In the Matter of Weinhoeft

• Decision Date: 21 December 2001
• Docket Number: No. 01-2412,01-2412
• Citation: 275 F.3d 604
• Parties: (7th Cir. 2001) In the Matter of: Donald Weinhoeft and Anita L. Weinhoeft, Debtors-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 604

275 F.3d 604 (7th Cir. 2001)

In the Matter of: Donald Weinhoeft and Anita L. Weinhoeft, Debtors-Appellants.

No. 01-2412

In the United States Court of Appeals For the Seventh Circuit

Argued December 6, 2001

Decided December 21, 2001

Appeal from the United States District Court for the Central District of Illinois. No. 00-3327--Richard Mills, Judge.

Miriann Pogge (argued), Springfield, IL, pro se.

Stephen T. Fieweger (argued), Katz, Huntoon & Fieweger, Rock Island, IL, for Appellants.

Before Cudahy, Easterbrook, and Evans, Circuit Judges.

Easterbrook, Circuit Judge.

When Donald Weinhoeft entered bankruptcy proceedings, one asset of his estate was a wrongful-discharge suit against Union Planters Bank, his former employer. That suit eventually settled for $165,000 in cash, plus the Bank's release of any claims against Donald and his wife Anita as a creditor in their bankruptcies. Donald contends that $40,000 of the settlement proceeds is exempt from creditors' claims and should be turned over to him, because it represents the value of pension contributions that the Bank would have made, had his employment continued. The bankruptcy judge, and then the district judge, rejected this contention. In this appeal--which is within our jurisdiction under 28 U.S.C. sec.158(d) even though the bankruptcy proceedings are ongoing, see In re Baker, 768 F.2d 191 (7th Cir. 1985)--the Weinhoefts contend that it is the Trustee's burden to prove that settlement proceeds should not be allocated to pension claims, rather than the debtors' burden to demonstrate that they should be. The settlement agreement is silent on the matter, so the Weinhoefts think that they must prevail. Yet the burden of persuasion matters only if it is possible to exempt cash from the estate. That depends on the language of the Bankruptcy Code and the statutes to which it points.

The Code provides two sources of exemption authority potentially relevant to the Weinhoefts' position. The first, 11 U.S.C. sec.541(c)(2), says that the bankruptcy process respects any "restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law". "[A]pplicable nonbankruptcy law" includes both state and federal provisions, see Patterson v. Shumate, 504 U.S. 753 (1992), which means that pension plans subject to the anti-alienation rule of erisa, see 29 U.S.C. sec.1056(d)(1), are not part of an estate in bankruptcy. Likewise any state law governing spendthrift trusts applies in bankruptcy. Illinois provides that retirement plans are exempt from creditors' claims. 735 ILCS sec.5/12-1006. To the extent that this statute speaks to pensions regulated by erisa it is preempted (but redundant); to the extent it deals with individual retirement accounts, church plans, and other assets outside the scope of erisa, it is not preempted, see Reliance Insurance Co. v. Zeigler, 938 F.2d 781 (7th Cir. 1991), and may supply "applicable nonbankruptcy law" for purposes of sec.541(c)(2). The second possible source of authority is 11 U.S.C. sec.522(b)(2)(A), which allows debtors to shelter from creditors' claims "any property that is exempt under . . . State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition". Once again the potential state exemption is 735 ILCS sec.5/12-1006. The $40,000 did not enter a trust, so sec.541(c)(2) does not avail the Weinhoefts. Thus everything depends on sec.522(b)(2)(A) and the scope of the exemption in Illinois law.

Section 5/12-1006 reads:

(a) A debtor's interest in or right, whether vested or not, to the assets held in or to receive pensions, annuities, benefits, distributions, refunds of contributions, or other payments under a retirement plan is exempt from judgment, attachment, execution, distress for rent, and seizure for the satisfaction of debts if the plan (i) is intended in good faith to qualify as a retirement plan under applicable provisions of the Internal Revenue Code of 1986, as now or hereafter amended, or (ii) is a public employee pension plan created under the Illinois Pension Code, as now or hereafter amended.

(b) "Retirement plan" includes the following:

(1) a stock bonus, pension, profit sharing, annuity, or similar plan or arrangement, including a retirement plan for self-employed individuals or a simplified employee pension plan;

(2) a government or church retirement plan or contract;

(3) an individual retirement annuity or individual retirement account; and

(4) a public employee pension plan created under the Illinois...