In re Monahan
| Decision Date | 26 August 1994 |
| Docket Number | Bankruptcy No. 92-11521-JEY,93-11781-JEY and 94-10521-JEY. |
| Citation | 171 BR 710 |
| Parties | In re Michael MONAHAN and, Leisha Monahan, Debtors. In re George Edward COLE Jr. and Elizabeth Jane Cole, Debtors. In re Alfred P. MURPHY, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Karen J. Levitt, Lowell, MA, Jeffery Schreiber, Danvers, MA, for debtors.
Dennis Bezanson, Chapter 7 Trustee, Manchester, NH.
Geraldine Karonis, Manchester, NH, U.S. Trustee.
INDEX
INTRODUCTION ................................................ 711-712
Monahan Facts/Context ..................................... 712-713
Cole Facts/Context ........................................ 713-714
Murphy Facts/Context ...................................... 714
GENERAL DISCUSSION .......................................... 714-717
Cash Surrender Value ...................................... 717-719
Death Proceeds ............................................ 719-721
CONCLUSION .................................................. 721
The three cases before the Court raise questions regarding the exemption of various aspects of life insurance policies in force at the time of the bankruptcy filing. All three raise questions under the New Hampshire exemption laws which have not been decided in this District before.1 It will become apparent from the recitation of the facts that these are "hard cases" indeed. The Court has also discovered that the caselaw in this area is difficult to decipher in terms of the appropriate result under a particular state's statutory exemption provisions. The relative lack of decisions by the New Hampshire courts has compounded the difficulty. The Court accordingly has taken some time to do its own research in addition to that provided by the parties to try to assure that the decisions will not provide "bad law" in the circumstances. The procedural context and other relevant facts regarding each case will first be set down separately as follows:
Monahan Facts/Context
Michael Monahan and Leisha Monahan, husband and wife, filed a joint chapter 7 petition in this Court on May 11, 1992. They were young parents and had a minor child, Jessica Monahan. On June 16, 1992, a little over a month after the filing, Leisha Monahan died in an automobile accident. Life insurance proceeds insuring the life of Leisha Monahan, naming the child, Jessica Monahan, as the beneficiary, were paid to Michael Monahan as guardian for the minor child.
The original bankruptcy schedules filed on May 11, 1992 (Court Doc. No. 1) did not list the life insurance policy, which was owned by the debtors jointly, and which had a cash surrender value of approximately $600 as of the date of the bankruptcy filing. Thus, there was also no claim of exemption of the policy by the debtors at that time. The premiums paid by the debtors pre-bankruptcy kept the policy in force up to the date of the accident that claimed the life of Leisha Monahan.
The life insurance policy in question was owned by the debtors and gave the debtors the power to change the beneficiary as well as the power to surrender the policy and obtain its cash surrender value for other purposes free of any claim or restriction by the beneficiary.
At the first meeting of creditors under § 341 of the Bankruptcy Code held on July 20, 1992 the trustee discovered that the debtor Leisha Monahan was deceased and that there was a $50,000 life insurance policy on her life in effect at the time of the bankruptcy filing and at the time of the accident. The debtor, Michael Monahan, previously on July 2, 1992, had filed a motion to permit him to dismiss the bankruptcy case. (Court Doc. No. 9) That motion was heard on September 17, 1992 but was withdrawn in open Court by the debtor's attorney (Court Doc. No. 12).
On August 2, 1993 the debtors, Michael and Leisha Monahan, by their attorney, filed a "Motion to Amend Schedules B and C" to add to Schedule B(9) "Whole Life Policies (2) — Value approximately $600." (Court Doc. No. 17). The debtors also moved to amend the claim of exemptions seeking to exempt "Life Insurance Policy Cash Value $600" and also sought to exempt "Life Insurance Proceeds" with reference to the $50,000 death proceeds that were paid by the insurance company under the insurance policy.2 The trustee filed "Trustee's Objection to Exemption" on August 27, 1993, (Court Doc. No. 19) within 30 days of the filing of the motion to amend schedules. The debtors' response to the trustee's objection to exemption was filed on September 14, 1993. (Court Doc. No. 22)
On October 4, 1993 the trustee also filed a "Motion for Turnover and Accounting" (Court Doc. No. 23) pursuant to §§ 105, 521(4) and § 542 of the Bankruptcy Code requesting an order directing "the debtors to account for and turnover to the trustee $50,000 proceeds of a life insurance policy in which the debtors' minor child was named as beneficiary which policy existed as of the date of filing and the same proceeds from said policy arose upon the death of the debtor, Leisha Monahan, within 180 days after filing of the debtors' petition."
