From the Petition for Certiorari Individual Retirement Accounts Are Eligible for Bankruptcy Exemption Under 522(d)(10)(E)

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Oct 2004

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IRAs fall squarely within
the exemption defined by §522(d)(10)(E). A straightforward
application of the statue reveals that, as a matter of law, an IRA confers
"the right to receive a payment under a stock bonus, pension, profit
sharing, annuity or similar plan or contract on account of illness,
disability, death, age or length of service."

The statute's text and structure make clear
that IRAs are included within the exemption that §522(d)(10)(E)
defines. Specifically, after identifying a group of plans and contracts
that qualify for exemption, §522(d)(10)(E)(iii) then denies exemptions
to certain plans contracts that do not "qualify under §408 of the Internal Revenue
Code." Section 408 is the provision that defines IRAs. Under settled
principals of statutory construction, §522(d)(10)(E) must include at
least some plans defined under §408; the explicit exclusion of plans
that do not fall within §408 from the exemption would otherwise
constitute mere surplusage. As the Ninth Circuit pointed out in Farrar v. MeKown, 203 F.3d 1188,
1190 (9th Cir. 2000), "[t]here could be no reason for legislators to
exclude non-qualifying IRAs from exemption, as the exemption does, unless they intended
that qualifying IRAs could be exempt. Indeed there could be no reason to
even mention §408, the IRA section, unless 'similar plan or
contact' included them (emphasis added)." Accorded Carmichael v. Osherow, 100 F.3d
375, 378 (5th Cir. 1996); Dattmann v. Brucher, 243 F.3d 242, 243 (6th Cir. 2001): Dubroff v. First Nat'l. Bank of Glen Falls, 119 F.3d 75, 77-78 (2nd Cir. 1997).

Despite the statute's specific inclusion of
IRAs, the Third and Eighth Circuits nevertheless have drawn erroneous
distinctions to exclude IRAs from exemption. Contrary to the Third
Circuit's suggestion in Clark, see 711 F.2d at 23, the language of §522(d)(10)(E) does
not distinguish between "present payments" and "future
payments," nor does anything in the provision's text, structure
or legislative history suggest that Congress intended to draw any time- or
age-based distinctions. "The language of the section does not include
words like 'presently,' 'currently' or
'immediately,'" Carmichael, 100 F.3d at 379, nor does it include any other indication
of intent to exclude future payments. Indeed an exclusion would be at odds
with the statutes express inclusion of pension plans, profit-sharing plans
and annuities, all of which involve an entitlement to future payments. The
provision's legislative history explicitly states that
"paragraph (10) exempts certain benefits that are akin to future earnings of the
debtor." H.R. Rep. 95-595, at 362 (1977) (emphasis added). Like other
plans listed in the statute, "IRAs too are substitutes for future
earnings." Carmichael, 100 F.3d at 378.

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The Eighth Circuit opinion is silent regarding whether its holding...applies to these...plans as well as to IRAs, but either way its reasoning is unjustified.

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It is similarly unsupportable for the Eighth Circuit
to exclude IRAs from exemption simply because holders may make early
withdrawals subject to a tax penalty. The "right to receive
payments" from an IRA is unquestionably triggered by four
events—"age 59," "death," "being
disabled" or "medical care;" see 26 U.S.C. 72(t)(2)(A)(i)-(iii); Id., §72(t)(2)(B)—that
precisely parallel four of the five alternative conditions for exemption
set out in §522(d)(10)(E): "illness, disability, death, age or
length of service." Tax-penalized, early withdrawal cannot be a basis
for concluding that a plan does not qualify for exemption. Such a
withdrawal is not only a feature of all IRAs, but also of all other
instruments listed in the statues: stock bonuses, pensions, profit-sharing
plans and annuities. The Eighth Circuit opinion is silent regarding whether
its holding—requiring that a plan specifically bar early withdrawal
in order to qualify for exemption—applies to these other types of
plans as well as to IRAs, but either way its reasoning is unjustified.
Either the Eighth Circuit holds IRAs nonexemptible on the basis of a
statutory feature they share in common with exemptible plans, or it holds
that no plan of any type qualifies for exemption unless it contains an
unheard-of provision barring early withdrawal. The first possibility is
patently illogical, and the second creates an unprecedented rule so
restrictive that it would effectively eviscerate the entire exemption.

Because it conflicts with both the plain language and
the intent of §522(d)(10)(E), the decision of the Eighth Circuit in
this case should be reversed.

<h3>From the Brief in Opposition<a href="#2" name="2a">2</a></h3>

<h4>The Impact of this Case on Individual Retirement Accounts Is Overstated by Petitioners</h4>

The emphasis the petitioners place on this case to
establish a uniform rule for the exemption of IRAs is misguided. The
implication that a uniform rule would result from a decision in this case
is illusory, as certainty would only extend to jurisdictions opting in to
the federal bankruptcy exemption scheme or having state statutes materially
identical to 11 U.S.C. §522(d)(10)(E).

<h4>The Eighth Circuit's Opinion Is Correct on the Merits</h4>

Review of this case is not justified because the
decision of the Eighth Circuit is based on the only logical interpretation
and application of the statute. The petitioners mischaracterize the Eighth
Circuit's findings, as the court did not explicitly state that the
practitioners' IRAs were "similar plans or contracts."
The court clarified its position by stating that "if Congress had
intended all IRAs which qualify under §408 to be exemptible as a
'similar plan or contract,' it would have been a very easy
legislative task to have affirmatively accomplished."

The Eighth Circuit correctly interpreted that the
reference to 26 U.S.C. §408 contained within 11 U.S.C. §522(d)
(10)(E)(iii) does not automatically render all IRAs exempt. A conclusion
otherwise required the court to disregard the exclusive laundry list of
factors set forth in 11 U.S.C. §522(d)(10)(E) that trigger a
debtor's right to receive a payment. A statute "ought, upon the
whole, to be so construed that if it can be prevented, no clause, sentence
or word shall be superfluous, void or insignificant." TRW Inc. v. Andrews, 534 U.S.
19, 31 (2001). The Eighth Circuit recognizes that specific, triggering
events are enumerated in 11 U.S.C. §522(d) (10)(E), and that the court
should not read in additional factors that would invoke the debtor's
right to payment.

If there were an unlimited number of events that
would allow a debtor to claim an exemption in a right to receive a payment,
it would serve no purpose to list specific requirements for exemption as
set out by 11 U.S.C. §522(d)(10)(E). Applicable here is the statutory
construction expresso unius est exclusio
alterus. "Where Congress explicitly
enumerates certain exceptions to a general prohibition, additional
exceptions are not to be implied in the absence of evidence of contrary
legislative intent." Id. at 28 (citing Andrus v. Glover
Construction Co., 466 U.S. 608, 616-617
(1980)).

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<h3>Footnotes</h3>

<a name="1">1</a> Thomas C. Goldstein, Debtor-Petitioner Counsel of Record. <a href="#1a">Return to article</a>

<a name="2">2</a> Colli C. McKiever, Counsel for Respondent Trustee, Jill R. Jacoway. <a href="#2a">Return to article</a>

Journal Date

Friday, October 1, 2004 - 12:00

Bankruptcy Rule

2004