In Re Linda Miller

• Decision Date: 05 August 2010
• Docket Number: No. 08-22988 JPK.,08-22988 JPK.
• Citation: 435 B.R. 561
• Parties: In re Linda MILLER, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

435 B.R. 561

In re Linda MILLER, Debtor.

No. 08-22988 JPK.

United States Bankruptcy Court,N.D. Indiana,Hammond Division.

Aug. 5, 2010.

Stacia L. Yoon, Esq., Genetos, Retson & Yoon, LLP, Merrillville, IN, for the Chapter 7 Trustee.

Kevin M. Schmidt, Esq., Merrillville, IN, for the Debtor, Linda Miller.

MEMORANDUM OF DECISION REGARDING THE CHAPTER 7 TRUSTEE'S MOTION FOR TURNOVER

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This contested matter arises from a Motion for Turnover (“Motion”) filed on December 10, 2009 by Stacia Yoon as Trustee of the Chapter 7 bankruptcy estate of Linda Miller (“Trustee”), and the objection of the Debtor (“Miller”) thereto. The Motion requests that Miller turn over to the Trustee the following: Wells Fargo check number 533527467 in the amount of $5,500.00; the bankruptcy estate's share of Miller's tax refund in the amount of $488.32; and funds held in a bank account in the amount of $702.27. On December 30, 2009, Miller, by counsel, filed a response to the Motion acknowledging that the tax refund and the funds in the bank account should be turned over to the Trustee, but objecting to the turnover of the Wells Fargo check in the amount of $5,500.00 on the basis that “the check is an exempt asset as it carries the exempt status to the date of filing.” ¹

On March 2, 2010, the parties filed their “Stipulation of Fact and Contested Issues” pursuant to the court's order entered on January 26, 2010. This stipulation constitutes the record before the court to determine the parties' contested matter.

The Trustee's Motion for Turnover, filed pursuant to 11 U.S.C. § 542(a), is governed by the provisions of Fed.R.Bankr.P. 9014. The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a) and (b); 28 U.S.C. § 157(a) and (b)(1); and N.D.Ind.L.R. 200.1. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(E).

THE FACTUAL RECORD/ISSUES PRESENTED

The factual record pertinent to the motion has been stipulated by the Trustee and Miller and provides as follows (the “Stipulation”):

Pursuant to the order of this Court, comes now the Trustee, Stacia L. Yoon, by counsel, and the Debtor, Linda Miller, by counsel, Kevin Schmidt, and submit their Stipulation of Fact and Contested Issues:

1. Stipulated Facts:

a. On September 9, 2008, the Debtor obtained a loan from the Schneider National, Inc. 401(k) Savings & Retirement Plan (“Schneider”) in the amount of $5,500.00.

b. On September 10, 2008, Schneider issued a check to the Debtor in the amount of $5,500.

c. On September 11, 2008, the Debtor filed her Chapter 7 petition.

d. On September 20, 2008, the Debtor deposited the check into her Centier account.

2. Trustee Yoon's Contentions:

a. The $5,500.00 check issued by Schneider represents proceeds from a loan.

b. The check is an asset of the bankruptcy estate.

3. Debtor, Linda Miller's Contentions:

a. The $5,500.00 check issued by Schneider retains its exempt status as a 401k loan under I.C. § 34-55-10-2(c)(6).

LEGAL ANALYSIS

Indiana has opted out of the federal exemption scheme stated in 11 U.S.C. § 522(d) and has established its own statutory exemptions; See, Matter of Salzer, 52 F.3d 708, 712 (7th Cir.1995). The Trustee does not dispute that the $5,500.00 at issue, prior to being distributed to Miller in the form of a 401(k) loan, was an exempt asset of this bankruptcy estate. ² The issue in this case is whether the funds after being distributed to Miller in the form of a loan retain their exempt character. The resolution of this issue hinges on this court's interpretation of Indiana law, namely I.C. 34-55-10-2(c)(6). This provision provides in pertinent part:

(c) The following property of a debtor domiciled in Indiana is exempt:

(6) An interest, whether vested or not, that the debtor has in a retirement plan or fund to the extent of:

(A) contributions, or portions of contributions, that were made to the retirement plan or fund by or on behalf of the debtor or the debtor's spouse:

(i) which were not subject to federal income taxation to the debtor at the time of the contribution; or

(ii) which are made to an individual retirement account in the manner prescribed by Section 408A of the Internal Revenue Code of 1986;

(B) earnings on contributions made under clause (A) that are not subject to federal income taxation at the time of the levy; and

(C) roll-overs of contributions made under clause (A) that are not subject to federal income taxation at the time of the levy. (Emphasis supplied).

The issue is whether the foregoing exemption statute is broad enough to apply to distributions made from a retirement plan within the provisions of the statute which are in the possession of the debtor dehors the plan. The answer is that it is not.

