Exemptions

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No Exemption for IRA Created with Excessive Contribution

A retirement annuity account funded by a rolled-over IRA in the debtor’s name which was in turn funded by a contribution in excess of that allowed for tax exempt status, may not be exempted from the debtor’s bankruptcy estate. In re Farber, No. 21-12147 (Bankr. E.D. Pa. April 26, 2022).

The chapter 7 debtor sought to exempt her Allianz retirement annuity account in the amount of $27,102.57 from her bankruptcy estate. The trustee objected on the basis that the IRA was not subject to exemption under section 522(d)(12), because the debtor inherited the account from her father. [Read more…] about No Exemption for IRA Created with Excessive Contribution

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Debtor May Not Exempt Portion of Worker’s Comp Order Earmarked for Medical Care Providers

The chapter 7 debtor was not entitled to exempt the portion of a settlement he negotiated with his employer and worker’s compensation insurer where that amount was in a trust for the benefit of his medical care providers and, therefore, did not become part of the bankruptcy estate. Ryan v. Branko PRPA MD, LLC, No.21-449 (E.D. Wisc. March 2, 2022). [Read more…] about Debtor May Not Exempt Portion of Worker’s Comp Order Earmarked for Medical Care Providers

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Canadian Pension Plan Not Qualified Retirement Plan

Under Illinois and federal law, a pension plan that is organized in Canada does not meet the definition of a qualified retirement plan and may not be exempted from the debtor’s bankruptcy estate. In re Green, No. 21-6189 (Bankr. N.D. Ill. March 9, 2022).

The debtor sought to exempt from his bankruptcy estate his $72,300 interest in a Retirement Fund which was organized in Canada. The chapter 7 trustee objected to the exemption on the basis that the plan was not a qualified retirement plan within the meaning of the state or federal exemptions. [Read more…] about Canadian Pension Plan Not Qualified Retirement Plan

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Changes to Bankruptcy Code Dollar Amounts

Certain dollar amounts in the U.S. Bankruptcy Code will increase effective April 1, 2022, pursuant to 11 U.S.C. §104.  On February 4, 2022, the Judicial Conference of the United States announced and detailed these changes in The Federal Register. See Adjustment of Certain Dollar Amounts in the Bankruptcy Code, 87 Fed. Reg. 6625 (February 4, 2022).

Changes relevant to consumer bankruptcy attorneys include:

  • 11 U.S.C. § 109(e) (debt limits for chapter 13):
    • The unsecured debt cap has increased from $419,275 to $465,275.
    • The secured debt cap has increased from $1,257,850 to $1,395,875.
  • 11 U.S.C. § 522(d) (federal exemptions):
    • Section 522(d)(1) (homestead exemption) has increased from $25,150 to $27,900.
    • Section 522(d)(2) (motor vehicle exemption) has increased from $4,000 to $4,450.
    • Section 522(d)(3) (household goods etc. exemption) has increased from $625 to $700 for value in any particular item and from $13,400 to $14,875 in aggregate value.
    • Section 522(d)(4) (jewelry) has increased from $1,700 to $1,875.
    • Section 522(d)(5) (unused amounts from 522(d)(1)) has increased from $1325 to $1,475 for value in any particular item and from $12,575 to $13,950 in aggregate value.
  • 11 U.S.C. § 522(n) (Exemption cap for certain individual retirement accounts) has increased from $1,362,800 to $1,512,350.
  • 11 U.S.C. § 707(b)(2)(A)(i)(Means Test) – CMI is not less than the lesser of –
    • Section 707(b)(2)(A)(i)(I) 25% of unsecured claims or $9,075 (up from $8,175) or
    • Section 707(b)(2)(A)(i)(II) $15,150 (up from $13650).
    • Section 707(b)(2)(A)(ii)(IV) (necessary dependent school expenses) has increased from $2,050 to $2,275.
    • Section 707(b)(6)(C) (to calculate median income for family greater than 4) the amount per additional family member has increased from $750 to $825.

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ACTC and EITC Tax Refund Exempt under Washington Law

The debtor’s tax refund consisting of her Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) falls under the category of “public assistance” within the meaning of Washington’s exemption law and is therefore exempt from distribution to creditors in bankruptcy. Ellis v. Moreno (In re Moreno), No. 21-1124 (B.A.P. 9th Cir. Dec. 23, 2021) (unpublished).

