Case Information
*2 Before TJOFLAT, WILLIAM PRYOR, and BALDOCK, [*] Circuit Judges.
BALDOCK, Circuit Judge:
After filing for bankruptcy in 2011, Thomas McFarland claimed a number of exemptions from his bankruptcy estate. This appeal concerns two such claims, which are opposed by Trustee A. Stephenson Wallace. Before us, McFarland requests exemption for: (1) an annuity worth well over $150,000; and (2) the nearly $15,000 cash surrender value of a whole life insurance policy. The bankruptcy and district courts denied McFarland both exemptions. Exercising jurisdiction under 28 U.S.C. § 158(d), we affirm.
I. BACKGROUND
A. Bankruptcy law
Under federal law, when a debtor files for bankruptcy his property becomes
part of the bankruptcy estate and is thereby exposed to creditors.
See
11 U.S.C.
§ 541(a)(1). The debtor, however, may exempt certain types of property from this
exposure.
See id.
§ 522;
Rousey v. Jacoway
,
Back in 1980, Georgia opted out and created its own exemptions “for purposes of bankruptcy.” Ga. Code Ann. § 44-13-100; Silliman v. Cassell , 738 S.E.2d 606, 609 (Ga. 2013). Two Georgia exemptions are at issue here. First, under Georgia Code § 44-13-100(a)(2)(E), a bankruptcy debtor may exempt
[a] payment under a 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 debtor and any dependent of the debtor[.]
Ga. Code Ann. § 44-13-100(a)(2)(E) (emphases added). Under § 44-13-100(a)(9), a bankruptcy debtor may exempt
[t]he debtor’s aggregate interest, not to exceed $2,000.00 in value, . . . in any accrued dividend or interest under, or loan or cash value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent[.] § 44-13-100(a)(9) (emphases added). Also key here is a non-bankruptcy
provision from the Georgia Code—section 33-25-11(c)—which states that
[t]he
cash surrender values of life insurance policies
issued upon the
lives of citizens or residents of this state, upon whatever form,
shall
not in any case be liable to attachment, garnishment, or legal process
in favor of any creditor
of the person whose life is so insured . . . .
§ 33-25-11(c) (emphases added). Title 33 contains the Georgia Insurance
Code, which “extensively and exhaustively regulates, at the state level, all aspects
of the insurance industry in Georgia.”
Cotton States Mut. Ins. Co. v. DeKalb Cnty.
,
B. Facts
Many years ago, while serving in the United States Army, Thomas McFarland obtained a mutual fund. Then, in 1984, McFarland took out a $30,000 whole life insurance policy. In 2006, at the age of 64, McFarland transferred $150,000 from his mutual fund into a newly created annuity from The Hartford company (hereinafter the “Annuity”). The Annuity contract designated McFarland’s wife as the sole beneficiary, and it stated that the Annuity’s “Commencement Date”— i.e. , the date the Annuity would begin disbursing payments—was January 15, 2032.
In February 2011, McFarland declared Chapter 7 bankruptcy. He eventually
claimed,
inter alia
, the following two exemptions under the law of Georgia, where
he was domiciled. First, McFarland claimed the full cash surrender value
(approximately $13,445) of his whole life insurance policy was exempt under
Georgia Code § 33-25-11(c). Second, McFarland claimed his Annuity (by then
worth around $170,000) was exempt under § 44-13-100(a)(2)(E). A. Stephenson
Wallace, the Trustee, objected. The bankruptcy court restricted McFarland’s life
insurance exemption to the $2,000 limit found in § 44-13-100(a)(9),
In re
McFarland
,
II. STANDARD OF REVIEW
“We review the district court’s decision to affirm the bankruptcy court
de
novo
, which allows us to assess the bankruptcy court’s judgment anew, employing
the same standard of review the district court itself used.”
In re Globe Mfg. Corp.
,
Generally speaking, courts construe bankruptcy exemption statutes—both
state and federal—liberally in favor of bankruptcy debtors.
