In re Woodford
| Decision Date | 26 January 1987 |
| Docket Number | Bankruptcy No. 85-01050. |
| Citation | 73 BR 675 |
| Parties | In re Robert H. WOODFORD, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
Grass, Balanoff, Costa & Whitelaw, P.C., Syracuse, N.Y., for trustee; Mary Lannon Fangio, of counsel.
David W. Pelland, Syracuse, N.Y., for debtor.
MEMORANDUM-DECISION AND ORDER ON TRUSTEE'S OBJECTION TO CLAIMED EXEMPTION
Robert H. Woodford ("Debtor") filed a petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-151326, ("Code") on November 25, 1985. On January 23, 1986, the Trustee filed his objection to Debtor's claimed exemption of his interest in a retirement fund. The matter was submitted upon the memoranda of counsel.
At the time he filed his petition, Debtor was 58 years old, having been born on January 14, 1927. On May 31, 1985, Debtor had withdrawn as a partner from the law firm of Mackenzie, Smith, Lewis, Michell & Hughes, Esqs. ("Mackenzie firm"). Thereafter, until January 1, 1986, Debtor was employed by the Mackenzie firm as an attorney. Since that time, Debtor has continued to practice law as an attorney associated with the offices of William Weisberg, P.C. Debtor was married at the time of his individual filing, and his spouse was unemployed. Two children, ages unknown, resided at Debtor's home.
Debtor received his discharge by Order dated April 8, 1986. Debtor's Schedule of Current Income and Expenditures recites a net monthly income of $2,942.24. Debtor listed the following monthly expenditures:
Mortgage payment ..................................... $ 699.00
Electricity .......................................... 40.00
Heat ................................................. 210.00
Telephone ............................................ 36.00
Food ................................................. 460.00
Laundry & cleaning ................................... 60.00
Newspapers, periodicals, books ....................... 40.00
Medical/drug expenses ................................ 100.00
Insurance
Auto ($760.00 per year)
Other (undefined) ($1,640.00 per year)
Total ............................................ 200.00
Car payment .......................................... 391.00
Transportation expenses .............................. 90.00
Recreation ........................................... 100.00
Real estate taxes .................................... 200.00
Misc. contributions, Christmas gifts, vacations (est.) 100.00
Contribution to in-laws' rent ........................ 200.00
_________
Total monthly expenditures ..........................$2,926.00
As of December 31, 1985, Debtor had an interest in a Retirement Plan and Trust Agreement ("Plan") established by the MacKenzie firm in the amount of $116,137.17.1 Debtor's rights in the Plan are 100% vested (Debtor's memorandum, Exhibit B), and the Plan is a qualified plan pursuant to the terms of the Internal Revenue Code. (Debtor's memorandum, Exhibit D.).
In addition to his interest in the Plan, Debtor claimed as exempt property, pursuant to Code § 522, and N.Y. Debt. & Cred. Law § 282 (McKinney Supp. 1986):
Interest in residence ..................... $10,000.00
Household goods ........................... 3,500.00
Wearing apparel ........................... 400.00
1981 Cadillac ............................. 8,250.00
The 1981 Cadillac was collateral for a secured claim of the Key Bank in the amount of $11,788.00. Debtor had initially indicated an intention to reaffirm this obligation, (Statement of Intention Re: Secured Consumer Debts) yet he did not file an agreement pursuant to Code § 524(c)(3) prior to his discharge. The Trustee abandoned the estate's interest in the automobile pursuant to Code § 554(a) on January 8, 1986, at that time indicating $12,197.42 as the net amount due on the loan. Debtor indicates he was forced to surrender the automobile. (Debtor's memorandum at p. 7).
Debtor's counsel revealed that a sale of Debtor's residence was contemplated. (Debtor's memorandum at p. 2). The residence is collateral for the secured claims of the Onondaga Savings Bank in the total amount of $64,500.00. Debtor believes the market value of the home to be $110,000.00. (Schedule A-2).
As indicated, the Plan balance as of December 13, 1985 was $116,137.17. Debtor alleges that if these funds were used to purchase a Joint Variable Immediate annuity, it would result in lifetime monthly benefits of $776.60. (Debtor's memorandum, Exhibit C). No issue has been raised as to special health concerns or needs of Debtor or his dependents.
