The Eleventh Circuit punted on the question of whether health savings accounts, or HSAs, are exempt under Georgia law.
A woman filed a chapter 7 petition claiming an exemption on $17,500 held in a health savings account. The bankruptcy judge sustained the trustee’s objection to the exemption and was upheld on appeal in district court.
In a per curiam opinion following a second appeal, the Eleventh Circuit certified the question so the Georgia Supreme Court can decide whether HSAs are exempt under state law.
HSAs might be exempt under two Georgia statutes. One exempts disability or illness benefits, and another protects payments under a “pension, annuity, or similar plan or contract on account of illness [or] disability.”
Congress created HSAs in part to help people with high-deductible insurance policies cover their health care expenses. Contributions to HSAs are exempt from taxation.
Withdrawals from HSAs to pay health care expenses also are not taxed. However, withdrawals for other purposes are taxable as gross income and are also subject to an additional 20% tax. Consequently, treating HSAs as nonexempt assets in bankruptcy can have adverse tax consequences for consumer debtors.
So far, six states have amended their exemption statutes to cover HSAs. Georgia is not one of them. The debtor in the Eleventh Circuit case could not attempt to use federal exemptions because Georgia is a state that only permits use of state exemptions.