See, e.g.
,
Lampe v.
Williamson
(
In re Lampe
),
Farmington Nat’l Bank
(
In re Caron
),
III. ANNUITY EXEMPTION McFarland contends there is no valid statutory basis for ruling that Georgia intended to limit the relevant exemption statutes in ways unfavorable to him. Our analysis of his arguments begins with the Hartford Annuity.
To review, Georgia Code § 44-13-100(a)(2)(E) allows a debtor to exempt, from the bankruptcy estate, a payment under an “annuity” or a “similar plan or contract.” McFarland argues his Annuity qualifies under this statute. The bankruptcy and district courts disagreed. Thus, we must first determine whether McFarland’s Annuity falls within the statutory definition of the term “annuity.” In our view, it does not.
Helpfully, the Supreme Court of Georgia recently defined “annuity” as the
word is used in § 44-13-100(a)(2)(E).
Silliman
,
The bankruptcy court found (and the district court affirmed) that
McFarland’s Annuity did not qualify under § 44-13-100(a)(2)(E) because it was
structured more like a future investment than a substitute for wages.
See In re
McFarland
,
This reasoning is sound, and the bankruptcy court’s findings of fact are not clearly erroneous. Indeed, McFarland concedes on appeal that he has never drawn money from the Annuity and says he was not planning on doing so until 2032 at the earliest —when he would be 90 years old. At a hearing before the bankruptcy court in September 2011, McFarland made similar admissions:
[Wallace:] Have you taken any payments out from the annuity? [McFarland:] No, sir. I got that annuity mainly for my wife when I passed.
[Wallace:] In fact, you don’t intend to take any payments out of that annuity, do you?
[McFarland:] I hope not. I’m trying to save it for my wife. I’m seven years older than she is and according to the Vietnam mortality tables, my [life] expectancy is only 2017.
Aplt’s App., Exhibit 7, at 15. As if that was not enough, earlier in 2011 McFarland made similar statements at three separate examinations. See Aple’s App., Exhibit 1-32, at 45–46 (June 2011 bankruptcy examination) (“[Wallace:] Do you intend to withdraw any money from this [Annuity] in your lifetime? [McFarland:] No, sir.”); id. , Exhibit 1-33, at 26 (August 2011 deposition) (“[McFarland:] “I considered the annuity to be critical to [my wife’s] future.”); id. , Exhibit 1-34, at 25–26 (March/April 2011 creditor meeting) (“[Bell:] But [the Annuity is] just the way you chose to invest your money for retirement? [McFarland:] Yes.
[Wallace:] Have you started drawing funds down from the annuity? [McFarland:] No.”). [2] These multiple, explicit concessions plainly preclude McFarland from this exemption, as they make it impossible for him to claim with any believability that his Annuity was operating as, or truly intended to be, a wage substitute distributed at “regular intervals” to him and his wife during his retirement. [3]
Other courts have adhered to this logic when dealing with Georgia law. For
example, a different bankruptcy court in the Southern District of Georgia recently
ruled that a debtor could not exempt her annuity under § 44-13-100(a)(2)(E).
See
Boudreaux v. Sheffield
(
In re Sheffield
),
There, the annuity in question deferred payments until 2050—when the debtor would turn 85—and the debtor had yet to receive any payments whatsoever. Id. at 800. For reasons that included the following logic, the Michael court declined to exempt the annuity:
Allowing an annuity contract established by a debtor to be exempt without some requirements that it be similar to other qualified retirement plans would provide debtors with a means of shielding assets from creditors prebankruptcy by purchasing annuities under the facade of retirement planning . The Annuity Contract in this case is no different than a savings account created on the premise that the funds placed in the account are to provide Debtor with future income . . . . at 806 (emphases added).
McFarland attempts to avoid this obvious conclusion by arguing the Annuity
was actually structured and intended to supplement his income. For starters, he
contends we should not go beyond the plain language of his Annuity contract,
which (he says) clearly meets
Silliman
’s definition of an annuity. This argument
misses the mark. Unquestionably,
Silliman
held that a debtor’s annuity qualified
for exemption, and the court indicated we should look at the “nature of the
contract” for guidance.
