831 F.3d 416
7th Cir.2016Background
- Timothy and Jill Koenig filed Chapter 7 in 2014 and claimed exemptions for three annuities totaling ~$292,186 under Wis. Stat. § 815.18(3)(j).
- § 815.18(3)(j) exempts retirement assets (including annuities) that provide benefits by reason of age, illness, disability, death, or length of service and that either are employer-sponsored or “comply with the provisions of the internal revenue code.”
- The parties agree the Koenigs’ annuities: pay age/death benefits, are debtor‑owned, comply with 26 U.S.C. § 72 (general annuity tax rules), but do not comply with 26 U.S.C. §§ 401–09 (qualified retirement plans).
- The bankruptcy court, following prior Wisconsin bankruptcy decisions, allowed the exemptions; the trustee appealed, arguing § 815.18(3)(j) requires compliance with §§ 401–09.
- The Seventh Circuit reviewed statutory interpretation de novo and applied Wisconsin rules to construe exemptions liberally in favor of debtors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an annuity must comply with 26 U.S.C. §§ 401–09 to satisfy § 815.18(3)(j)’s phrase “complies with the provisions of the internal revenue code” | Koenig: § 72 compliance suffices; exemption covers annuities eligible for tax‑deferred treatment under the Code | Trustee: "the provisions" implies plural/qualified‑plan provisions §§ 401–09; (3)(j) should be limited to those retirement plans | Court: Affirmed bankruptcy court — § 72 tax‑deferral eligibility satisfies the statute; interpret ambiguities in debtor’s favor |
Key Cases Cited
- In re Bronk, 775 F.3d 871 (7th Cir. 2015) (bankruptcy exemption interpretation; waiver discussion)
- In re Geise, 992 F.2d 651 (7th Cir. 1993) (courts cannot judicially create exemptions but must construe existing exemptions broadly for debtors)
- In re Smiley, 864 F.2d 562 (7th Cir. 1989) (debtors may make full use of statutory exemptions)
- Commissioner v. Newman, 159 F.2d 848 (2d Cir. 1947) (favorable discussion of tax‑planning principle)
- Kalal v. Circuit Court for Dane County, 681 N.W.2d 110 (Wis. 2004) (Wisconsin statutory interpretation principles cited)