The Seventh Circuit interpreted an ambiguous Wisconsin exemption statute broadly in favor of debtors, adopting the interpretation consistently employed by that state’s bankruptcy courts.
The case involved annuities worth almost $300,000, which the chapter 7 debtors purchased about 18 months before bankruptcy. The trustee challenged the exemption and lost in bankruptcy court. The appeal went directly to the Seventh Circuit.
Without further definition, the Wisconsin statute exempts annuities that comply “with the provisions of the internal revenue code.” The statute does not specify the provisions in the Internal Revenue Code with which there must be compliance.
The trustee contended that annuities must comply with provisions in the IRS Code dealing with qualified retirement plans.
The debtors argued that annuities are exempt as long as they qualify for favorable tax treatment under 26 U.S.C. Section 72, which applies to annuities generally.
In his July 2 opinion, Circuit Judge David F. Hamilton agreed with the debtors’ approach.
Judge Hamilton said the court was required to interpret the exemption broadly because the Wisconsin statute said it “shall be construed to secure its full benefit to debtors.”
The panel included Circuit Judges Richard A. Posner and Ann C. Williams.