The debtor filed for chapter 7 bankruptcy on December 30, 2020, and filed her 2020 tax return post-petition. She received a tax refund that included $1,709 from the ACTC, and $5,550 from the EITC, both of which she claimed as exempt. The trustee sought turnover of the refund in the amount of $5,169.11 representing the prorated amounts of the ACTC and EITC tax credits. The bankruptcy court denied the debtor’s motion to certify the question to the Washington State Supreme Court and denied the trustee’s motion for turnover after finding the tax credits were exempt. [Read more…] about ACTC and EITC Tax Refund Exempt under Washington Law

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Tax Foreclosure Sale Avoidable

The county’s tax foreclosure sale of the debtor’s real property was avoidable as a fraudulent conveyance, and the debtor’s annuity was properly excluded from the calculation of the debtor’s insolvency for avoidance purposes where the creditor failed to object to the debtor’s claim of exemption with respect to the annuity. DuVall v. County of Ontario, NY, No. 21-6236 (W.D.N.Y. Nov. 9, 2021).

In May, 2017, the debtor’s real property was sold to the Doe appellants in a tax foreclosure sale. In March, 2019, before title transferred, the debtor filed a chapter 13 bankruptcy petition, listing an annuity of an undisclosed amount. The debtor claimed the annuity as exempt under section 522(d)(11)(E) and proposed a 100% plan including paying off the county’s tax claim. The debtor then filed a petition to avoid the tax lien under sections 522(h) and 548(a)(1)(B). The county failed to object to the claimed exemption for the annuity but filed a motion in limine to admit evidence as to its value. The bankruptcy court denied the motion in limine, and, in a separate order, granted the debtor’s motion to avoid the lien. DuVall v. County of Ontario, 2021 Bankr. LEXIS 369 (W.D.N.Y. Bankr. 2021). [Read more…] about Tax Foreclosure Sale Avoidable

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Attorney Cannot Enforce Lien Based on Improper Fees

A state default judgment lien was avoidable in bankruptcy under the court’s inherent power to police attorney conduct where the lien was security for unpaid attorney fees which were unreasonable. Moore v. Sanchez (In re Sanchez), No. 20-1267 (D. N.M. Sept. 22, 2021).

The debtor hired the creditor, Moore, to represent him in his divorce case. The case went two months without a fee agreement, then Moore presented the debtor with a bill for fees and costs in the amount of $15,000. The debtor paid him $7,000 and they reached a compromise as to the remaining portion of the bill. They entered into a retainer agreement providing for a 2% monthly interest rate on unpaid fees and an automatic lien on the debtor’s personal and real property as security. In January, 2011, Moore sued the debtor in state court to collect unpaid fees. The court awarded Moore a default judgment of $18,732.64 at 24% interest per year. By February, 2018, the debt had grown to $50,073.90, and Moore moved for foreclosure on the debtor’s home. The debtor filed for chapter 7 bankruptcy. In his petition, the debtor valued the house at $55,300.00 and claimed it as fully exempt. He also listed the debt to Moore as secured and disputed. He moved to avoid the judicial lien against his exempt property. [Read more…] about Attorney Cannot Enforce Lien Based on Improper Fees

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Tax Credits Exemptible as Public Assistance

Where the Additional Child Tax Credit and Earned Income Tax Credit were both intended to benefit low-income households and were not limited by taxes owed, they were properly deemed “public assistance” under state exemption laws. In re Moreno, — B.R. —-, 2021 WL 1904189 (Bankr. W.D. Wash. May 11, 2021) (case no. 3:20-bk-42855). [Read more…] about Tax Credits Exemptible as Public Assistance

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Insurance Proceeds Don’t Enter Exemption Impairment Calculation

Insurance proceeds for the repair of the debtor’s fire-destroyed house are not considered when calculating impairment to the debtor’s homestead exemption where the debtor had not made any repairs on the house prior to filing for bankruptcy. Waltrip v. Sawyers, No. 20-1130 (8th Cir. July 2, 2021). [Read more…] about Insurance Proceeds Don’t Enter Exemption Impairment Calculation

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Trustee Can Avoid Tax Penalty Lien for Benefit of Estate

Under sections 724(a) and 551, the chapter 7 trustee could avoid the penalty portion of a federal tax lien on the debtor’s homestead property and preserve the value of the avoided lien for the benefit of the bankruptcy estate. United States of America v. Warfield, 2021 WL 1530094 (D. Ariz. April 19, 2021) (case no. 3:20-cv-8204). [Read more…] about Trustee Can Avoid Tax Penalty Lien for Benefit of Estate