649 B.R. 668
Bankr. M.D.N.C.2023Background
- Debtor Tezrah Dornyelle Crosson filed a Chapter 13 petition and listed a State Farm life insurance policy (Policy No. 8747) with a surrender/refund value of $2,211.56.
- Debtor claimed the policy as exempt under N.C.G.S. § 1C-1601(a)(6) and N.C. Const. art. X, § 5.
- The policy’s declaration page (stipulated at hearing) lists beneficiaries: Piedmont Business Capital (15%), Nikayla C. Shamberger (child, 44%), and Aaron E. Shamberger Jr. (child, 41%).
- The Chapter 13 Standing Trustee objected, arguing the policy is not for the sole use and benefit of spouse or children because Piedmont (a creditor) is a beneficiary.
- Debtor argued the portions payable to the children are solely for their benefit and that exemption statutes should be liberally construed in favor of debtors.
- After a hearing, the bankruptcy court sustained the Trustee’s objection and disallowed the claimed exemption because the policy is not solely for the benefit of spouse or children.
Issues
| Issue | Debtor's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether the State Farm life policy is exempt under N.C. Const. art. X, § 5 and N.C.G.S. § 1C-1601(a)(6) | The policy (or at least the children’s shares) are exempt; exemptions are liberally construed | The policy names a non-spouse/child beneficiary (Piedmont Business Capital), so it is not for the sole use and benefit of spouse/children and is not exempt | Sustained objection; policy exemption disallowed because it is not solely for spouse/children |
| Whether the policy can be severed/prorated so only children’s percentages are exempt | The children’s percentages should be treated as exempt portions | The constitutional language requires the policy be solely for spouse/children; severing would render statutory language redundant | Court rejected severability; entire policy is not exempt |
Key Cases Cited
- Elmwood v. Elmwood, 295 N.C. 168, 244 S.E.2d 668 (N.C. 1978) (exemptions are to be construed liberally in favor of the claimant)
- State ex rel. Martin v. Preston, 385 S.E.2d 473, 325 N.C. 438 (N.C. 1989) (courts must give effect to the clear meaning of statutory or constitutional language)
- Winkler v. N.C. State Bd. of Plumbing, 374 N.C. 726, 843 S.E.2d 207 (N.C. 2020) (statutory language should be construed to avoid rendering provisions superfluous)
- Goodwin v. Claytor, 137 N.C. 224, 49 S.E. 173 (N.C. 1904) (general rule favoring liberal construction of exemption statutes)