In re Mann
| Decision Date | 11 October 1996 |
| Docket Number | Bankruptcy No. 96-46048-R. |
| Citation | 201 BR 910 |
| Parties | In re Paul MANN and Corine Mann, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
June Porter, Detroit, MI, for Debtors.
David Lerner, Bloomfield Hills, MI, Colleen Corcoran, Birmingham, MI, for Trustee.
The issue before the Court is whether the debtors in this case can claim an exemption under 11 U.S.C. § 522(d)(10)(E) for a Lincoln National Insurance Company retirement annuity. The trustee objects to the $35,000 exemption taken by the debtors for the annuity. The debtors contend that the exemption is allowable under 11 U.S.C. § 522(d)(10)(E). On September 4, 1996, an evidentiary hearing was held and this Court took the matter under advisement. For the reasons stated below, this Court concludes that the annuity is not subject to exemption.
The debtors filed a voluntary petition for Chapter 7 on May 6, 1996, without the required schedules. On June 10, 1996, the debtors filed schedules.1 Schedule A discloses that debtor Corine Mann individually owned a home valued at $35,000, subject to a mortgage of $19,000. Schedule B lists the debtors' personal property as $250.00 cash, $5,000 in household furniture, $1,000 in personal apparel, and an item described as a jointly-owned "Annuity: Lincoln National Insurance Company, $35,000." Paul Mann individually listed a $247,156.50 judgment in his favor as an additional asset. In the portion of the schedule that called for interests in an IRA, ERISA, Keogh, or other pension or profit-sharing plan, the debtors indicated that they had nothing to declare.
Schedule C shows that the debtors elected to take exemptions under 11 U.S.C. § 522(b)(1). They claimed the following exemptions:
Homestead $ 7,5002
Household furnishings $ 3,0003
Personal wearing $ 1,0004
Automobile $ 1,2005
Interest in annuity $35,0006
Schedule D lists only one secured creditor, Standard Federal Bank, which holds a mortgage of $19,000 on the home owned by Corine Mann. No priority unsecured creditors are listed on Schedule E.
Nine unsecured creditors with non-priority claims are listed on Schedule F. Six of these creditors are owed credit card debts totaling $27,269. Another creditor, Counseling Center, P.C., is owed $1,600 for medical services. The remaining two creditors are Detroit Edison (in care of Midwestern Audit Services), owed $3,600 for electrical service for a business, and F.D. Stella Products, owed a $66,000 judgment on a business lease. The unsecured, non-priority claims total $98,469.
No executory contracts or unexpired leases are listed on Schedule G.
Schedule I lists two children as dependents, Danielle Smith, age 16, and Christopher Mann, age 7. Paul Mann listed the Wayne County Mental Health Board as his employer and listed employment of "12 years." His monthly gross income is listed as $3,000, with a net income of $2,000. Corine Mann listed her employer as Mercy Hospital and described her length of employment as 1 year. Her gross monthly salary is listed as $4,015, with a net income of $2,500.
The Schedule J which was initially filed lists the debtors' current monthly expenses, including $410 for mortgage payment, utilities of $350, home maintenance of $100, food expenses of $250, clothing costs of $100, laundry and dry cleaning costs of $75, medical and dental expenses of $60, transportation costs of $175 (not including car payments), costs of recreation, entertainment, newspapers, etc. of $75, charitable contributions of $60, automobile insurance of $400, automobile payments of $850, and school tuition for son of $560. These monthly expenses total $3,465. When these expenses are subtracted from the debtors' monthly income, the debtors show excess income of $1,035.
The debtors' statement of financial affairs reflects that during 1995, the debtors were employed by the County of Wayne and Mercy Hospital, the same employers listed in Schedule I. However, the statement of financial affairs showed that the debtors' 1995 annual gross salaries were higher than the 1996 gross salaries reported on Schedule I. Paul Mann reported his gross annual salary in 1995 as $54,000, rather than the $36,000 shown in Schedule I for 1996. Corine Mann reported her gross 1995 salary was $53,000, rather than the $48,180 shown in Schedule I for 1996.
