In re Charles BENN, Jr., Debtor,
Charles Benn, Jr., Appellee,
v.
James S. Cole, Appellant.
Steven Mohrhard, Jennifer Mohrhard, Debtors,
Steven Mohrhard, Jennifer Mohrhard, Appellees,
v.
James S. Cole, Appellant,
John Cruciani, Patricia Brown, Kevin Checkett, Fredrich J. Cruse, Jerald Enslein, Janice A. Harder, George Johnson, Jere Loyd, Dan Nelson, Aunna L. Peoples, Robert A. Pummill, John Reed, Norman E. Rouse, Maureen Scully, Janice Stanton, David C. Stover, Bruce Strauss, Thomas J. O'Neal, Robert J. Blackwell, Thomas Dewoskin, Chapter 7 Trustees, National Association of Bankruptcy Trustees, Amici on behalf of Appellant.
No. 06-2217.
United States Court of Appeals, Eighth Circuit.
Submitted: October 19, 2006.
Filed: July 10, 2007.
Counsel who presented argument on behalf of the appellant was James S. Cole, St. Louis, MO.
John Joseph Cruciani, of Kansas City, MO, argued on behalf of amicus party Certain Chapter 7 Trustees and The National Association of Bankruptcy Trustees. Michael D. Fielding of Kansas City also appeared on the amicus brief.
Counsel who presented argument on behalf of the appellees was T.J. Mullin, of Clayton, Missouri, John F. Sutherland, of Clayton, MO, also appeared on appellees' brief.
Before SMITH, BOWMAN, and COLLOTON, Circuit Judges.
COLLOTON, Circuit Judge.
In these consolidated cases, a bankruptcy trustee appeals a decision of the Bankruptcy Appellate Panel ("BAP") that Missouri law exempts tax refunds from a debtor's bankruptcy estate. Because we conclude that the relevant law, section 513.427 of the Missouri Revised Statutes, is not an exemption statute and there is no exemption for tax refunds under state law or applicable federal law, we reverse the decision of the BAP and affirm the decision of the bankruptcy court.
On November 14, 2003, Steven and Jennifer Mohrhard filed a petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri. On December 31, 2003, Charles Benn, Jr. filed a petition under Chapter 7 of the Bankruptcy Code in the same court. The Mohrhards and Benn ("Debtors") claimed that their state and federal income tax refunds were exempt from the bankruptcy estates, while James S. Cole, the Trustee in both cases, asserted that the refund amounts were part of the estates to be distributed by him. In both cases, the bankruptcy court ordered that, to the extent the refunds were based on money accumulated prior to the filings for bankruptcy, the funds should be turned over to the Trustee. The Debtors appealed to the BAP, which reversed the bankruptcy court. In a fragmented decision, with each of the three judges writing separately and no single rationale prevailing, the BAP held that tax refunds are exempt from the debtor's estate under section 513.427. This consolidated appeal followed.
The issue presented is one of statutory interpretation: Whether Missouri law, and in particular section 513.427, permits a debtor to exempt tax refunds from the debtor's bankruptcy estate. We review the bankruptcy court's conclusions of law de novo. Moon v. Anderson (In re Hixon),
Under the provisions of the federal Bankruptcy Code, when a debtor files for bankruptcy, an estate is created. 11 U.S.C. § 541(a). Generally speaking, this estate is comprised of all legal or equitable interests of the debtor in property. Id. A debtor's anticipated tax refund, to the extent it is attributable to events occurring prior to the filing of the petition for bankruptcy, is part of the bankruptcy estate. See Barowsky v. Serelson (In re Barowsky),
The Code then allows a debtor to "exempt" certain property from the estate and retain it for the purpose of making a "fresh start" after the bankruptcy proceeding is concluded. See 14 Collier on Bankruptcy Intro-2 (15th ed. rev.2006). Exempt property is excluded from property of the estate available to satisfy debts.
Section 522(d) of the Code sets forth a list of property that may be exempted by the Chapter 7 debtor. "The general rule under the Bankruptcy Code is that a debtor is permitted to choose between the scheme of federal exemptions prescribed in section 522(d) of the Code or the exemptions available under other federal law and the law of the state in which the debtor is domiciled." Id. A State, however, may "opt out" of the federal Bankruptcy Code exemptions set forth in § 522(d). 11 U.S.C. § 522(b)(2). In that case, the debtor may exempt only property that is exempt under federal law other than § 522(d), or state or local law that is applicable as of the date of the bankruptcy filing. Id.; see Owen v. Owen,
Section 513.427 of the Missouri Revised Statutes provides:
Every person by or against whom an order is sought for relief under Title 11, United States Code, shall be permitted to exempt from property of the estate any property that is exempt from attachment and execution under the law of the state of Missouri or under federal law, other than Title 11, United States Code, Section 522(d), and no such person is authorized to claim as exempt the property that is specified under Title 11, United States Code, Section 522(d).
