Leonard D. Bronk v. John M. Cirilli
775 F.3d 871
7th Cir.2015Background
- Debtor Leonard Bronk borrowed funds in 2009 to establish five Wisconsin "Edvest" §529 college savings accounts for his grandchildren and converted a $42,000 CD into an annuity shortly before filing Chapter 7.
- Trustee objected, alleging fraudulent-transfer/discharge grounds and contesting claimed exemptions for (1) the college savings accounts under Wis. Stat. §815.18(3)(p) and (2) the annuity under §815.18(3)(j) (alternative §815.18(3)(f) limits).
- Bankruptcy court denied discharge-challenge, disallowed the Edvest-account exemptions (reading §815.18(3)(p) to protect only beneficiaries), but allowed full exemption of the annuity as a retirement benefit.
- District court agreed with the beneficiary-only reading of §815.18(3)(p) but remanded to reconsider whether the annuity met §815.18(3)(j) requirements; on remand bankruptcy court again allowed the annuity exemption.
- Seventh Circuit reversed on the college-account issue (holding account owners may claim §815.18(3)(p) exemptions) and affirmed the annuity ruling (annuity qualifies under §815.18(3)(j) because it provides a death benefit), while noting the IRS-compliance requirement was raised too late and thus waived.
Issues
| Issue | Plaintiff's Argument (Bronk) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether §815.18(3)(p) "an interest in a college savings account" protects account owners as well as beneficiaries | Language covers any "interest" in a §16.641 account; Bronk, as owner, has an interest and may exempt it | §815.18(3)(p) should be read to incorporate §16.641(7) (which protects beneficiaries only), so owners cannot exempt accounts | Reversed lower courts: §815.18(3)(p) covers account owners; owner may exempt Edvest accounts |
| Whether the annuity is fully exempt under §815.18(3)(j) (retirement benefits) vs. limited under §815.18(3)(f) because issued <24 months before filing | Annuity qualifies as a "retirement benefit" because it provides benefits (including a death benefit) under §815.18(3)(j) | Annuity is not a retirement substitute for wages and should be limited to §815.18(3)(f) rules (including the $4,000 limit) | Affirmed: annuity qualifies under §815.18(3)(j) because it provides a death benefit; full exemption allowed. The separate §815.18(3)(j) IRS-compliance issue was waived by trustee |
| What "providing benefits by reason of age, illness, disability, death, or length of service" requires | Should be read per text: benefits must be provided because of one listed condition (causal link) | Trustee urged a narrower test requiring income-substitute character (i.e., replacement of wages) for annuities | Court: textual causal connection required; no special additional test for annuities beyond statutory language |
| Whether the annuity must "comply with the Internal Revenue Code" and what that means | If required, an annuity that is tax-qualified under IRC §72 (tax-deferred) satisfies the statute | Trustee argued the annuity was not tax-qualified and thus not fully exempt | Court: compliance question unresolved on the merits because trustee raised it too late; issue waived |
Key Cases Cited
- Pickett v. Sheridan Health Care Ctr., 610 F.3d 434 (7th Cir.) (statutory interpretation review de novo)
- State ex rel. Kalal v. Circuit Court for Dane Cnty., 681 N.W.2d 110 (Wis.) (statutory-interpretation principles; avoid surplusage)
- Rousey v. Jacoway, 544 U.S. 320 (2005) ("on account of"/"because of" requires causal connection)
- Judge v. Quinn, 612 F.3d 537 (7th Cir.) (waiver principles for appellate arguments)
- Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014 (7th Cir.) (appeal from final judgment preserves interlocutory challenges)