IN RE: COLLIE ALONZO LAWLESS; SANDRA PURKEY LAWLESS, Debtors. COLLIE ALONZO LAWLESS, et al., Appellants, v. JOHN P. NEWTON, JR., Appellee.
Case No. 14-5290
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Dec 15, 2014
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION. File Name: 14a0928n.06. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE. FILED Dec 15, 2014, DEBORAH S. HUNT, Clerk.
BEFORE: SILER, SUTTON, and McKEAGUE, Circuit Judges.
McKEAGUE, Circuit Judge. Tennessee law generally protects a debtor’s assets in a retirement plan from his creditors. But that protection disappears when the debtor can accelerate his plan’s payout to receive payment as a lump sum. In this Chapter 7 bankruptcy proceeding, the bankruptcy court held that Collie Lawless could not protect his deferred-compensation assets because of his ability to accelerate payment from the plan. We affirm.
For over thirty-two years, Lawless has worked as an agent at Nationwide Insurance. In 1986, he executed an Agent’s Agreement with Nationwide that is still effective (in amended
Despite his stable job, Lawless’s finances were not in order. On December 27, 2010, he and his wife filed for bankruptcy, putting their property interests into the bankruptcy estate to distribute to creditors.
During the bankruptcy proceedings, Lawless sought to protect his deferred-compensation credits. He claimed that they constitute the “right to receive . . . a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of death, age or length of service” and are thus exempt.
As Newton now correctly concedes, Lawless’s deferred-compensation plan fits the statute’s general language. It is a “pension, profitsharing, annuity, or similar plan or contract” payable “on account of death, age or length of service.”
The statute disqualifies assets from the exemption when “the debtor may, at the debtor’s option, accelerate payment so as to receive payment in a lump sum or in periodic payments over a period of sixty (60) months or less.”
The amended Agent’s Agreement gave him that present option. The Agreement allows Lawless to “elect the form in which [his] payments will be made including, but not limited to, a lump sum or as installments.” R. 1-7 at 46 (section 11(d)(3)(B)). He initially elected to receive equal annual installment payments over ten years. Id. at 62. But he may “change [the] election for the time or form of payment” “at any time prior to the cancellation of [his] agreement” so long as his request is received “in writing.” Id. at 46 (section 11(d)(3)(D)). And although previous versions of section 11(d)(3) restricted him from choosing a lump-sum payment after the initial election, id. at 39–40 (1987 version), the 2009 amendment—which “delete[s]” the previous versions “in [their] entirety”—makes no such restriction. Id. at 46. By implication, Lawless had the option as of the date of filing to elect a lump-sum payment even though he did not choose that option initially. That option disqualifies his assets from the Tennessee
The statute’s context bolsters this reading. Immediately preceding the sentence about lump-sum payments being disqualified, the statute makes clear that a plan’s assets “are exempt only to the extent that the debtor has no right or option to receive them except as monthly or other periodic payments beginning at or after age fifty-eight.”
Courts reviewing similar plans have reached a similar result. Where an employee could receive a lump-sum payment upon retirement, for example, his assets were not exempt, even though he “had not [yet] made an election as to a method of distribution.” In re Clark, 18 B.R. 824, 827 (Bankr. E.D. Tenn. 1982); see In re Elsea, 47 B.R. 142, 145–46 (Bankr. E.D. Tenn. 1985) (same for lump sum one year after retirement). Ditto for the debtor who could receive “a lump sum payment . . . on the voluntary termination of his employment.” In re Cassada, 86 B.R. 541, 543 (Bankr. E.D. Tenn. 1988). And so too for Lawless, who may elect to receive his full account balance as a lump-sum payment. His assets are not exempt.
Against that plain reading, Lawless injects a complexity. He argues that Internal Revenue Code section 409A changes the case. Abiding by that section, his plan mandates that for a change in the initial election for post-2004 assets “to become effective, [Lawless] must submit the [written] change . . . at least twelve months before a separation from service occurs.” R. 1-7 at 29. Then, after the year, payout on the post-2004 assets “will not commence until five years after the distribution under the prior election would have occurred” if Lawless would
True, but that complexity does not change our conclusion. Because Lawless had the option on the date of filing to elect a lump-sum payment, his assets are unqualified for the exemption—even though the lump-sum payment would not occur until over five years after retirement. Recall that the acceleration exception disqualifies assets that
the debtor may, at the debtor’s option, accelerate payment [on] so as to receive payment in a lump sum or in periodic payments over a period of sixty (60) months or less.
But that reading distorts the statute’s plain language. Naturally read, the period of sixty months or less modifies only “periodic payments,” not “a lump sum.”
His reading also neglects the statute’s structure. The specific exception for “periodic payments” disqualifies assets that can be received over a period of sixty months or less independent of assets that can be received as a lump-sum payment. And a third part of the
Because the “plain language of the provision read in the context of the entire statutory scheme . . . yield[s] a clear interpretation,” “we must conclude our inquiry there.” Storey v. Bradford Furniture Co., 910 S.W.2d 857, 859 (Tenn. 1995). Lawless’s plan gives him the present option to “accelerate payment so as to receive payment in a lump sum.”
For these reasons, we affirm.