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High Court Permits Bankruptcy Filer to Exempt Annuity on Account of Age - Silliman v. Cassell

March 3, 2013

Vincent Howard and our Ontario consumer bankruptcy lawyers were interested to see a decision that permitted a bankruptcy filer to keep a financial asset she relies on. In Silliman v. Cassell, Lou Ann Cassell of Georgia filed for Chapter 7 bankruptcy and attempted to keep an annuity she had purchased with inherited money. Georgia law permits bankruptcy filers to keep annuities under certain conditions, including that the payments are due "on account of age" and that they are funded with wages or employment benefits. The trustee objected to this, but the bankruptcy court overruled and the U.S. District Court affirmed. On appeal, the Eleventh U.S. Circuit Court of Appeals asked the Georgia Supreme Court to decide whether an annuity purchased with inherited funds is an exempt annuity under state law, and how to determine what is "on account of age."

Cassell inherited $220,000 from a relative in 2008. After consulting with advisors, she used the money in 2009 to buy a single-premium fixed annuity from National Life Insurance Co., providing monthly payments of $1,389.14 for 10 years. She was 65 at the time and named her children as beneficiaries if she should die before the 10 years were up. In 2010, she filed for bankruptcy, listing the annuity as an asset but also claiming it as exempt. The trustee objected, arguing that Georgia law requires exempt annuities to be funded by employment-related wages or benefits and that they be purchased "on account of age." The bankruptcy court found that Cassell met both requirements. The district court upheld this but remanded because the bankruptcy court didn't rule on the law's third requirement. The trustee later stipulated that this requirement was met and appealed to the Eleventh Circuit.

That court sent the Georgia Supreme Court two questions: 1) is a single-premium fixed annuity purchased with inherited money an annuity for exemption purposes? And 2) is the right to receive annuity payments "on account of age" if the annuity payments are subject to age-based tax treatment; if age was the debtor's reason for purchasing the annuity; or if the payments are calculated by the debtor's age?

The high court started by analyzing caselaw on the analogous federal exemption, and concluded that as with federal law, the Georgia exemption is intended to protect annuity income that substitutes for wages. It disagreed with other cases that focused on the source of the money used to buy the annuity. It then found that Cassell's annuity was so intended. Cassell bought it when she was self-employed and 65 years old; she testified that she bought it to support her during retirement. Thus, it said yes to the first question: the annuity is an annuity under Georgia law. On the second issue, the court found that a purchase is "on account of age" if there's any kind of causal connection between the debtor's age and the purchase. Under caselaw, this can be established in a number of ways, the court said; in this case, using multiple factors.

Vincent Howard and our Anaheim Hills personal bankruptcy attorneys are pleased that this bankruptcy debtor will be able to exempt wages that even the trustee concedes are reasonably necessary to support herself. The goal of bankruptcy, as the court notes early on in the opinion, is to permit debtors a chance at a fresh start. If Cassell and people like her are unable to support themselves, it's clear that they haven't got much of a chance at a fresh start. Here in California, bankruptcy filers can choose from the federal exemptions, which include an exemption very similar to the Georgia one at issue here, or state exemptions for annuities necessary for the filer's support. Similar rules apply to other investment vehicles, such as IRAs or pensions--and older Americans are unfortunately a fast-growing segment of bankruptcy filers. If you're interested in how this could affect you, talk to Vincent Howard and our Perris individual bankruptcy attorneys today.

Howard Law, P.C., represents Californians who are considering bankruptcy as a way to deal with overwhelming debt or a looming wrongful foreclosure. To learn more or set up a consultation, call us today at 1-800-872-5925 or send us an email.

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