On September 4, 1996, the debtors testified at the evidentiary hearing. At the outset of the hearing, the debtors' attorney indicated that she had received amended schedules from the debtors. She provided a copy of the amended schedules to the trustee at the hearing, but not to the Court. Although the debtors reviewed these schedules during their testimony, the schedules were not filed with the Court until September 11, 1996, and only because this Court insisted.7
Paul Mann testified that he is 53 years of age and has worked for Wayne County Mental Health Board for 18 years, rather than the 12 years that he initially reported on Schedule I. He stated that he plans to retire in two years, although his employer does not demand mandatory retirement at that time. He testified that upon retirement, he will receive a pension of half of his annual income of $54,000. His pension is not listed in the initial schedules or in the first amended schedule dated August 26, 1996.
Mr. Mann further testified that his dependent, Danielle Smith, is 14 years of age, not 16 years of age as reported on Schedule I. He stated that Danielle is in the eleventh grade and attends a private school. Although Schedule J initially listed monthly "tuition for son" of $560, Mr. Mann testified that the total tuition for his son and daughter to attend private school amounts to $766 per month. This amount is the amount stated on the first amended schedule J, dated August 26, 1996. Mr. Mann estimated that the total annual cost of tuition for both children was approximately $7,000.
Mr. Mann further testified that the monthly mortgage payment is $380, although it is listed on the initial schedule and the first amended schedule as $410. He acknowledged that the mortgage payment in July of 1996 was only $363.78.
Mr. Mann stated that the $400 per month listed in Schedule J for automobile insurance should be amended to $800 per month, to reflect insurance for two vehicles. Mr. Mann did not have any documentary evidence of the cost of his car insurance, although his first amended Schedule J, dated August 26, 1996, states that the insurance is $840 per month.
Corine Mann testified that she is 44 years of age and has worked at Mercy Hospital for slightly more than one year. She estimated that her annual salary is $54,000-$55,000. She does not yet have vested rights in a pension from Mercy Hospital and testified that currently, she does not have any other source of retirement income apart from the Lincoln National Annuity. She does not have any plans for retirement at this time.
Mrs. Mann testified that she does not know where the Lincoln National annuity is invested, although the debtors' response to the trustee's objection to exemptions contends that the annuity is invested in real estate and "as a result a buyer would have to be located to purchase said real estate in order for the debtors to recoup their investment into the fund." Mrs. Mann acknowledged that in April of 1996, the annuity account balance was $45,000. In 1992, she borrowed $10,000-$12,000 from the annuity to finance a pizza business. She believes that early withdrawal of the annuity would result in substantial penalties of 20%-30%.
Mrs. Mann stated that her mortgage payment is now actually some $400 per month because she is behind in her payments.
Mrs. Mann further testified that she had recently seen a doctor for a medical problem which she described as "nerve damage in her face." She stated that the extent and duration of any damage was unknown, and the doctor simply advised her to come back in six months for another office visit.
Neither the debtors nor the trustee offered documentation of the debtors' expenses or the terms of the annuity at issue.
At the close of the hearing, the Court ordered the debtors to file amended schedules by September 11, 1996, which would accurately reflect their financial circumstances and their testimony at the hearing.
On September 11, 1996, the debtors filed a second amendment to schedules, amending the Summary of Schedules, Schedule B, and Schedule J. On Schedule B, personal property, the debtors listed a revised description of the Lincoln National Insurance Co. annuity, describing it as property of Mrs. Mann with a value of $45,081.15 subject to an outstanding loan of $5,211.44, and "20% tax and 10% penalty." The current market value of the annuity was estimated at $39,879.71. The debtors also amended Schedule B to include Mr. Mann's pension estimated at $26,000 per year.
The debtors' second amended Schedule J, listing current expenses, was extensively revised and not all of the revisions conformed to the debtors' testimony at the evidentiary hearing. The debtors' monthly home mortgage payment was amended to $384 from the original $410. The debtors' utilities were amended to $255 per month, rather than the initial $200 per month. The water and sewer payment doubled, amended to $100 per month from the $50 per month initially reported. The transportation expenses, which do not include car payments, rose in the amended schedule to $225 from the initial $175. Charitable contributions were amended to $416 per month, a significant increase from the first schedule's $60 per month. Although the initial schedule did not report any homeowner's insurance outside the home mortgage payments, the amended schedule shows $58.83 per month in homeowner's insurance. The automobile insurance in the...
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