In re Scott
| Decision Date | 15 February 1996 |
| Docket Number | Bankruptcy No. 395-31169-SAF-13. |
| Citation | 193 BR 805 |
| Parties | In re Gilbert T. SCOTT and Gloria B. Scott, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
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Thomas E. Kirkland, Dallas, TX, for Gilbert T. and Gloria B. Scott, Debtors, Respondent.
Wm. Chris Wolffarth, Johnson, Unell & Wolffarth, Dallas, TX, for Robert Milbank, Jr., Trustee, Movant.
Robert Milbank, Jr., the Chapter 7 trustee of the bankruptcy estate of the debtors, Gilbert T. Scott and Gloria B. Scott, objects to certain property claimed as exempt by the debtors. The court held a hearing on the exemptions on December 11, 1995. At that hearing, the parties submitted the matter on the written papers and the court record. The debtors filed their brief in support of the exemptions on December 29, 1995, and the trustee filed his brief in opposition on January 2, 1996.
The Bankruptcy Code provides that upon commencement of a bankruptcy case all legal and equitable interests of the debtors in property become part of the bankruptcy estate. 11 U.S.C. § 541; Matter of Walden, 12 F.3d 445, 448 (5th Cir.1994). The debtors may, however, exempt certain property from the estate, placing that property beyond the reach of claims of creditors. 11 U.S.C. § 522; Walden, 12 F.3d at 448.
Section 522(b) permits the debtors to exempt property under either the federal exemptions enumerated in § 522(d), if the subject state so authorizes, or the exemptions available under state or other federal law. Texas permits debtors to select the federal exemptions under § 522(b)(1). Matter of Volpe, 943 F.2d 1451, 1452 (5th Cir. 1991). Accordingly, debtors may elect either the "federal" exemptions specified in § 522(d) or the "state" exemptions. In this case, the debtors elected the state exemptions.
By their amended schedule C, filed March 22, 1995, the debtors claimed as exempt their homestead, pursuant to Texas Property Code § 41.001; three individual retirement accounts, valued at $108,000, pursuant to Texas Property Code § 42.0021; an annuity contract, valued at $88,000, pursuant to Texas Insurance Code art. 21.22; two life insurance policies, with a present value of $19,000, pursuant to Texas Insurance Code art. 21.22 and Texas Property Code § 42.002; and other personal property valued at $44,300, pursuant to Texas Property Code §§ 42.001 and 42.002. The trustee objects to the exemption of the annuity contract and the present value of the life insurance policies.
The Texas Insurance Code, at art. 21.22, provides in pertinent part:
TEX.INS.CODE ANN. art. 21.22, § 1 (Vernon Supp.1996).
The Texas Property Code, at § 42.001(a)(1), provides that personal property described in § 42.002 is exempt if the property is provided for a family and has an aggregate fair market value of not more than $60,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property. Section 42.002(a)(12) exempts as personal property "the present value of any life insurance policy to the extent that a member of the family of the insured or a dependent of a single insured adult claiming the exemption is a beneficiary of the policy." TEX.PROP.CODE ANN. § 42.002(a)(12) (Vernon Supp.1996).
The debtors have an annuity contract issued by the Equitable Life Insurance Company, a life insurance company. Article 21.22 of the Texas Insurance Code exempts all money or benefits of any kind, including policy proceeds and cash values, to be paid to the insured or any beneficiary under "any annuity contract issued by a life . . . insurance company." TEX.INS.CODE ANN. art. 21.22, § 1 (Vernon Supp.1996). The annuity contract issued by the Equitable Life Insurance Company is covered by this exemption. Section 42.002 of the Texas Property Code does not include annuity contracts under subsection (a)(12), nor any other subsection. Therefore, like the individual retirement accounts under Texas Property Code § 42.0021, the annuity contract exemption is a separate exemption, unaffected by the limitations of § 42.001. Accordingly, the trustee's objection to the claim of exemption of the annuity contract is overruled and the exemption is allowed.
