Bankruptcy attorney Terry Bankert posts on a case where an exemption, allowing the debtor to keep the value, was denied because the debtor i.e. debtors lawyer cited the wrong code section for the exemption.
EASTERN DISTRICT OF MICHIGAN BANKRUPTCY COURT. BANKRUPTCY FLINT ,ATTORNEY POSTING BY Flint Bankruptcy Lawyer Terry R. Bankert 810-235-1970.[Comments of Flint Bankruptcy lawyer Terry R. Bankert ,810-235-1970 ,in bracket or CAP headlines. If you have bankruptcy questions call today-trb.810-235-1970 this article presented in a SEO format]
See: United States Bankruptcy Court, Eastern District of Michigan Southern Division,In re: Robert E. Schoof, Jr. and Laura K. Schoof, Case No. 10-60887-R
Debtors. Chapter 7,Signed on March 24, 2011,/s/ Steven Rhodes,Steven Rhodes,United States Bankruptcy Judge
Flint Bankruptcy Lawyer Terry R. Bankert post and comments on an Opinion Regarding Objection to Exemptions
ITS ABOUT LIFE INSURANCE
In 1988, Robert and Laura Schoof purchased reciprocal life insurance policies in the amount of $50,000 each from Northwestern Mutual Whole Life Insurance.
CASH SURRENDER VALUE
The Schoofs filed for chapter 7 relief on June 29, 2010. Robert Schoof listed the cash surrender value of his policy as $20,522.26.
CLAIMED AS EXEMPTION , THEY WANT TO KEEP THIS VALUE AFTER BANKRUPTCY
Laura Schoof listed the cash surrender value of her policy as $18,274.55. The Schoofs claimed the policies exempt pursuant to 11 U.S.C. § 522(d)(7) in the amounts of $20,522.26 and $18,274.55, respectively.
TRUSTEE OBJECTS, THEY CAN HAVE THE POLICY TRUSTEE WANTS SURRENDER VALUE
The trustee filed an objection to the Schoofs’ exemptions, arguing that the statute provides an exemption for the policy itself, but not the cash surrender value of the policies.
DEBTOR SAYS OH NO YOU DON’T THESE ARE UNMATURED
The Schoofs responded that because the policies are unmatured they are entitled to an exemption for each, regardless of the value.
THE LAW II.
DEBTOR SAYS THE LAW IS ON OUR SIDE
Section 522(d)(7) permits a debtor to exempt “[a]ny unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.”
According to the legislative history, the exemption “refers to the life insurance contract itself. It does not encompass any other rights under the contract, such as the right to borrow out the loan value. Because of this provision, the trustee
may not surrender a life insurance contract, which remains property of the debtor if he chooses the Federal exemptions.” H.R. Rep. No. 595, 95th Cong., 1st Sess. 361, reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6317.
WHAT ARE THEY THINKING!
The rationale for § 522(d)(7) was carried over from the Bankruptcy Act. See Brown v. Swartz (In re Swartz), 18 B.R. 454, 456 (Bankr. D. Mass. 1982) (citing In re Fount-Wit Distribs. Of So. Jersey, Inc., 4 B.R. 424, 427 (Bankr. D.N.J. 1980)). In order to exempt a policy under the Act, however, a debtor had to first pay the cash surrender value of the policy to the trustee. Swartz at
ON THE OTHER HAND
On the other hand, § 522(d)(8) permits the debtor to exempt life insurance cash value:
The debtor’s aggregate interest, not to exceed in value $11,525 less
any amount of property of the estate transferred in the manner
specified in section 542(d) of this title, in any accrued dividend or
interest under, or loan value of, any unmatured life insurance contract
owned by the debtor under which the insured is the debtor or an
individual of whom the debtor is a dependent.
11 U.S.C.A. § 522(d)(8) (footnote omitted).
CASH SURRENDER VALUE NOW AN EXEMPTION
With the introduction of the Code, and adoption of § 522(d)(8), Congress
indicated that it intended to allow debtors to continue to exempt life insurance
policies, and, in addition, created a new exemption in the cash surrender value that had traditionally been turned over to a trustee as a condition of policy retention.
In re Swartz, 18 B.R. at 456. While § 522(d)(7) “does not encompass any other rightsunder the contract,” § 522(d)(8) allows for the exemption of dividends or interests accrued under a contract. See H.R. Rep. No. 95-595, at 361 (emphasis added); § 522(d)(8).
It is through § 522(d)(8) that Congress has allowed for exemption of
dividends and interests such as cash surrender value. In re Swartz, 18 B.R. at 456.
In re Steiner, 2010 WL 4687955, *4 (Bankr. D. Idaho Nov. 10, 2010) (“[A]ll that is exempted by § 522(d)(7) . . . is the life insurance policy itself, and not a debtor’s rights under the policy. . . . If a debtor wishes to protect dividends or interests that have accrued under a policy, such as a policy’s
cash surrender value, he or she must claim exemption in that interest under § 522(d)(8)[.]”);
In re Oxford, 274 B.R. 887 (Bankr. D. Idaho 2002).
Accordingly, the trustee’s objection is sustained.
Not for Publication
If you have bankruptcy question please contact Terry R. Bankert 810-235-1970 or http://www.attorneybankert.com/