Opinion
Case No. 8:13-bk-06517-RCT
06-28-2017
In re: Roger Edwin Roscoe and Lorraine Esther Roscoe, Debtors.
Chapter 13 DECISION AND ORDER GRANTING , IN PART, MOTION TO MODIFY CONFIRMED PLAN AND OBJECTION TO DEBTOR'S CLAIM OF EXEMPTION
(Doc. 45)
Roger and Lorraine Roscoe filed a chapter 13 petition in May 2013. (Doc. 1). Their five-year plan was confirmed in March 2014. (Doc. 35). The Roscoes have made their monthly plan payments and otherwise have complied with their responsibilities under the confirmed plan and, more generally, the Bankruptcy Code. The last payment under the confirmed plan is scheduled to occur in May 2018.
Sadly, Lorraine Roscoe lost her battle with ovarian cancer and passed away in January 2017. Lorraine held two life insurance policies. Roger is the beneficiary of both policies. After Lorraine's death, Roger duly amended his bankruptcy schedules to disclose the life insurance proceeds he received and to claim them as exempt under Florida law. (Doc. 44).
The chapter 13 trustee timely objected to the claimed exemption and moved to modify the Roscoes' plan to use the proceeds of the insurance policies to pay creditors. (Doc. 45). Roger, now the sole Debtor, opposes the trustee's motion, arguing that the insurance proceeds are not property of the chapter 13 estate because they were acquired more than 180 days after the petition was filed. Alternatively, he argues that the proceeds are exempt under Fla. Stat. § 222.13. (Doc. 47).
Having carefully considered the matter, the court concludes that the trustee is correct. The proceeds of the life insurance policies are property of the chapter 13 estate. Furthermore, the proceeds are not exempt under Florida law, except as to creditors holding claims only against Lorraine.
On a personal note, the court rejects any contention that Lorraine's death resulted in a "windfall" to Roger. Roger is obviously saddened and badly shaken by this tragic turn of events. Not only has Roger lost his wife, he also has lost her emotional and financial support. His loss will extend well beyond the life of this chapter 13 case. The insurance proceeds are hardly a windfall when viewed in terms of his loss.
DISCUSSION
The Life Insurance Proceeds are Property of the Estate
Courts do not agree on whether the proceeds of a life insurance policy are property of the estate if they are acquired more than 180 days into a chapter 13 case. But having read the applicable statutes, case law, and legislative history, it seems clear that Congress intended that life insurance proceeds received at any time during a chapter 13 case are property of the chapter 13 estate.
Compare Carroll v. Logan, 735 F.3d 147 (4th Cir. 2013) (concluding life insurance proceeds received more than 180 days after the filing of the petition are property of the chapter 13 estate), with In re Key, 465 B.R. 709 (Bankr. S.D. Ga. 2012) (concluding such proceeds are not property of the estate).
In general, section 541 of the Bankruptcy Code defines "property of the estate" to include "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1) (emphasis added). Section 541(a)(5) expands that definition to include life insurance proceeds acquired within 180 days after commencement of the case. Because Roger received the proceeds well after the 180-day period, he argues that the proceeds are excluded from his bankruptcy estate. If the analysis stopped here, he might be correct.
Sectional references are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code"), unless otherwise indicated.
§ 541(a)(5)(C). Similarly, under this same subsection, inheritances and certain property rights arising from a divorce decree are included in "property of the estate" if acquired by the debtor within 180 days after filing of the bankruptcy petition. § 541(a)(5)(A), (B).
But this is a chapter 13 case, and section 1306 more specifically defines property of the estate in chapter 13. Section 1306(a) expands the definition even further, providing that property of the estate includes "in addition to the property specified in section 541 . . . all property of the kind specified in [§ 541] that the debtor acquires after commencement of the case but before the case is closed, dismissed, or converted . . . ." § 1306(a)(1) (emphasis added). The plain language of section 1306(a) compels the conclusion that any life insurance proceeds acquired by a chapter 13 debtor becomes property of the estate until the case is dismissed, closed, or converted. Indeed, this is the opinion of an overwhelming majority of courts.
See, e.g., In re Nott, 269 B.R. 250, 256 (Bankr. M.D. Fla. 2000).
E.g., Dale v. Maney (In re Dale), 505 B.R. 8, 11-12 (B.A.P. 9th Cir. 2014); Carroll, 735 F.3d at 150-51; see also In re Lombardi, 551 B.R. 84 (Bankr. D. Mass. 2016); In re Gilbert, 526 B.R. 414 (Bankr. N.D. Ga. 2015); In re Tinney, No. 07-42020-JJR13, 2012 WL 2742457, at *1 (Bankr. N.D. Ala. July 9, 2012); In re Morrison, 403 B.R. 895 (Bankr. M.D. Fla. 2009); In re Mullican, 417 B.R. 389 (Bankr. E.D. Tex. 2008); In re Nott, 269 B.R. 250.
