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Chapter 7 Bankruptcy Blog Post

Recent Georgia Exemption Court Decision

A recent bankruptcy court decision in Silliman v. Cassell reacquaints us with the similarities and differences in the Georgia exemption language in 44-13-100(a)(2)(E) and in the federal exemption in 11 USC Section 522(d)(10)(E). The Georgia exemption is modeled after the federal exemption and is similar, but not identical. Georgia exempts "a payment under a pension, annuity or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor." Both statutes exempt an annuity. While the Georgia statute does not specifically exempt stock bonus plans and profit sharing plans, the federal statute does specifically exempt these plans.

The basic role of exemptions in a Chapter 7 case is to shield and protect a clients assets in real and personal property from the trustee and creditors so that the asset will remain available to support the client and his family in the client's "fresh start" after bankruptcy. Whether an exemption is available to shield a client's annuity from the claim of a trustee or a creditor can make all the difference in the level of success of a Chapter 7 case and the assets available to the client for a fresh start.

This case involved a single premium annuity purchased directly by Ms. Cassell with $220,000.00 inherited from her mother. She purchased the annuity on May 1, 2009, prior to filing her Chapter 7 case, The annuity provided for a monthly payment of $1,389.14 beginning June, 1, 2009 "for her life" with a guaranteed payment for 10 years. Ms Cassell claimed the full value of the annuity as exempt under the Georgia exemption and the trustee objected that it was not a retirement vehicle protected by the exemption.

As Judge Hagenau points out, "the courts look at whether it is a 'contract to provide benefits in lieu of earnings after retirement, whether funded by an employer or purchased by the employee or the self-employed.... or a plan to fill or supplement a salary void."

The key is whether the annuity provides "income that substitutes for wages" and is a true retirement vehicle and not a non-exempt investment vehicle. The factors evaluated by the judge in determining that this annuity was a retirement vehicle are examined in her decision. Unhappy with the decision, on June 29, 2012, the trustee appealed the case to the 11th Circuit Court of Appeals in Atlanta , so stay tuned.

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