Silliman
,
In any event, rather than strictly limiting us to the contract’s text,
Silliman
says we must also look to the “facts and circumstances surrounding the purchase of
the annuity.”
Id.
at 610–11. And the facts here doom McFarland’s claim. As
discussed, McFarland has never withdrawn any money from his Annuity and had
no real plans to do so. The
Silliman
debtor, in contrast, “purchased the annuity to
replace her income . . . at the time of purchase,” and she
had already begun
receiving payments
when she filed for bankruptcy.
Id
. at 611.
[4]
In an alternative vein, McFarland insists we should rely on additional
testimony from all the hearings cited above to exempt his Annuity. For example,
McFarland’s son, who was also his financial advisor, testified that the Annuity was
originally intended to “provide a lifetime income stream.”
See
Aplt’s App.,
Exhibit 7, at 53–54. And McFarland testified the Annuity was intended both for
his wife after he died
and
as a backup source of funds while he lived “if we needed
it.”
Id.
at 72. McFarland’s testimony is easily dismissed, as the copious
concessions above demonstrate that McFarland never “needed” to use the Annuity,
nor did he ever plan on “need[ing]” to use the Annuity. Moreover, his son’s
testimony is taken out of context. Soon after making the above statement, his son
clarified that the Annuity was mostly meant to provide for McFarland’s wife
after
he died.
id.
at 57 (“[Wallace:] So did he purchase this annuity to cover his
future income or to . . . leave an inheritance for your mother? [Son:] It was more
for protecting my mother.”);
id.
at 59–60 (“[Bell:] And that [Annuity] was not for
wage replacement. It was for other purposes? [Son:] Yeah. [Bell:] That’s correct,
isn’t it? . . . [Son:] Yes. . . . [Bell:] And he has not withdrawn any funds from that
to this point? [Son:] No, he has not.” ). McFarland is sunk—not rescued—by the
use[d] the IRA
in his retirement years
” and did not allow funds to “
improperly
remain[] in the
account.”
Id.
at 331–32,
full testimony in this case. At minimum, given the above, we could not possibly find that the district court’s factual findings were clearly erroneous here.
Finally, McFarland argues that even if his Annuity does not qualify as an
“annuity” under the statute, it should at least qualify as a “similar plan or contract.”
McFarland did not raise this argument in the bankruptcy court, so we need not
consider it here.
Irving v. Mazda Motor Corp.
,
IV. LIFE INSURANCE EXEMPTION A. Statutory analysis
Georgia Code § 44-13-100(a)(9) explicitly limits—at $2,000—a bankruptcy debtor’s ability to exempt the “cash value” of his “unmatured life insurance contract.” Nevertheless, McFarland contends he should be permitted to rely on Georgia Code § 33-25-11(c)—a non-bankruptcy provision—to exempt the entire cash value of his whole life insurance policy. (This would allow him to exempt an additional $11,000 or so from the bankruptcy estate.) The bankruptcy court disagreed and capped McFarland’s life insurance exemption at $2,000. Thus, we must decide whether McFarland was stuck with § 44-13-100(a)(9) or whether he could use a provision protecting debtors more generally. In our view, he was restricted to $2,000 under Georgia’s explicit bankruptcy provision.
According to McFarland, federal law allows him to exempt property beyond that which is covered by explicit Georgia bankruptcy statutes. 11 U.S.C.
§§ 522(b)(3)(B) & 541(c)(2) (allowing bankruptcy debtors to exempt property that
is protected “under applicable non-bankruptcy law”);
see also Meehan v. Wallace
(
In re Meehan
),
Even assuming McFarland is correct on these two points, it is well-settled
that “[f]or purposes of statutory interpretation, a specific statute will prevail over a
general statute, absent any indication of a contrary legislative intent.”