Where the language of the Code is plain, further analysis is not required. Still it is worth noting that the both the legislative history and the structure of chapter 13 support the majority view. First, Congress intended section 1306(a) to expand the definition of property of the estate in chapter 13 cases. Second, Congress intended chapter 13 plans to be modifiable based on a debtor's increased or decreased "ability to pay" during the life of the plan. This "ability to pay" standard authorizes chapter 13 plan modifications regardless of whether the new found ability to pay constitutes "disposable income" within the meaning of section 1325. An inheritance, a personal injury claim, even lottery winnings—all can be the basis of an upward modification of a confirmed chapter 13 plan. Equally, a loss of employment or medical disaster can be the basis of a downward modification. This simply is the nature of chapter 13 as designed by Congress.
See, e.g., United States v. Fretz (In re Fretz), 244 F.3d 1323, 1327 (11th Cir. 2001); Inglesby, Falligant, Horne, Courington & Nash, P.C. v. Moore (In re Am. Steel Prod., Inc.), 197 F.3d 1354, 1356 (11th Cir. 1999).
See In re Gilbert, 526 B.R. at 418 (citing S. REP. NO. 95-989, at 140-41 (1978) ("Section 1306 broadens the definition of property of the estate for chapter 13 purposes to include all property acquired . . . after the commencement of the case.")).
See Carroll, 735 F.3d at 151; Waldron v. Brown (In re Waldron), 536 F.3d 1239, 1246 (11th Cir. 2008) ("When a debtor discloses assets acquired after confirmation to the court, his creditors may share in any unanticipated gain if the court determines that these assets are available to repay debts. If he loses a stream of income, a debtor likewise can move to modify his plan to decrease his payments." (citations omitted)).
See In re Waldron, 536 F.3d at 1243 (listing cases); In re Kirby, No. BK10-40455-TLS, 2012 WL 733884, at *1 (Bankr. D. Neb. Mar. 6, 2012) (settlement from personal injury claim); In re Nott, 269 B.R. 250 (inheritance); In re Koonce, 54 B.R. 643 (Bankr. D.S.C. 1985) (lottery winnings).
See In re Waldron, 536 F.3d at 1246; In re Nott, 269 B.R. at 253.
A well-respected minority of courts interpret section 1306 to incorporate the 180-day time limit found in section 541(a)(5). These courts also view section 541(a)(5) as a more specific statute concerning life insurance and inheritance proceeds that should prevail over section 1306(a)(1).
See, e.g., In re Key, 465 B.R. 709; Le v. Walsh (In re Walsh), No. 07-60774, 2011 WL 2621018 (Bankr. S.D. Ga. June 15, 2011); In re Schlottman, 319 B.R. 23 (Bankr. M.D. Fla. 2004).
But the reference in section 1306(a) to section 541 focuses on the "kind" of property specified in 541. And, more importantly, section 1306(a) includes its own specific time parameters. Because section 1306 is applicable only in chapter 13 cases, it is the more specific statute and therefore more compelling when addressing chapter 13 issues.
§ 103(i) ("Chapter 13 of this title applies only in a case under such chapter.").
The Life Insurance Proceeds are Not Exempt as to Roger's Creditors
Section 222.13 of the Florida Statutes protects the beneficiary of a life insurance policy from creditors of the decedent. The statute does not protect the beneficiary from his own creditors. While the proceeds are exempt from creditors holding claims as against Lorraine only, the insurance proceeds are not exempt from Roger's own creditors or joint creditors. Because most of the Roscoes' creditors are joint creditors or hold claims as against Roger only, the allowable exemption will provide little benefit to Roger.
In re Zesbaugh, 190 B.R. 951, 953 (Bankr. M.D. Fla. 1995).
EPILOGUE
At oral argument, Debtors' counsel reluctantly informed the court that if the life insurance proceeds were found to be property of the chapter 13 estate, Mr. Roscoe would be forced to dismiss or convert his chapter 13 case. The court understands that this is not Mr. Roscoe's preferred course, but it may be an appropriate course under the circumstance.
See, e.g., In re Stillwaggon, No. 9:10-bk-12289-FMD, 2014 WL 1087898 (Bankr. M.D. Fla. March 19, 2014). --------
For these reasons, it is
ORDERED AND ADJUDGED:
1. The trustee's Motion to Modify Confirmed Plan and Objection to Debtors' Amended Schedule C is GRANTED, in part.
2. The life insurance proceeds received by Mr. Roscoe from the policies held by Mrs. Roscoe are property of the chapter 13 estate.
3. The trustee's objection to Mr. Roscoe's claim of exemption in the proceeds is sustained to the extent of claims of creditors as against the Debtors jointly or as against Roger Roscoe only, and overruled to the extent of claims of creditors as against Lorraine Roscoe only.
ORDERED.
Dated: June 28, 2017
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Chapter 13 Trustee Kelly Remick is directed to serve a copy of this order upon interested parties and unless exempted by Local Rule 9013-1(b), file proof of service within 3 days of entry of the order.