Will They Take My Annuity if I File for Bankruptcy?

20 Dec Will They Take My Annuity if I File for Bankruptcy?

A 32-year-old single mother of two filed for chapter 7 bankruptcy in Kansas and lost her $900 monthly lifetime annuity payment. This week she lost her attempt to protect the annuity from her creditors and the bankruptcy trustee.

The chapter 7 bankruptcy trustee likely will sell the future stream of annuity payments for a lump sum of money to pay $68,000 in creditors and his commission and attorneys fees for fighting the issue.

Elisha Ortiz received the annuity to settle a wrongful death lawsuit after her mother was killed in a car accident when she was five years old. She received lump sum payments at ages 18, 19, 20, 21 and 25 and was to receive $900 monthly for life.

She filed bankruptcy in Kansas City, Kansas in April 2009. She declared the annuity exempt under Kansas law. The trustee objected to the exemption.

Ortiz lost her exemption claim because Kansas has no exemption for personal injury settlements. She would have won her exemption in at least 13 states, which allow the exemption under 11 U.S.C. 522(d)(11)(B).

Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.

The exemption statute relied upon by Ortiz was 11 U.S.C. 522(d)(10)(E) for benefits

  1. in the nature of a stock bonus, pension, profit sharing, annuity, or similar plan or contract;
  2. arise on account of illness, disability, death, age or length of service; and
  3. are reasonably necessary for the support of the debtor and the debtor’s dependents.

Bankruptcy Judge Robert D. Berger ruled this week that 522(d)(10)(E) “protects future income streams which are intended to replace wages lost upon retirement, disability, or the death of a wage earner upon whom the claimant was dependent.”

“Section 522(d)(10)(E) is consistently read as exempting employment-related substitutes for hourly or salaried wages,” the judge said.

“A debtor’s right to receive a payment on account of the wrongful death of an individual on whom the debtor was a dependent is exempt under 522(d)(11)(B)” not 522(d)(10)(E), Judge Berger ruled. Unfortunately for Ortiz, 522(d)(11)(B) is not the law in Kansas.

In re Elisha S. Ortiz, Case No. 09-21027, (Bankr. Kan. December 15, 2009).

By Topeka, Kansas, Bankruptcy Attorney, Jill A. Michaux


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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.
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