National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Exemptions

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Lower Court Sides with “Majority View” with respect to Inherited IRAs

Despite the recent holding to the contrary by the seventh circuit, the court in In re Trawick, No. 12-12581 (Bankr. C.D. Cal. Aug. 29, 2013), held that inherited IRAs may be exempt under section 522(b)(3)(C). Exemptibility is contingent upon two elements: 1) that the IRA has received a favorable determination under IRC section 7805, or is otherwise in compliance with the requirement of the IRC, and 2) that the funds in the account are “retirement” funds. Here, the court noted that there is a split in the circuits as to whether inherited IRAs can ever be exempt, under the second factor, since the debtor himself did not contribute the funds toward his own retirement. See, e.g. Chilton v. Moser, 674 F.3d 486 (5th Cir. 2012); Mullen v. Hamlin, 465 B.R 863 (B.A.P. 9th Cir. 2012); Doeling v. Nessa, 426 B.R. 312 (B.A.P. 8th Cir. 2010) (exempt); In re Clark, 714 F.3d 559 (7th Cir. 2013), petition for cert. filed, No.13-299 (Sept. 6, 2013) (never exempt).

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NACBA Amicus Filed in Supreme Court Exemption Case

The NACBA membership filed an amicus brief in the Supreme Court case of Law v. Seigel (In re Law), No. 12-5196 (Sept 3, 2013), in an effort to defend the debtor’s homestead exemption against surcharge. In that case, the lower court, ostensibly pursuant to its power under section 105(a), imposed the surcharge to pay trustee fees resulting from litigation necessitated by debtor misconduct. See Law v. Siegel (In re Law), 435 Fed. Appx. 697, 2011 WL 2181198 (9th Cir. 2011). [Read more…] about NACBA Amicus Filed in Supreme Court Exemption Case

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Kansas EITC Exemption Constitutional

Despite relentless attacks by the bankruptcy trustees Kansas’s bankruptcy-only exemption scheme, under which a debtor in bankruptcy is permitted to exempt his Earned Income Tax Credit, has once again been deemed constitutional. Nazar v. Lea (In re Lea), No. 12-1297 (D. Kans. Aug. 16, 2013), consolidated with Parks v. Hudson (In re Hudson), No. 12-1298. The exemption benefits low-income families with dependent children by treating the excess of EITC credit over taxes owed as an overpayment of taxes and refunding the difference. [Read more…] about Kansas EITC Exemption Constitutional

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Eighth Circuit Rejects State Common-Law Exemptions

The Eighth Circuit found that the Missouri opt-out statute does not permit exemptions that are based on state common law. In re Abdul-Rahim, 12-3448 (8th Cir. July 12, 2013). In that case, the debtors sought to exempt their unliquidated personal injury claim from their bankruptcy estate. The bankruptcy court rejected the exemption because it originated under state common law rather than by statutory enactment. Missouri’s opt-out statute, section 513.427, provides that Missouri debtors “shall be permitted to exempt from property of the [bankruptcy] estate any property that is exempt from attachment and execution under the law of the state of Missouri.” In finding that the state exemptions referred to in that section did not include common law exemptions, the court relied on and felt compelled to follow, In re Benn, 491 F.3d 811 (8th Cir. 2007), which held that under Missouri law, the tax refunds that the debtor sought to exempt were property of the bankruptcy estate and were not exemptible. [Read more…] about Eighth Circuit Rejects State Common-Law Exemptions

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Bankruptcy-Specific Exemptions Found Constitutional by Tenth Circuit BAP

The Bankruptcy Appellate Panel for the Tenth Circuit found that Kansas’s bankruptcy-only exemption scheme, under which a debtor in bankruptcy is permitted to exempt his Earned Income Tax Credit, is constitutional. Williamson v. Westby (In re Westby), No. 12-27 (B.A.P. 10th Cir. Feb. 4, 2013). [Read more…] about Bankruptcy-Specific Exemptions Found Constitutional by Tenth Circuit BAP