Because Indiana has “opted out” with respect to exemptions applicable in bankruptcy cases in accordance with 11 U.S.C. § 522(b)(1), construction of the statute under which the exemption was claimed is a matter of Indiana law, and not of federal law. The court notes that the ultimate purpose of statutory construction is to ascertain and give meaning to the intent of the legislative body which enacted the statute. As stated by the Indiana Supreme Court in Spaulding v. International Bakers Services, Inc., Ind., 550 N.E.2d 307, 309 (1990):

In reviewing a statute, our foremost objective is to determine and effect legislative intent. Park 100 Dev. v. Indiana Dep't of State Revenue (1981), Ind., 429 N.E.2d 220, 222. Where possible, every word must be given effect and meaning, and no part is to be held meaningless if it can be reconciled with the rest of the statute. Foremost Life Ins. Co. v. Department of Ins. (1980), 274 Ind. 181, 186, 409 N.E.2d 1092, 1096. We examine and interpret a statute as a whole, giving words common and ordinary meaning “and not overemphasizing a strict literal or selective reading of individual words.” Id.

The principal rule of statutory construction which must be applied to I.C. 27-1-12-14(e) is that the legislature's intent controls. Because the focus of interpretation is an exemption statute, in ascertaining that intent, statutes of exemption are to be construed in favor of the debtor claiming the exemption; See, Pomeroy v. Beach, Ind., 149 Ind. 511, 49 N.E. 370, 372 (1898); Union National Bank of Muncie v. Finley, Ind., 180 Ind. 470, 103 N.E. 110, 114 (1913); In the Matter of Zumbrun, Ind., 626 N.E.2d 452, 455 (1993). However, when a statute is clear, there is no room for construction, and any principle of liberal construction gives way to clearly expressed legislative intent; See, Sue Yee Lee, Ind.App., 410 N.E.2d 1319 (1980); B.K.C. v. State, Ind.App., 781 N.E.2d 1157 (2003); Robinson v. Gazvoda, Ind.App., 783 N.E.2d 1245 (2003).

Under the foregoing principles, the property protected by the statute is the “ interest ... that the debtor has in a retirement plan or fund ” (emphasis supplied). When a distribution is made from the fund to a participant, that distribution is no longer in the plan or the fund-it becomes property in the possession of the participant outside of the plan or fund. That is what the statute states, and it is not ambiguous in doing so. Thus, the exemption protection of I.C. 34-55-10-2(c)(6) ceases when a distribution is made to a plan participant.

The foregoing result is fully supported by the decision of the Indiana Supreme Court in the case of Brosamer v. Marion Independent Credit Union, et al., Ind., 561 N.E.2d 767 (1990). The issue in Brosamer was “whether the anti-alienation provision of the Employee Retirement Security Act of 1974 (ERISA), 29 U.S.C. § 1056(d)(1) (1988), protects pension funds from garnishment after they are deposited in a pensioner's bank account”, 561 N.E.2d at 768. The court stated:

We think that the available federal case law supports the conclusion that Congress intended to assure pensioners receive their benefits. It does not demonstrate that Congress desired to make pensioners judgment proof by legislative decree.

The proposition that ERISA is intended to protect plans only to ensure that benefits will be available for distribution is supported by the opinion of the Fourth Circuit in Tenneco, Inc. v. First Virginia Bank of Tidewater, 698 F.2d 688 (4th Cir.1983). The Tenneco court held that “benefits in the hands of the fiduciary are beyond the reach of garnishment” by a third party creditor even though the benefits in that case were payable in a lump sum at the request of the debtor, a recently terminated employee of a Tenneco subsidiary. Id. at 689. In so holding the Court stated that benefits payable from an ERISA-qualified plan are beyond the reach of garnishment regardless of the method by which they are payable. Id. at 690. The Court said quite the opposite, however, about garnishing money that the plan had already paid to the ex-employee:

Sweeney [the employee] claims that any funds or securities whose origin may be traced to a preretirement draw from an ERISA approved plan are forever immune from attachment by creditors.

The evidence discloses that Sweeney made a preretirement withdrawal and that he did not roll over the proceeds by investing them in another ERISA approved account within the 60-day period allowed for this purpose. The district court denied the relief which Sweeney requested, holding that although the funds originated in an ERISA account, they were not exempt from garnishment under the circumstances disclosed by this record. No provision of ERISA supports Sweeney's claim. We affirm the district court's denial of relief.

Id. at 690-91. The Fourth Circuit clearly saw ERISA's anti-garnishment protection ending when the benefits were actually paid to the employee and not rolled over into another pension plan within the time allotted.

The idea that ERISA's anti-garnishment protection ends when the benefits are actually paid is reflected in the U.S. Supreme Court's decision in Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S.

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