Through enactment of this statute, which is entitled "Bankruptcy, exemptions allowed," Missouri has chosen to opt out of § 522(d)'s exemptions, "thereby restricting Missouri residents to the exemptions available under Missouri law and under federal statutes other than 11 U.S.C. § 522(d)." Wallerstedt v. Sosne (In re Wallerstedt),
The Debtors argue that section 513.427 is not merely an "opt-out" statute, but that it also defines additional forms of property that a debtor may exempt from his estate in bankruptcy. Focusing on the clause providing that a debtor shall be permitted to exempt "any property that is exempt from attachment and execution under the law of the state of Missouri," Debtors contend that under the "plain language" of the statute, any property that is not subject to attachment and execution under Missouri law is exempt from the estate. The Debtors argue that because tax refunds still in the custody of the government are not subject to attachment or execution, these refunds are exempt property that is excluded from the estate and unavailable to the Trustee.
Even taking the quoted clause standing alone, we think the Debtors' interpretation is unlikely to be correct. "Exemption" is a term of art in bankruptcy, and we agree with the dissenting judge of the BAP that "[w]hile exemption may mean different things in different contexts, in the context of [11 U.S.C.] § 522, it refers to laws enacted by the legislative branch which explicitly identify property [that] judgment-debtors can keep away from creditors for reasons of public policy." Benn v. Cole (In re Benn),
Textual analysis, of course, involves more than consideration of statutory terms in isolation. See State v. Johnson,
The second disjunctive clause demonstrates that the legislature did not equate the term "exempt" with "not subject to," but rather used the term "exempt" to refer to specific legislative exemptions. The reference to 11 U.S.C. § 522(d) is telling. On Debtors' view, the statute is describing property that is "not subject to" attachment and execution under a federal law other than § 522(d). But it would make no sense for section 513.427 to speak of property that is "[not subject to] attachment and execution under . . . § 522(d)," because § 522(d) is not a statute that makes property subject to attachment and execution. Section 522(d) is a statute that lists property that may be exempted from the bankruptcy estate. It is evident, therefore, that when the Missouri legislature spoke of property that is "exempt from attachment and execution," it meant property that was specifically declared exempt by another Missouri statute or a federal statute other than § 522(d).
The interplay between section 513.427 and the principal Missouri exemption statute also supports this conclusion. Section 513.430 sets forth a list of property that shall be "exempt from attachment and execution," including a debtor's interest in a retirement plan or profit-sharing plan that is qualified under relevant provisions of the Internal Revenue Code. Mo.Rev. Stat. § 513.430(10)(f). It is well established, however, that a debtor's interest in a qualified retirement plan is not subject to attachment or execution under state law, 29 U.S.C. § 1056(d)(1); Guidry v. Sheet Metal Workers Nat'l Pension Fund,
Our conclusion that section 513.427 is not an exemption statute has the salutary effect of avoiding other anomalies as well. As a practical matter, Debtors' interpretation would exempt from the bankruptcy estate a debtor's property in partnerships, limited partnerships, and limited liability companies, even though the Missouri legislature has provided a means for creditors outside bankruptcy to seize this property. Missouri law allows creditors to access these assets through "charging orders," see Mo.Rev.Stat. §§ 347.119, 358.280, 359.421, but not through writs of attachment or execution, Wills v. Wills,
Debtors suggest that the Missouri legislature would not have enacted section 513.427 purely as an opt-out statute, because it would have the effect of including some non-attachable assets in the bankruptcy estate, and thus granting the bankruptcy trustee access to property that is not accessible to creditors outside bankruptcy. Aside from the textual difficulties with Debtors' position, we do not think it unreasonable to expect that the Missouri legislature might grant powers or remedies to a bankruptcy trustee that are unavailable to a non-bankruptcy creditor. As the Trustee points out, it is "a basic quid pro quo of bankruptcy" that "debtors receive extraordinary relief that is unavailable outside of bankruptcy by obtaining a bankruptcy discharge, and bankruptcy trustees have powers that are unavailable to creditors outside of bankruptcy in order to provide the body of creditors as a whole a chance at some recovery." (Appellant's Reply Br. 7). That common law remedies available to a non-bankruptcy creditor would not reach certain property interests of the debtor does not inexorably lead to the conclusion that the legislature would elect as a matter of policy to create an exemption that excludes that property from the bankruptcy estate. See Howe v. Richardson,
In summary, the Debtors' anticipated tax refunds, to the extent they are attributable to events occurring prior to the filing of the petition for bankruptcy, are part of the bankruptcy estate. Section 513.427 does not create an exemption for tax refunds, and no other Missouri statute or non-bankruptcy federal exemption statute permits a debtor to exempt tax refunds from the bankruptcy estate. Accordingly, the bankruptcy court properly ordered the refunds turned over to the Trustee.1
For the foregoing reasons, we reverse the decision of the BAP and affirm the decisions of the United States Bankruptcy Court.
Notes:
Notes
The Internal Revenue Service has specific procedures for turning tax refunds over to trustees. "A Chapter 7 debtor's right to a refund . . . is considered property of the bankruptcy estate to the extent the refund is attributable to prepetition events. As such they are subject to turnover to the Chapter 7 trustee even though the debtor may be in full tax compliance." Internal Revenue Manual § 5.9.6.1.3. The IRS has an agreement with the Executive Office of the United States Trustees regarding how refunds are to be transferred to trusteesId.