OPINION 1
This case comes before the Court on the Trustee’s Objection to the amended exemptions of the surviving joint Debtor, exempting life insurance proceeds under Section 522(d)(11)(C) of the Bankruptcy Code [11 U.S.C. § 522(d)(11)(C) 2 ]. The parties have prepared and filed a Stipulation of Facts (hereinafter “S.O.F.”), which is adopted by the Court.
Statement of Facts
The Debtors, David and Sharon Collins, filed a Voluntary Petition for relief under Chapter 7 of the United States Bankruptcy Code on July 13, 2000 (the “filing date”) (S.O.F.¶ 1). On July 19, 2000, John J. Martin, Esquire, was appointed case Trustee (S.O.F.¶ 2). Unfortunately, the male Debtor passed away less than one week later on July 25, 2000 (S.O.J.¶ 3). At the time of his death, David Collins held two life insurance policies payable to his wife, Sharon Collins: ING Group in the amount of $50,172.00 and Principal Financial Group in the amount of $10,016.00 (S.O.F.¶ 4). The proceeds of these insurance policies constitute property of the estate pursuant to 11 U.S.C. § 541(a)(5)(C) (S.O.F.¶ 5).
Although the original schedules did not list the insurance policies as property of the estate, Sharon Collins filed amended Schedules listing the insurance proceeds under amended Schedule B and claiming exemption of these proceeds in amended Schedule C (S.O.F.¶ 6); the Principal Financial Group proceeds ($10,016.00) were exempted under 11 U.S.C. § 522(d)(5) and the ING Group proceeds ($50,172.00) were exempted under 11 U.S.C. § 522(d)(11)(C). In response, the Trustee filed an Objection to the exemption of the ING Group proceeds, claiming that it exceeds the exemption limit set forth in the statute (S.O.F.¶ 7). However, the Trustee does not oppose exemption of $15,000.00 of these insurance proceeds (S.O.F.¶ 9).
The Debtor has custody of two children, ages 4 and 10 (S.O.F.¶ 10). She is employed and earns net pay of $1,120.64
Procedural History
This matter was commenced by the Trustee’s Objection to the exemptions, to which the Debtor has filed an answer. Subsequently, the Court granted a request of the parties to decide this case on briefs and stipulated facts. A stipulation and briefing deadline was ultimately set for August 15, 2001. Both parties have filed their Briefs and a joint Stipulation of Facts and the matter is now ready for determination.
Discussion of Law
The Trustee has objected to the Debtor’s exemption claim under 11 U.S.C.A. § 522(d)(11)(C) related to life insurance proceeds of $50,172.00. 3 While the Trustee concedes that the Section would allow some exemption, the Trustee has sought to limit that exemption to $15,000.00 of the total proceeds.
Bankruptcy exemptions should be interpreted liberally in favor of debtors.
In re Chavis,
Property is exempt under Section 522(d)(11)(C) of the Bankruptcy Code to the extent that it is “reasonably necessary for the support of the debtor and any dependant of the debtor.... ” Unfortunately, the phrase “reasonably necessary for support” is not defined in the Bankruptcy Code. However, a review of the legislative history reveals that Congress
In order to interpret this “reasonably necessary” requirement, it is helpful to look to its use in other parts of the statute as well.
Gustafson v. Alloyd Co., Inc.,
The reasonable needs limitation of Section 522(d) was derived “in large part from the Uniform Exemption Act.”
In re Margaret W. Tooker,
The parties have implicitly stipulated
4
that the Debtor’s monthly living expenses were $1,472.79, and her monthly net income was $1,120.64, on or about August 15, 2001, when the Stipulation was filed.
5
The Debtor has a high school education and has been in her present job (county courthouse clerk) for thirteen years. She and her dependant children (ages 4 and 10) are in good health with no special needs. In addition to nominal exempted assets, the
If the Debtor’s expenses are deducted from her income, there is a monthly deficit of $352.15, and an annual deficit of $4,225.80, for the basic subsistence requirements of the Debtor and her children. This subsistence deficit is the type of situation that Congress was seeking to avoid with the exemption provisions. As previously stated, the “historical purpose of exemption laws has been to protect a debtor ... so that ... the debtor will not be left destitute and a public charge.” H.R.Rep. No. 95-595, 95th Cong., 2d Sess., at 126 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News, at 6087. If we assume that the expenses will increase proportionately with her income, with an average rate of inflation, the ever-increasing deficit will likely consume the entire proceeds of the insurance by the time the Debtor’s youngest child reaches the age of 18. This analysis, though, does not account for the fact that clothing and incidental expenses will increase as the children grow, food costs are likely to rise, and other expenses such as transportation, activities fees, and entertainment will mount as well.
The retirement needs of the Debtor must also be evaluated. As of the Stipulation date, the Debtor had retained an interest in a pension plan ($17,058.00 value) and a 401k plan ($1,049.00 value). While there is no indication in the record of the Debtor’s age, it is not a decisive factor. If the Debtor is young, an early access to her pension and her 401k would presumably result in imposition of income tax and an early withdrawal penalty, with a resultant diminution of these assets likely to be 20% or more. 26 U.S.C. § 1 and § 72(t). If the Debtor is near retirement age and suffers no early withdrawal penalties, the total value of uncontested exempt assets ($31,997.00) is insubstantial for her entire term of retirement 6 .
In
In re Tooker,
Finally, although the Debtor and her children are currently in good health and the Debtor has family health insurance from her employer, there is a $250.00 deductible on that policy. We have no indication whether the deductible is a family or individual limit, but, in either case, it cannot be characterized as inconsequential. Also, a co-payment on covered services and medications is likely required.
An Order will follow.
. Drafted with the assistance of Keith Hunter, Law Clerk.
Notes
. 11 U.S.C. § 522(d)(11)(C) reads as follows: (d) The following property may be exempted under subsection (b)(1) of this section
(11) The debtor's right to receive, or property that is traceable to ...
(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
. The "Trustee's Objection to Debtor's Exemption of Life Insurance Proceeds” only references the ING Group proceeds in the amount of $50,172.00. However, the "Brief in Support of Trustee’s Objection to Debtors’ Exemption of Life Insurance Proceeds”, at page 2, states "The total amount of insurance Proceeds in questions (sic) is $45,188.00.” This amount seems to be derived from addition of the two insurance amounts ($50,-172.00 + $10,016.00) minus the conceded amount of $15,000.00. For purposes of this Opinion, the Court dealt only with the original objection to the ING Group proceeds of $50,172.00.
. The Stipulation sets forth original expenses in the schedules of $1,807.79, which had decreased by $335.00 per month, but the current expense figure is not specifically set forth.
. The Court views these expenses as essential in nature inasmuch as the objector has not raised the argument that the stipulated expenses exceeded subsistence level.
. Where a creditor failed to provide evidence of the Chapter 13 debtor’s future needs when the debtor retired, creditor failed to carry its burden of proof to establish that debtor's retention of his individual retirement account (IRA) was not reasonably necessary for his support within the meaning of Ohio's exemption for IRAs.
In re Erbaugh,