586 B.R. 315
Bankr. W.D. Mo.2018Background
- Debtors Wallace and Deborah Shields filed Chapter 13; Wallace receives $2,285.06/month from a Supplemental Executive Retirement Plan (SERP) through former employer Southwest Missouri Bank (SMB).
- Shieldses claimed the SERP payments entirely exempt under Mo. Rev. Stat. § 513.430.1(10)(e). SMB objected and seeks to set off the SERP payments against two unsecured loans (two other loans exist; one mortgage not at issue).
- SERP is a nonqualified deferred compensation plan (IRC § 409A); payments began prepetition and continue through August 2027.
- Parties agreed SMB owes prepetition SERP payments to Wallace and SMB holds prepetition claims on the loans; SMB asserted a common-law and contractual right of setoff (contractual setoff not enforceable prepetition).
- Court applied Missouri § 513.430.1(10)(e) (modeled on 11 U.S.C. § 522(d)(10)(E)), the Flygstad factors for ‘‘reasonably necessary’’ analysis, and Missouri common-law principles on setoff versus exemption.
Issues
| Issue | Plaintiff's Argument (Shields) | Defendant's Argument (SMB) | Held |
|---|---|---|---|
| Are SERP payments exempt under Mo. Rev. Stat. § 513.430.1(10)(e)? | SERP is a deferred compensation plan similar to enumerated plans; payments are necessary for support and thus exempt. | SERP is nonqualified and arguably disqualified or not reasonably necessary; claimed exemption should be denied. | Partially granted: $1,285.06 of each $2,285.06 payment is exempt; $1,000 is non-exempt. |
| Does the SERP meet the statutory disqualification exceptions in (10)(e) (insider, on account of age/length of service, nonqualified plan)? | Shields: SMB was not an insider when rights arose; thus disqualification fails. | SMB: (argued disqualification or narrow exemption) | Held not disqualified: SMB was not an insider, so plan proceeds to exemption analysis. |
| Are SERP payments ‘‘on account of age or length of service’’ and a ‘‘similar plan or contract’’ under (10)(e)? | Yes — SERP conditioned on age/service and functions as deferred wages substitution. | SMB did not contest on these points at trial. | Held: SERP satisfies similarity and on-account elements. |
| May SMB exercise common-law setoff against SERP payments, including the exempt portion? | Shields: Exempt property is protected from setoff under Missouri law; setoff should be limited to non-exempt portion. | SMB: Has a common-law right of setoff and may offset SERP payments against loans until paid. | Held: SMB has a valid common-law right of setoff and may offset the non-exempt $1,000 portion each payment, but may not touch the $1,285.06 exempt portion. |
Key Cases Cited
- Checkett v. Vickers (In re Vickers), 954 F.2d 1426 (8th Cir.) (compares Missouri § 513.430(10)(e) to federal exemption counterpart)
- Rousey v. Jacoway, 544 U.S. 320 (U.S.) (interpreting § 522(d)(10)(E) elements for deferred-compensation exemptions)
- Pester Ref. Co. v. Mapco Gas Prods., Inc. (In re Pester Ref. Co.), 845 F.2d 1476 (8th Cir.) (burden on creditor to prove right of setoff)
- Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (U.S.) (Bankruptcy Code preserves but does not create setoff rights)
- Greenwood v. Bank of Illmo, 782 S.W.2d 783 (Mo. Ct. App.) (Missouri focus on mutuality for setoff)
- McDaniel Nat'l Bank v. Bridwell, 74 F.2d 331 (8th Cir.) (mutuality of obligations need not arise from same transaction)