In Re Rhinebolt
OPINION AND ORDER
I.Preliminary Matters
This mаtter is before the Court upon the Objection to Exemption Claim (“Objection”) filed by Sara J. Daneman, the duly appointed trustee in this Chapter 7 case. An evi-dentiary hearing was held on April 8, 1991, following which the matter was taken under advisement.
The Court is vested with jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. This is a core proceeding which the Court may hear and determine in accordance with 28 U.S.C. § 157(b)(2)(A) and (0).
II. Finding of Facts
1. On December 27, 1990, Daniel Luke and Karen Ann Rhinebolt, the debtors, voluntarily filed a joint petition under the provisions of Chapter 7 of the Bankruptcy Code.
2. Schedule B-2 of thе debtors’ bankruptcy schedules discloses Karen Rhine-bolt’s (hereinafter referred to as the “Debt- or” or “Rhinebolt”) interest in an annuity (“Annuity”). The Annuity is valued at $6,000 and is claimed as exempt pursuant to Ohio Revised Code § 2329.66(A)(6)(b). At the hearing, the debtors requested leave of the Court, which was granted, to amend their schedules to also claim the Annuity as exempt under O.R.C. § 2329.66(A)(10)(b). The debtors subsequently filed a written motion seeking to amend their schedules as requested. The amount of $7,482.69 of the Annuity is claimed as exempt under O.R.C. § 2329.66(A)(6)(b) and the remaining balance as exempt under 2329.66(A)(10)(b).
3. The trustee opposes the allowance of the debtors’ claim of exemption under O.R.C. § 2329.66(A)(6)(b) and their amended claim of exemption under § 2329.-66(A)(10)(b), and requests its disallowance.
4. The parties stipulated that the Annuity is part of a structured settlement agreement between Rhinebolt and First Executive Corporation on behalf of its insured, who was a defendant in a lawsuit brought by Rhinebolt for damages resulting from a personal bodily injury. The agreement, executed by the parties on June 24, 1986, was made in settlement of the lawsuit. Pursuant to the agreement, Rhinebolt is to receive $287.73 per month for her natural
5. On March 13, 1987, Rhinebolt executed a loan agreement in the amount of $10,636.64 with Credithrift of America (“Credithrift”). Under the terms of the loan agreement, Rhinebolt assigned her right, title and interest in sixty consecutive Annuity payments in the amount of $287.73 per month to Credithrift. The debtors’ schedules disclose that the sum of $6,000 currently is due and owing to Credithrift.
III. Conclusions of Law
Section 522 of the Bankruptcy Code provides a federal exemption scheme for debtors. Section 522(b), however, permits a state to prevent its citizens from using the federal exemption scheme. Ohio has “opted out” of the federal exemption scheme, thereby restricting debtors domiciled in this stаte to claim an interest in property as exempt from the bankruptcy estate only as permitted by Ohio law. See Ohio Revised Code (“O.R.C.”) § 2329.66.
Section 2329.66(A)(10)(b), upon which the debtors base one prong of their claim of exemption, provides an exemption for a “person’s right to receive payment under any pension, annuity, or similar рlan or contract, ... on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the person and any of his dependents.” O.R.C. § 2329.66(A)(6)(b), upon which the debtors also premise their exemption claim, provides that a person’s interest in an annuity is exempt to the extent set forth in O.R.C. § 3911.10. Section 3911.10 provides the following exemption for a debtor’s interest in an annuity:
All contracts of life or endowment insurance or annuities Upon the life of any person, or any interest therein, which may hereafter mature and which have been taken out for the benefit of, or mаde payable by change of the beneficiary, transfer, or assignment to, the spouse or children or any relative dependent upon such person, or any creditor ... shall be held ... free from all claims of creditors of such insured person or annuitant. Ohio Rev.Code Ann. § 3911.10 (Anderson 1989) (emphasis added).
The initial burden оf producing evidence to rebut the propriety of a claimed exemption rests on the objecting party.
See
Fed.R.Bankr.P. 4003(c). Upon the introduction of sufficient evidence to rebut the
prima facie
validity of the exemption, the burden shifts to the debtors to demonstrate that the exemption is proper.
See In re Lester,
The Court notes that there is a general rule of liberality in interpreting Ohio’s exemption laws.