The Trustee argues that the Plan is not exempt because it was established while Debtor was an insider. N.Y. Debt. & Cred.Law § 282(2)(e)(i) (McKinney Supp. 1986); (Code § 522(d)(10)(E)(i)). The Trustee contends Debtor has failed to prove the funds in the Plan are necessary for his support or that of his dependents. In a reply memorandum, (filed September 23, 1986), the Trustee, for the first time since his objection was filed, contends that a hearing is necessary to resolve the issue of the Plan's relationship to the Debtor's support.2
Debtor argues that all three provisions of N.Y. Debt. & Cred.Law § 282(2)(e)(i)-(iii) (McKinney Supp. 1986) must be met before the exemption is to be denied. Debtor states that the burden of proof is upon the Trustee to show the exemption is improperly claimed, and that in any event, the funds in the Plan are necessary for the Debtor's support. Debtor contends the Plan is not property of the estate as he had no right to withdraw funds therefrom until he either left the employ of the Mackenzie firm and thereafter attained age 59 ½ years, or retired while still employed by the Mackenzie firm (Debtor's memorandum at pp. 8-10; Exhibit A). Finally, Debtor relies upon New York's scheme of "equitable distribution" for the proposition that his spouse's one-half interest in the Plan is properly excludable.
The Court has jurisdiction pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(b)(2)(B).
Pursuant to Code § 522(b)(1), the State of New York chose to "opt out" of the Federal exemption scheme proposed under the Bankruptcy Code. 1982 N.Y. Laws § 2, Ch. 540 (McKinney 1982). New York exemptions are codified at Article 10-A, Personal Bankruptcy Exemptions, N.Y. Debt. & Cred.Law §§ 282, 283 (McKinney Supp.1986), and are the exclusive exemptions for debtors domiciled in the state. N.Y. Debt. & Cred. Law § 284 (McKinney Supp.1986).
In pertinent part, § 282 of the Debtor and Creditor Law provides:
2. Bankruptcy exemption for right to receive benefits. The debtor\'s right to receive: . . . (e) a payment under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless (i) such plan or contract was established by the debtor or under the auspices of an insider that employed the debtor at the time the debtor\'s rights under such plan or contract arose, (ii) such plan is on account of age or length of service, and (iii) such plan or contract does not qualify under section four hundred one a, four hundred three a, four hundred three b, four hundred eight, four hundred nine or four hundred fifty-seven of the Internal Revenue Code of nineteen hundred fifty-four.
The New York exemption for retirement plans is taken word for word from the Federal exemption scheme, Code § 522(d)(10)(E)(i)-(iii). Consequently, the decisions of other courts which have considered the Federal exemption or a similarly worded state exemption prove insightful for resolving the Trustee's objection.
The initial question is whether the Plan is property of the estate, for only property of the estate may be claimed as exempt. Debtor contends the limitations placed upon his ability to withdraw from the Plan at the time he filed his petition removed the Plan from consideration as property of the estate.
Pursuant to Code § 541(a)(1), the commencement of a case creates an estate, comprised of "all legal or equitable interests of the debtor in property." Non-bankruptcy law will initially determine the debtor's interest in property, yet the question of what constitutes property of the estate is a federal question. Matter of Ross, 18 B.R. 364, 367 (N.D.N.Y.1982), aff'd., Regan v. Ross, 691 F.2d 81 (2d Cir.1982). The scope of Code § 541(a)(1) is very broad, with every interest of the debtor becoming part of the estate. H.R.Rep. No. 595, 95th Cong., 1st Sess. 368-67, reprinted in 1978 U.S. Code Cong. & Ad. News 5963, 6323-4 ("House Report"); S.Rep. No. 989, 95th Cong., 2d Sess. 82-3, reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5868-9 ("Senate Report"); Matter of Ross, supra 18 B.R. at 367.
The Debtor had an interest in the Plan at the time he filed his petition. This interest was 100% vested, and whatever its nature, was part of the Debtor's bankruptcy estate. Debtor's argument confuses the issue of the Plan's exclusion from property of the estate, with that of the Plan's exemption from property of the estate available for Trustee's liquidation. New York cases to date have uniformly held such plans to be part of the debtor's estate. Matter of Ross, supra, 18 B.R. at 367, 691 F.2d at 84; In re Donaghy, 11 B.R. 677 (Bankr.S.D.N.Y.1981) (pension). The argument that such plans are excluded from property of the estate pursuant to Code § 541(c)(2) was resolved by the United States Court of Appeals for the Second Circuit in Regan v. Ross, supra. In that case, the administrators for two New York State administered pension funds argued that state law prohibitions against pension fund assignment to creditors, N.Y. Retire. & Soc. Sec. Law § 110 (McKinney Supp. 1986) kept pension benefits from the...
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