Vines v.
State
,
To be sure, one could argue—although McFarland does not do so—that by enacting § 33-25-11 in 2006 Georgia intended to amend, clarify, or repeal § 44-13- 100(a)(9), which had been on the books since 1980. This argument, though, would require textual evidence of the Georgia Legislature’s intent. Vines , 499 S.E.2d at 632. And again, McFarland does not attempt to prove such intent. [7] Instead, McFarland asserts that §§ 33-25-11(c) and 44-13-100 do not entirely overlap. Most significantly, he points out, § 33-25-11(c) applies to Georgia residents and citizens, whereas § 44-13-100(a)(9) applies regardless of residency or citizenship. [8] Therefore, McFarland claims, it is perfectly plausible that Georgia intended for the two statutes to coexist in a manner different than what we have described above: [T]he two statutory provisions are not identical, do not apply to identical classes of individuals, and apply to different interests in life insurance policies. These distinctions are not merely semantic, and provide a rational basis for Georgia to enact two different provisions, either or both of which may, or may not, be available to a bankruptcy debtor if the debtor and the asset qualify under each statute.
Aplt’s Br., at 8–9. Applying this argument to his situation, McFarland contends Georgia intended for bankruptcy debtors who are residents to have access to § 33- 25-11(c)’s broad policy and for non -resident bankruptcy debtors to be limited to $2,000 by § 44-13-100(a)(9). At minimum, McFarland protests, we must adopt this view because of our duty to construe exemptions liberally.
In liberally construing exemption statutes, though, we cannot ignore a
statute’s plain language.
Carter v. Progressive Mountain Ins.
,
Georgia has explicitly declared that bankruptcy debtors in this situation—residents or not—may exempt $2,000 at most , and no more. For a bankruptcy debtor seeking this life insurance exemption in Georgia, the explicit language in § 44-13- 100(a)(9) governs over the more general debtor language in § 33-25-11(c).
This helps distinguish
In re Meehan
and other similar cases relied upon by
McFarland. In
Meehan
, in particular, we held pursuant to 11 U.S.C. § 541(c)(2)
that a bankruptcy debtor could exclude his IRA from the bankruptcy estate by
using an “applicable” non-bankruptcy Georgia statute.
In re Meehan
, 102 F.3d at
1210–12.
Meehan
, however, made no mention of any Georgia statute specifically
barring
bankruptcy debtors from doing what the non-bankruptcy statute allowed
debtors to do, more generally. ;
see also Matter of Geise
,
McFarland tries other arguments, none of which fare better. For instance, he asserts Georgia Code § 44-13-100 “lacks any language prohibiting the Debtor from utilizing any state law exemptions outside of § 44-13-100.” Indeed, he points out, § 44-13-100(a) states a bankruptcy debtor “may” utilize its exemptions—not “must.” But this (once again) misses the point. Even if Georgia, broadly speaking, does not prohibit a bankruptcy debtor from going outside Georgia’s bankruptcy exemptions, the specific statute at issue here—§ 44-13-100(a)(9)—explicitly limits bankruptcy debtors in this particular life insurance situation to its provisions. True, a bankruptcy debtor in Georgia “may” decide not to utilize § 44-13-100(a)(9)—no one, after all, is going to force a bankruptcy debtor to exempt anything. If a bankruptcy debtor decides to exempt the cash value of a life insurance policy, though, we believe Georgia intended for that exemption “not to exceed $2,000.00.” B. Constitutional analysis
We now address McFarland’s alternative view that restricting bankruptcy
debtors to § 44-13-100(a)(9) violates: (1) the Georgia Constitution’s Equal
Protection Clause;
[9]
and (2) the United States Constitution’s Bankruptcy Clause.
[10]
1. Section § 44-13-100(a)(9) does not violate equal protection
In Georgia, “Protection to person and property is the paramount duty of
government and shall be impartial and complete. No person shall be denied the
equal protection of the laws.” Ga. Const. Art. I, § 1, para. 2. Where “no
fundamental right or suspect class is involved, . . . statutory classifications are
permitted when the classification is based on
rational
distinctions and bears a
direct relationship to the purpose of the legislation.”