In re Simon,
A. Ohio Revised Code § 2329.66(A)(10)(b)
The debtors assert that the balance of the Annuity, that portion not assigned to Credithrift, is exempt under O.R.C. § 2329.66(A)(10)(b). Again, this section exempts one’s right to receive payment “under any pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the person and any of his dependents.” The debtors support this claim only by attempting to prove the Annuity is reasonably necessary for the debtors’ support. The trustee’s argument against exemption is dual. First, it is contended that the legislative intent of § 2329.66(A)(10)(b) was to exempt those annuities in the nature of retirement and disability pension plans, not those set up solely to fund a tort settlement. The trustee’s alternative theory, if the Annuity is found tо be included within the terms of § 2329.66(A)(10)(b), is that the exemption must be disallowed as it is not reasonably necessary for the support of
“ ‘An annuity ... is an obligation by a person or a company to pay to the annuitant a certain sum of money at stated times during life or a specified number of years, in consideration of a gross sum paid for such
obligation_ Bronson v. Glander,
The court in
In re Simon,
A similar result was reached by the Fifth Circuit Court of Appeals in
Young v. Adler,
Likewise, the court in
In re Johnson,
Utilizing the foregoing persuasive authorities as a guide, the Court concludes that the exemption claim under § 2329.-66(A)(10)(b) should be disallowed. The structured tort settlement agreement entered into by the debtor is not in the nature of future earnings. The Annuity was set up simply to provide a method by which to fund the settlement of the Debtor’s tort lawsuit. The drafters of § 2329.-66(A)(10)(b) did not mean to exempt such an agreement.
Moreover, even if the Court had found that the Annuity fell within the meaning of the term in O.R.C. § 2329.-66(A)(10)(b), the evidence presented by the Debtor does not persuade the Court that the Annuity payments are reasonably necessary for the support and maintenance of the debtor and any of her dependents.
In re Simon,
B. Ohio Revised Code §§ 2829.66(A)(6)(b) and 3911.10
O.R.C. § 2329.66(A)(6)(b) provides an exemption for annuities as set forth in O.R.C. § 3911.10.
All contracts of life or endowment insurance or annuities upon the life of any person, or any interest therein, which may hereafter mature and which have been taken out for the benefit of, or made payable by change of the beneficiary, transfer, or assignment to, the spouse or children or any relative dependent upon such person, or any creditor ... shall be held ... frеe from all claims of creditors of such insured person or annuitant. Ohio Rev.Code Ann. § 3911.10 (Anderson 1989) (emphasis added).
By its terms, the duration of the Annuity is for Rhinebolt’s natural life, thirty years certain. The Annuity’s named beneficiary is Rhinebolt’s estate, but Rhinebolt’s right, title, and interest in sixty consecutive Annuity payments was assigned to Credithrift pursuant to a loan аgreement. The debtors argue that since Credithrift is a creditor to whom the debtors have assigned a portion of the proceeds of the Annuity, which is for Rhinebolt’s natural life, the plain language of O.R.C. § 3911.10 renders the portion assigned exempt.
The trustee’s objection to this theory of exemption is based on the assеrtion that O.R.C. § 3911.10 exempts only those annuities which are akin to life insurance policies. The statute’s qualification of the term “annuities” by the phrase “upon the life of any person” leads to this conclusion. The basic issue is whether or not this particular Annuity is covered by § 3911.10. No case specifically addressing this aрpears to have been decided. The legislative history of § 3911.10 is not helpful.
The case of
In re Fichter,
The settlement annuity at issue in Simon is seemingly identical to Rhinebolt’s Annuity. The key difference between this case and Simon is that there was no assignment made to any creditor by the debtor in Simon. Due only to her assignment to Cre-dithrift, Rhinebolt is able to utilize § 3911.10 as an additional theory of exemption. Holding such payments of an annuity exempt merely because of assignment to a creditor would result in a possible abuse of the bankruptcy process. The debtor in Simon could have assigned his entire annuity interest to creditors and thereby obtained an opposite holding.
Although § 3911.10 appears аt first blush to exempt that portion of Rhinebolt’s Annuity assigned to Credithrift, this Court is of the inclination that such a reading would distort the purpose of the statute. Rhinebolt’s Annuity appears to be an annuity in name only and is actually more closely related to an account receivable. Label-ling the arrangement betweеn Rhinebolt and First Executive Corporation an “annuity” does not disclose the agreement’s true substance; the Annuity was set up to fund the settlement of a lawsuit. First Executive Corporation is obligated to make payments to Rhinebolt over her lifetime. Rhi-nebolt is not receiving a return on an investment. The debtors have failed to demonstrate the propriety of the claimed exemption. The Court concludes that the portion of the Annuity assigned to Credi-thrift cannot be held to be exempt under § 3911.10.
C. Ohio Revised Code § 2329.66(A)(12)(c)
The Court notes that a possible exemption could have been claimed pursuant to O.R.C. § 2329.66(A)(12)(c) which provides as exempt: “A payment, not to exceed five thousand dollars, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the person or an individual for whom the person is a dependent.” The court in
Fichter,
dealing with the same type of annuity as is at issue here, allowed the exemption under § 2329.66(A)(12)(c).
Simon,
Based upon the foregoing, the claims of exemption under O.R.C. §§ 2329.66(A)(6)(b) and (A)(10)(b) are hereby DISALLOWED.
IT IS SO ORDERED.
Notes
. The Fichter court explicitly agreed with the assertion of its trustee that "the qualification of ‘annuities’ by the phrase ‘upon the life of any person’ demonstrates that this section was intended to exempt annuities that have the same function as life insurance.” Id. at 536.