insured, Rebern Joe Holt, was, therefore, $290,004.11. No proceeds on any policy were received by the debtor prior to the filing of her bankruptcy petition.

9. The debtor, Marcia Nell Holt, claimed in her bankruptcy proceeding that the proceeds received upon the death of her husband plus accrued interest thereon were exempt pursuant to Ark.Stat.Ann. § 30-208 now codified at A.C.A. § 16-66-209.

10. In addition to the proceeds mentioned above, the debtor, Marcia Holt, also claimed as exempt the cash surrender value of two other policies issued by Ohio National Life Insurance policy.

11. The first of the policies was purchased by Rebern J. Holt on February 2, 1982. The face value of the policy was $10,000.00 with a cash surrender value of $577.00. The insured on this policy was the debtor, Marcia Nell Holt, and her husband, Rebern J. Holt, was named as the beneficiary.

12. The second policy in which the debtor claims the cash surrender value as exempt was purchased by the debtor on November 25, 1986. This policy has a face value of $116,000.00 and has an approximate cash surrender value of $10,000.00. The funds used to purchase the premium of $10,700.00 was from proceeds from the sale of certificates of deposit owned by Mrs. Holt. Marcia Nell Holt is the insured and the owner of this policy and her estate is the named beneficiary.

13. Mrs. Holt, the debtor, purchased the $116,000.00 policy after she had decided to file her bankruptcy petition with the purpose of converting nonexempt property into property for which an exemption could be asserted.

D. MARVIN JOE HOLT.

14. Marvin Joe Holt, son of Marcia Holt and Rebern Joe Holt, also claims as exempt the cash surrender value of two life insurance policies.

15. The first of these policies was purchased from Ohio National Life Insurance Company by Marvin J. Holt on June 8, 1984. Initially the policy had a face value of $100,000.00. The debtor, Marvin Holt, is the insured, and his parents are the named beneficiaries.

16. On December 8, 1986, Marvin J. Holt increased the death benefit of this policy to $200,000.00 by paying a $6,491.88 premium (using money from an annuity). The cash surrender value of the policy has increased to $6,000.00.

17. Marvin Holt had determined that he was going to petition in bankruptcy at the time of the payment of the additional premium on this policy and the premiums he paid to increase the $100,000.00 policy to a $200,000.00 was for the purpose of converting non-exempt property into assets for which an exemption could be claimed.

18. The second of these policies was purchased on December 19, 1973 from Banker\'s Life Insurance Company. The face value of the policy is $3,515.00 and the cash surrender value is $1,400.00. The insured is Marvin J. Holt and the beneficiary is Rebern J. Holt, father, Marcia N. Holt, mother, and contingent, John H. Holt, brother.

Contentions of Parties

FSLIC, a creditor of the debtors, has objected to the debtors' exemption claims on the following grounds:

(1) The entire Arkansas opt-out exemption scheme, as codified in A.C.A. § 16-66-218 (Supp.1987), is unconstitutional. Therefore, the only exemptions available to the debtors are the exemptions provided under the Bankruptcy Code which will not provide an exemption of the entire amount of the proceeds of the insurance policies.

(2) A.C.A. § 16-66-209, which is referenced in A.C.A. § 16-66-218(b)(7), does not provide for an "absolute" exemption for the proceeds payable under insurance policies and the cash surrender value of insurance policies, but merely provides an exemption of funds from the Arkansas garnishment remedies, and for that reason the debtors can not claim the insurance policies as exempt. Alternatively, if § 16-66-209 is interpreted as creating an "absolute exemption" the statute should be found to be unconstitutional since the amounts exempted would exceed the amounts allowable under the Arkansas Constitution.

In response, the debtors have made the following contentions:

(3) All monies paid or payable to an insured under any life insurance policies are exempt without limitation under A.C.A. § 16-66-209.

(4) A.C.A. § 16-66-209 is the kind of exemption which a debtor is permitted to raise under 11 U.S.C. § 522. An exemption need not be explicitly called an "exemption" or be "absolute" in order to be available under § 522. Further, an exemption is not objectionable because it extends its protection to entities other than a debtor, and § 16-66-209 is indistinguishable from federal nonbankruptcy exemptions available to the debtors under § 522.

(1) A.C.A. § 16-66-209, which creates a bankruptcy exemption under A.C.A. § 16-66-218, is constitutional and is available to the debtor under 11 U.S.C. § 522. The Arkansas Supreme Court has held § 16-66-209 to be constitutional and this decision must be respected by the bankruptcy court. Further, the Arkansas legislature\'s intent was to make § 16-66-209 available to debtors as a bankruptcy exemption. Section 16-66-209 is not inconsistent with the congressional policies underlying 11 U.S.C. § 522.

(2) A.C.A. § 16-66-209 is still available to the debtors under 11 U.S.C. § 522 for bankruptcy purposes. Section 522 and the supremacy clause of the United States Constitution permit expansion of a debtor\'s exemptions beyond those permitted by the Arkansas Constitution. The question of whether state law requires statutory enactment or constitutional amendment is a determination to be made by the Arkansas legislature.

(5) The Bankruptcy Code permits a debtor to convert nonexempt property to exempt property on the eve of bankruptcy filing.

In its reply brief, FSLIC has argued:

(1) A.C.A. §

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