Grissom v. Gleason
, 418
S.E.2d 27, 30 (Ga. 1992) (emphasis added);
see also Wood v. United States
(
In re
Wood
),
Although Georgia treats bankruptcy debtors differently than other debtors,
this distinction does not violate Georgia’s Equal Protection Clause because it is
rational and relates directly to the purpose of bankruptcy legislation. After all, one
of the primary functions of bankruptcy is to “give the debtor a fresh start,”
Menchise v. Akerman Senterfitt
,
In our present scenario, however, Georgia has imposed a
greater
burden on
bankruptcy debtors than non-bankruptcy debtors by restricting them to $2,000.
This twist makes our case somewhat unique in the annals of case law, but it does
not mean Georgia acted irrationally. This is because giving debtors a “fresh
start”—while important—is not the sole purpose of bankruptcy law. Rather,
bankruptcy law is also designed “to collect all of the assets and liabilities of an
entity [and] to pay the creditors of the bankrupt to the fullest extent possible.”
Menchise
,
To hold otherwise, on the scant evidence presented here, would essentially mean banning opt-out states from treating bankruptcy debtors worse than regular debtors on any specific issue. This, ironically, would be irrational on our part, as it would unduly interfere with a state’s prerogative to create its own bankruptcy exemptions. In the end, because Georgia has at least rationally balanced the needs of creditors and bankruptcy debtors, it has not transgressed equal protection by treating bankruptcy debtors differently from non-bankruptcy debtors.
2. Section 44-13-100(a)(9) does not violate the Bankruptcy Clause The United States Constitution vests Congress with the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. Const. Art. I, § 8, cl. 4. This Bankruptcy Clause is “the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. Art. VI , cl. 2.
McFarland argues that restricting bankruptcy debtors to § 44-13-100(a)(9) creates a non-uniform application of bankruptcy law in violation of the Constitution. So, whereas for equal protection McFarland argued Georgia’s scheme was irrational , here he contends Georgia’s scheme was not authorized — under the Bankruptcy Clause or, by extension, 11 U.S.C. § 522.
This issue is one of first impression in this circuit. And it intrigues us, in no
small part because the other circuits addressing the subject appear to have done so
in the inverse context, where a
trustee
was claiming that a state could not
constitutionally distinguish between a bankruptcy debtor and a non-bankruptcy
debtor.
See, e.g.
,
Richardson v. Schafer
(
In re Schafer
),
First, with 11 U.S.C. § 522 Congress has permitted states to create, define,
and implement bankruptcy exemptions and to restrict bankruptcy debtors to those
exemptions. Section 522(b)(3)(A), for instance, says bankruptcy debtors in opt-out
states are restricted to “any property that is exempt . . . under State or local law
that
is applicable
.” (emphasis added). Absent specific federal guidance to the contrary,
states are obviously the sole authorities in determining whether state law is
“applicable” to a class of debtors.
See Butner v. United States
,
affords the states the authority to restrict their respective residents to exemptions promulgated by the state legislatures, if they so choose. This statutory provision is an express delegation to the states of the power to create state exemptions in lieu of the federal bankruptcy exemption scheme. Congress has not seen fit to restrict the authority delegated to the states by requiring that state exemptions apply equally to bankruptcy and non-bankruptcy cases . . . .
Sheehan
,
And this statutory scheme is constitutionally valid. Like our sister circuits,
we do not believe the Constitution’s call for
bankruptcy
uniformity somehow
requires states to treat bankruptcy and non-bankruptcy debtors exactly alike.
In re Schafer
,
Binding precedent counsels in this direction, as well. The most striking
language is contained in
In re Wood
,
McFarland fails to interact with this case law or the compelling arguments
contained therein. Instead, he cites (without much explanation) a smattering of
bankruptcy court decisions, along with several older appellate decisions, that
supposedly favor his position.