In contrast, the cash value of the debtors' two life insurance policies is governed by both art. 21.22 of the Texas Insurance Code and § 42.002(a)(12) of the Texas Property Code. Under the Insurance Code, the entire cash value of the life insurance policies would be exempt. Under the Property Code, however, through § 42.001, the cash value must be included in the $60,000 limit for property covered by § 42.002. In this case, since the present value of the life insurance policies, coupled with the other personal property covered by § 42.002, exceeds $60,000, application of the plain language of both statutes is inconsistent.
Bankruptcy courts in Texas have struggled with this issue: whether the cash value of life insurance policies can be fully exempted under the Texas Insurance Code or must be included within the $60,000 limitation under the Texas Property Code.
In In re Bowes, 160 B.R. 290 (Bankr. N.D.Tex.1993), the court held that life insurance cash value is fully exempt, but if that unlimited exemption exhausts the $60,000, no additional personal property under § 42.002 can be exempted. In In re Borchers, 192 B.R. 698 (Bankr.W.D.Tex.1996), and in In re Shurley, 163 B.R. 286 (Bankr.W.D.Tex.1993), the courts held that life insurance cash value is fully exempt under the Texas Insurance Code, without application to the $60,000 Property Code limitation. In In re Young, 166 B.R. 854 (Bankr.E.D.Tex.1994), while finding that the life insurance policy in question did not come within the definition of § 42.002(a)(12), so that the issue did not have to be decided, the court intimated that it would reach the same result as the Shurley court. See 166 B.R. at 861 n. 9.
The Texas exemption law must be liberally construed in favor of express exemptions. Walden, 12 F.3d at 448. But in so doing, the Texas Legislature directs that statutory inconsistencies be construed according to statutory standards. To that end, the court must read the provisions of the Texas Insurance Code and the Texas Property Code using the construction aids of § 311.023 of the Texas Government Code and, if irreconcilable, using §§ 311.025 and 311.026 of the Government Code.
The Shurley court explains:
In the same session, the Legislature amended § 42.001 of the Property Code to double, from $30,000 to $60,000, the maximum amount of designated personal property that could be exempted by a family. The Legislature did not remove the life insurance provisions from § 42.002. Bowes, 160 B.R. at 293-294.
Although not discussed by the Shurley court, the Borchers court recognized that the Legislature increased the Property Code exemption limit during the same session it amended the Insurance Code. But the court concluded that the Legislature meant to delete § 42.002(a)(12). 192 B.R. at 705-06. The Texas Attorney General has similarly construed the statutes. Op.Tex.Att'y Gen., No. DM-125 (1992).
This court must respectfully disagree with the Shurley and Borchers courts. Although they may have correctly discerned the legislative intent, they have engaged in a legislative act by, in effect, striking § 42.002(a)(12). While a court may alert the Legislature to statutory inconsistencies, the court must apply the statutes as written. A court may not read statutes to make their words superfluous or insignificant. See Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 970-71 (5th Cir.1981). This teaching takes on special importance when a federal court construes state statutes. While a court should give due deference to a state attorney general's construction of state statutes, the executive branch, like the judicial branch, cannot effectively strike a sentence in a statute.
The court must, therefore, attempt to construe the statutes to give meaning to all of their provisions. Bowes, 160 B.R. at 293. If the statutes cannot be harmonized, the statute latest enacted prevails. TEX.GOV'T CODE ANN. § 311.025(a) (Vernon 1988). But if the statutes contain conflicting general and special provisions which cannot be reconciled, the special provision prevails unless the Legislature later enacted the general provision with a manifest intent that the general provision prevail. TEX.GOV'T CODE ANN. § 311.026(b) (Vernon 1988).
To determine if the provisions can be reconciled, the court must consider the construction aids enacted by the Legislature. TEX. GOV'T CODE § 311.023 (Vernon 1988). That section provides:
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