All of the issues relating to the motion to amend schedules and the claim of exemption, and the trustee's objections thereto, were heard before this Court at a hearing on October 5, 1993. After the hearing the Court entered a procedural order (Court Doc. No. 26) which directed further briefing of the legal issues before the Court and took the matter under advisement after the last brief was submitted on October 29, 1993. The trustee's motion for turnover and accounting and the debtor's objection thereto was first heard on November 4, 1993.3
In this case, although the debtor originally claimed an exemption in both the proceeds and cash surrender value of the policy, the debtor in his memo of law in responding to the trustee's objection to the claims of exemption agreed to remit to the trustee the $600 cash surrender value of the policy and argued only against the trustee's objection to the claim of exemption of the proceeds paid upon the death of Mrs. Monahan. (Court Doc. No. 22).
The trustee contends that at the filing of the bankruptcy petition the life insurance policy became property of the estate and the right to change the beneficiary passed from the debtor to the trustee. (Court Doc. No. 19). From these facts the trustee argues that (1) unscheduled assets and the proceeds from the same become property of the estate; and (2) even if the debtor's claim of exemption in the death proceeds might have been allowable at the outset, the debtor's failure to list the policy until one year after the death of the insured asset precludes Mr. Monahan from doing so now.
George Cole and Elizabeth Cole, husband and wife, filed a joint chapter 7 petition on June 16, 1993 in this Court (Court Doc. No. 1). Under Schedule B as item 9 the debtor listed as an asset a John Hancock Mutual Life Insurance Company policy, owned jointly by the debtors, having a current cash surrender value of $2,984.84. On the Schedule C, the debtors claimed that policy and its cash surrender value exempt under R.S.A. 408:2.
The debtors were examined at a first meeting of creditors on June 26, 1993 at which time the trustee inquired about the life insurance policy. On August 4, 1993 the trustee filed an objection to the claim of exemption (Court Doc. No. 4) with regard to the "claim of exemption in cash value of life insurance" on the grounds that there was no basis for that claim of exemption in the law.
The Court held a hearing on the trustee's objection to the claim of exemption on October 5, 1993 and directed briefing by the parties. At the hearing, the Court received into evidence a copy of the life insurance policy in question (Debtor Exhibit No. 1). The debtors filed their memorandum in support of the claim of exemption on October 18, 1993 (Court Doc. No. 13). The trustee filed his memorandum in support of his objection to the claim of exemption on October 22, 1993 (Court Doc. No. 14). The matter was then taken under advisement.
The insurance policy in question is a "family" life insurance policy that had been taken out in 1971, and was kept in force by regular payment of premiums over some 22 years prior to the bankruptcy, accounting for the accumulated cash surrender value. The policy insures the life not only of George Cole, but also of his wife, the co-debtor in this case, and the Coles' two dependent children, ages 19 and 17. Upon Mr. Cole's death, a death benefit of $10,000 would be paid to his wife or to the children if she did not survive him. If Mrs. Cole predeceased Mr. Cole, a $2,000 benefit was payable to her husband or to the children if he did not survive her. A separate $1,000 death benefit was payable upon the death of either child.
The insured and owner of the life insurance policy was George Cole and he retained the power to change beneficiaries without restriction. This power had not been exercised at the time of the bankruptcy filing. At that time and to date all parties covered by the life insurance policy are still alive.
The question in this case accordingly is whether the debtors...
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