See, e.g.
,
In re Regevig
,
In summary, Georgia has not violated the Bankruptcy Clause. A plain reading of § 522 does not , as McFarland alleges, allow a bankruptcy debtor to use a state exemption statute where the state itself has rendered the statute inapplicable. Rather, very near the opposite is true; states have been authorized to define and restrict the applicability of their bankruptcy exemptions. And this authorization does not “fail to provide a uniform application of the Bankruptcy Code in violation of the Bankruptcy Clause,” as McFarland asserts. Although the authorization is not absolute, its boundaries have not been overstepped here.
IV. CONCLUSION For the foregoing reasons, McFarland is not entitled to the bankruptcy exemptions he claims on appeal. The bankruptcy court did not clearly error with its factual findings, and we agree with its legal conclusions.
AFFIRMED.
Notes
[*] Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth Circuit, sitting by designation.
[1] We assume, without deciding, that this is the correct position.
[2] Interestingly, at this creditor meeting, McFarland claimed he had planned on drawing money from the Annuity when he turned 70 the next year. Aple’s App., Exhibit 1-34, at 26. McFarland contradicted this assertion at subsequent hearings, however, and he has not raised the assertion on appeal or provided any evidence to support such a claim.
[3] Courts typically review a variety of factors in deciding whether an annuity qualifies for
exemption.
See Silliman
,
[4] The facts here also distinguish
Rousey
, which is the Supreme Court decision most on point.
Rousey
held that two debtors’ IRA accounts qualified as “similar plan[s] or contract[s]” under 11
U.S.C. § 522(d)(10)(E), which parallels Georgia Code § 44-13-100(a)(2)(E). 544 U.S. at
322–24,
[5] We also need not decide whether McFarland’s Annuity was “reasonably necessary” for support for him and his wife. It seems unlikely, however, that the Annuity would qualify under this prong. See, e.g. , Aplt’s App., Exhibit 7, at 60–63 (testimony from McFarland’s son that McFarland is apparently able to meet his financial obligations without help from the Annuity, and that his wife has a separate, similarly sized and structured annuity in her own name).
[6] Eleven U.S.C. §§ 522(b)(3)(B) and 541(c)(2) do not help McFarland because Georgia has made Ga. Code Ann. § 33-25-11(c) inapplicable to him through § 44-13-100(a)(9).
[7] Several bankruptcy courts have concluded that Georgia did not intend to repeal or amend § 44-
13-100(a)(9).
See In re Dean
,
[8] He gives other examples, as well. For instance, § 33-25-11(c) applies to the “cash surrender value[]” of the life insurance policy, whereas § 44-13-100(a)(9) applies to the “loan or cash value.” Moreover, § 33-25-11(c) does not apply to dependents, whereas § 44-13-100(a)(9) does.
[9] McFarland does not challenge Georgia’s statutory scheme under the Equal Protection Clause found in the United States Constitution.
[10] McFarland also mentions a Supremacy Clause violation. His brief, however, fails to develop a
preemption argument to any meaningful extent. Thus, we will not consider it here.
United
States v. Woods
,
[11] This contrast was even starker when McFarland filed for bankruptcy in 2011. Prior to 2012, Georgia allowed a regular debtor a $5,000 residential exemption, whereas a bankruptcy debtor could exempt $10,000 and a married bankruptcy debtor could exempt $20,000.
[12] The Tenth Circuit recently reaffirmed the viability of
In re Kulp
in a thorough (albeit
unpublished) decision.
See Williamson v. Murray
(
In re Murray
),
[13] True, the
Owen
Court indicated that a state’s exemption power under “the opt-out policy [is
not] absolute.”
[14] The Supreme Court’s decision in
Moyses
is perhaps the most intriguing case cited by
McFarland. The Sixth Circuit has explained in copious detail, however, why
Moyses
does not
compel the result desired by McFarland here.
See In re Schafer
,