Thomas J. McFarland v. A. Stephenson Wallace
790 F.3d 1182
11th Cir.2015Background
- Debtor Thomas McFarland filed Chapter 7 in 2011 and claimed Georgia-law exemptions for: (1) an annuity (~$170,000) purchased in 2006 that deferred payments until 2032; and (2) the cash surrender value (~$13,445) of a 1984 whole-life policy.
- Georgia bankruptcy exemption statute § 44-13-100(a)(2)(E) exempts payments under a pension/annuity or similar contract "to the extent reasonably necessary for the support of the debtor."
- Georgia § 44-13-100(a)(9) limits exemption for cash value of unmatured life insurance to an aggregate of $2,000.
- Georgia non-bankruptcy insurance statute § 33-25-11(c) provides that cash surrender values of life policies "shall not in any case be liable" to creditors.
- Bankruptcy trustee objected; bankruptcy court and district court denied the annuity exemption and limited the life-insurance exemption to $2,000. McFarland appealed.
- Eleventh Circuit reviews legal conclusions de novo and factual findings for clear error, construes exemptions liberally in debtor’s favor, but finds the record precludes McFarland’s claims.
Issues
| Issue | Plaintiff's Argument (McFarland) | Defendant's Argument (Wallace) | Held |
|---|---|---|---|
| Whether the Hartford contract is an "annuity" or "similar plan or contract" exempt under Ga. Code § 44-13-100(a)(2)(E) | The contract is an annuity and thus exempt; language meets statutory definition | The contract defers payments until 2032 and was intended as an investment/inheritance, not a wage substitute | Not an exempt annuity; payments not intended as wage substitute, exemption denied |
| Whether facts/circumstances (purchase purpose, testimony) establish annuity is "reasonably necessary for support" | Contends testimony and advisor statements show it was intended as lifetime income and backup support | Multiple admissions that McFarland never withdrew and did not intend to withdraw; primary purpose to benefit wife | Court finds factual record (debtor admissions) negates wage-substitute purpose; exemption fails |
| Whether § 33-25-11(c) (non-bankruptcy protection of cash surrender value) allows McFarland to exempt full cash value despite § 44-13-100(a)(9)’s $2,000 cap | § 33-25-11(c) is an applicable non-bankruptcy law that should protect full cash surrender value under 11 U.S.C. §§ 522(b)(3)(B), 541(c)(2) | § 44-13-100(a)(9) is the specific Georgia bankruptcy exemption governing cash value and explicitly caps exemption at $2,000; specific statute controls over general | McFarland limited to $2,000; § 44-13-100(a)(9) governs and precludes relying on § 33-25-11(c) to exceed cap |
| Whether applying § 44-13-100(a)(9) to restrict bankruptcy debtors but not non-bankruptcy debtors violates Georgia Equal Protection or the U.S. Bankruptcy Clause (uniformity) | Treating bankruptcy debtors worse than non-bankruptcy debtors is irrational and non-uniform under the Bankruptcy Clause | State may define bankruptcy exemptions; § 522 permits opt-out states to restrict exemptions; the distinction is rational and constitutional | No equal protection or Bankruptcy Clause violation; state may craft bankruptcy-specific exemption scheme and impose the $2,000 limit |
Key Cases Cited
- Rousey v. Jacoway, 544 U.S. 320 (2005) (IRAs can qualify as plans that substitute for wages for exemption purposes)
- Silliman v. Cassell, 738 S.E.2d 606 (Ga. 2013) (defines "annuity" under Ga. exemption statute as periodic payments substituting for wages; look to nature and intent)
- In re Globe Mfg. Corp., 567 F.3d 1291 (11th Cir. 2009) (standard of review for bankruptcy appeals: legal issues de novo; factual findings for clear error)
- Owen v. Owen, 500 U.S. 305 (1991) (States may define property a debtor may exempt; § 522 allows states wide latitude)
- Sheehan v. Peveich, 574 F.3d 248 (4th Cir. 2009) (interpretation that § 522(b) permits states to restrict bankruptcy exemptions for residents)
- In re Wood, 866 F.2d 1367 (11th Cir. 1989) (Bankruptcy Clause does not forbid distinctions among classes of debtors; laws must be uniform among classes)