Exemptions

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Exemption May Not Be Claimed as 100% FMV

The Bankruptcy Appellate Panel for the First Circuit found that a debtor may not claim an exemption in property in the amount of 100% of the fair market value. In re Massey, No. 11-60 (B.A.P. 1st Cir., Feb. 27, 2012). The court mischaracterized the issue as whether a debtor was permitted to exempt an asset “in kind,” thereby entitling the debtor to the actual asset regardless of whether its value exceeds the statutory limit. This is not the purpose of the 100% FMV exemption, however, and the Massey decision bypasses the unequivocal statement by the Supreme Court that an exemption may be claimed in the amount of 100% of the FMV. Schwab v. Reilly, 560 U.S. __,130 S.Ct. 2668 (2010).

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Debtor May Exempt Inherited IRA

The Bankruptcy Appellate Panel for the Ninth Circuit has found that debtors may exempt an inherited IRA from the bankruptcy estate under Section 522(b)(3)(C). In re Hamlin, No. 11-1083 (B.A.P. 9th Cir. February 21, 2012). Under Section 522(b)(3)(C), an IRA may be exempted if it meets two requirements: “(1) the amount the debtor seeks to exempt must be retirement funds; and (2) the retirement funds must be in an account that is exempt from taxation under one of the provisions of the [IRC].”

The trustee argued that inherited IRAs do not qualify as “retirement funds” as they are not funds that the debtor personally amassed for retirement purposes. The court found that the plain language of the Code does not limit “retirement funds” to those contributed by the debtor. As the funds at issue were contributed to a retirement fund, they retain their status as “retirement funds” upon transfer. As to the second requirement for exemption, the court found that, under Section 408(e) of the Tax Code, inherited IRAs enjoy the same tax-exempt status as those funded by the debtor’s own contributions. Therefore, the second prong of the exemption test was met. Finally, the court found support for its decision in Section 522(b)(4)(C), which provides that certain transfers of IRA accounts similar to those in an inherited IRA do not alter the exempt status of the account.

NACBA filed an amicus brief in support of the debtors’ position in this case.

The Fifth Circuit heard oral arguments on this issue on February 8th in the case of In re Chilton, No. 11-40377. NACBA filed an amicus brief in that case as well.

Hamlin opinion

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NACBA Files Amicus Brief on Issue of Claiming 100% FMV for Exemption

In the case of In re Massey, No. 11-60 (B.A.P. 1st Cir.) NACBA has filed an amicus brief arguing that pursuant to the plain language of the Bankruptcy Code and the Supreme Court’s decision in Schwab v. Reilly, 560 U.S. __,130 S.Ct. 2652 (2010) a debtor may claim an exemption in property in the amount of 100% of the fair market value. The brief further argues that if the trustee believes that the fair market value of debtor’s interest in the property exceeds the allowed amount for the exemption, that issue is properly the subject of an evidentiary hearing. Finally, NACBA disputes the trustee’s position that post-petition appreciation of a fully exempt is property of the estate.
Brief