In re McCabe
Decision Date | 14 March 1986 |
Docket Number | Bankruptcy No. 83-00317. |
Citation | 74 BR 119 |
Parties | In re Robert J. McCABE, Carol M. McCabe, d/b/a McCabe Oil Company, Debtors. |
Court | U.S. Bankruptcy Court — Northern District of Iowa |
Harry R. Terpstra, Cedar Rapids, Iowa, trustee.
Larry G. Gutz, Cedar Rapids, Iowa, for debtors.
Roger Platten, Des Moines, Iowa, for MacMillan Oil Co.
Robert N. Downer, Iowa City, Iowa, special counsel for MacMillan Oil Co.
The matters before the Court are objections by the Trustee in Bankruptcy and by MacMillan Oil Company, Inc., to Debtors' claimed exemption in an annuity contract. These matters have been submitted on the basis of stipulated facts and briefs of the parties. Having reviewed the stipulation and the briefs submitted, and having examined the annuity contract at issue, the Court makes the following Memorandum Decision pursuant to F.R.B.P. 7052.
MEMORANDUM DECISIONDebtors Robert and Carol McCabe filed for relief under Chapter 11 of the Bankruptcy Code on November 11, 1983. They subsequently converted their case to Chapter 7 on December 13, 1983. In early November, 1983, Debtors cashed savings bonds accumulated through payroll deductions from Carol McCabe's paychecks. Debtors used the cash thus acquired to purchase Federated Life Insurance Company Annuity Contract No. 071923. The contract was issued on November 21, 1983, and matures on November 21, 1992. Robert McCabe is and has been receiving payments under the contract by virtue of his age (61 years). Debtors claimed their rights to payments under the annuity contract, valued at $47,000.00, exempt and the Trustee in Bankruptcy and MacMillan Oil Company objected.
Iowa has "opted out" of the Bankruptcy exemptions in 11 U.S.C. § 522(d). See 627.10, Code of Iowa (1985). Thus exemption questions are to be determined under Iowa law. The applicable statute is § 627.6(9)(e) which reads as follows:
The objectors argue (1) the payments at issue are not under an annuity ". . . on account of illness, disability, death, age, or length of service"; and (2) the payments are not "reasonably necessary for the support of the debtor and any dependents of the debtor."
The first objection is based on the fact that the annuity contract contains no express provision that benefits are payable on account of illness, disability, death, age, or length of service. While the exact language of the statute is not used, the annuity contract does provide that the amount of payment is dependent upon the age and sex of the annuitant. The Court finds the annuity at issue falls within the scope of § 626.7(9)(e) and is subject to exemption.
This decision is in accord with the decision of Judge Thomas Wood in the case of In re Gilbert, 74 B.R. 1 (Bkrtcy.N.D.Iowa 1985). In the Gilbert case, the Court construed the phrase "on account of" found in § 627.6(9)(e), Code of Iowa (1985). The Court is inclined to follow that decision for two reasons.
First, the language "on account of" is capable of several interpretations. See, 29A Words and Phrases, p. 229 et seq., where a number of different interpretations are placed upon the phrase "on account of". As stated in the Gilbert case, the phrase could be construed to mean "triggered by", or could be construed to mean "based upon", or the basis for the computation of the annuity benefit. Any of those definitions are reasonable and are logical meanings for the phrase "on account of". The Iowa Supreme Court has held that the exemption statute should be liberally construed in favor of those collecting the benefits of the exemptions. Frudden Lumber Co. v. Clifton, 183 N.W.2d 201, 203 (Iowa 1971). Given this policy of liberally construing the exemptions statute in favor of the beneficiary of the exemption, the Court is inclined to resolve any doubts as to the meaning of the phrase "on account of" in favor of the beneficiary of the exemption. Thus, the decision in the Gilbert case will be followed in this regard.
Secondly, if the phrase "on account of" were read to mean "triggered by", the Court believes that we would be exulting form over substance. This construction would have the effect of exempting those policies which delayed the payment of benefits for some time (i.e., the 64-year-old individual purchases a policy which begins to pay benefits at age 65) but would not exempt those policies which begin to pay benefits immediately upon purchase of the annuity. The objection raised by the parties objecting to the exemption goes to the question of whether a debtor should be allowed to purchase an annuity policy on the eve of bankruptcy, which would then be exempt under § 627.6(9)(e). By construing the phrase "on account of" to mean "triggered by" would only result in debtor's purchasing policies which begin to pay benefits at a certain age, albeit an age which may only be six months or a year from the date of purchase. This Court does not believe that such a strained construction of the statute should be made as to achieve this result.
This Court has carefully reviewed the Iowa exemptions statute in an attempt to determine whether the Iowa legislature intended to exempt those annuity policies which are privately purchased by a person claiming the benefit of the exemption. The Court having reviewed the statute comes to the conclusion that the legislature did intend such persons to enjoy the benefit of the exemption statute. This conclusion is reached by comparing the Iowa exemption statute with the Federal counterpart found at 11 U.S.C. § 522(d)(10).
When Iowa elected to opt out of the Federal exemptions, Iowa revised and recodified its exemptions list. The new Iowa exemptions are found at § 627.6, Code of Iowa. In creating the new Iowa exemption statute, the Iowa legislature adopted a number of the exemptions found at 11 U.S.C. § 522(f). In connection with the exemption in question, the Federal counterpart is found at 11 U.S.C. § 522(d)(10)(E). That section exempts:
It should be noted that the Iowa exemption copied the first part of the Federal exemption, but excluding that part of the Federal exemption referring to ". . . a stock bonus" . . ., " . . . profitsharing" and that part of the exemption which begins ". . . unless —".
The Federal exemption found at 11 U.S.C. § 522(d)(10)(E) excluded from the exemption those pension, annuity and other similar plans or contracts which were payments on account of age or length of service and which plans did not qualify under sections 401(a), 403(a), 403(b), 408 or 409 of the Internal Revenue Code of 1954 (26 U.S.C. 401(a), 403(a), 403(b), 408 or 409). Those sections of the Internal Revenue Code are briefly summarized as follows:
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