New York Bankruptcy exemption statutes (as of 2005)
Each state is entitled to list property that a bankruptcy debtor is entitled to keep free and clear of the bankruptcy trustee. These assets are commonly referred to as 'exempt property.' In New York State debtors are entitled to exempt property described in the following statutes:
Debtor and Creditor (D&C) Section 282
Debtor and Creditor (D&C) Section 283
Civil Practice Law and Rules (CPLR) Section 5205
Civil Practice Law and Rules (CPLR) Section 5206
Insurance Law Section 3212
Note: Under section 522 (b)(3)(C), bankruptcy debtors everywhere in the United States are also entitled to exempt retirement funds that are exempt from taxation inder the Internal revenue Code Sections 401, 403, 408, 408A, 414, 457 or 501(a).
The actual text of the New York exemption statutes is as follows (Mr. Scribner has separated out phrases in the statutes for easier comprehension) are as follows:
D&C Sect. 282:
282. Permissible exemptions in bankruptcy.
Under section five hundred twenty-two of title eleven of the United States Code, entitled "Bankruptcy", an individual debtor domiciled in this state may exempt from the property of the estate, to the extent permitted by subsection (b) thereof, only
- (i) [CPLR 5205 & 5206] personal and real property exempt from application to the satisfaction of money judgments under sections fifty-two hundred five and fifty-two hundred six of the civil practice law and rules,
- (ii) [Ins Law 3212:] insurance policies and annuity contracts and the proceeds and avails thereof as provided in section three thousand two hundred twelve of the insurance law and
- (iii) the following property:
- Bankruptcy exemption of a motor vehicle. One motor vehicle not exceeding twenty-four hundred dollars in value above liens and encumbrances of the debtor.
- Bankruptcy exemption for right to receive benefits. The debtor's right to receive or the debtor's interest in:
- (a) a social security benefit, unemployment compensation or a local public assistance benefit;
- (b) a veterans' benefit;
- (c) a disability, illness, or unemployment benefit; [including Worker's Compensation, per Judge Ninfo's decision in Herald, Bk #99-2078]
- (d) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and
- (e) all payments under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service unless
- (i) such plan or contract,
except those qualified under section 401, 408 or 408A of the United States Internal Revenue Code of 1986, as amended,
was established by the debtor or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose,
- (ii) such plan is on account of age or length of service, and
- (iii) such plan or contract does not qualify under section
four hundred one (a),
of the Internal Revenue Code of nineteen hundred eighty-six, as amended.
four hundred three (a),
four hundred three (b),
four hundred eight, four hundred eight A,
four hundred nine or
four hundred fifty-seven
- (i) such plan or contract,
- Bankruptcy exemption for right to receive certain property. The debtor's right to receive, or property that is traceable to:
- (i) an award under a crime victim's reparation law;
- (ii) a payment on account of the wrongful death of an individual of whom the debtor was a dependent to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
- (iii) a payment, not to exceed seventy-five hundred dollars on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; and
- (iv) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
D&C Sect. 283:
283. Aggregate individual bankruptcy exemption for certain annuities and personal property.
- General application. The aggregate amount the debtor may exempt from the property of the estate for
personal property exempt from application to the satisfaction of a money judgment under subdivision (a) of section fifty-two hundred five of the civil practice law and rules and for benefits, rights, privileges, and
options of annuity contracts described in the following sentence
shall not exceed five thousand dollars.
Annuity contracts subject to the foregoing limitation are those that are:
- (a) initially purchased by the debtor within six months of the debtor's filing a petition in bankruptcy,
- (b) not described in any paragraph of section eight hundred five (d) of the Internal Revenue Code of nineteen hundred fifty-four, and
- (c) not purchased by application of proceeds under settlement options of annuity contracts purchased more than six months before the debtor's filing a petition in bankruptcy or under settlement options of life insurance policies.
- Contingent alternative bankruptcy exemption. Notwithstanding section two hundred eighty-two of this article, a debtor, who
- (a) does not elect, claim, or otherwise avail himself of an exemption described in section fifty-two hundred six of the civil practice law and rules;
- (b) utilizes to the fullest extent permitted by law as applied to said debtor's property, the exemptions referred to in subdivision one of this section which are subject to the five thousand dollar aggregate limit; and
- (c) does not reach such aggregate limit,
For purposes of this subdivision, cash means
currency of the United States at face value,
savings bonds of the United States at face value,
the right to receive a refund of federal, state and local income taxes, and
deposit accounts in any state or federally chartered depository institution.
CPLR 5205:
5205. Personal property exempt from application to the satisfaction of money judgments.
- (a) Exemption for personal property. The following personal property when owned by any person is exempt from application to the satisfaction of a money judgment except
where the judgment is for the purchase price of the exempt property or was recovered by a domestic, laboring person or mechanic for work performed by that person in such capacity:- all stoves kept for use in the judgment debtor's dwelling house and necessary fuel therefor for sixty days; one sewing machine with its appurtenances;
- the family bible, family pictures, and school books used by the judgment debtor or in the family; and other books, not exceeding fifty dollars in value, kept and used as part of the family or judgment debtor's library;
- a seat or pew occupied by the judgment debtor or the family in a place of public worship;
- domestic animals with the necessary food for those animals for sixty days, provided that the total value of such animals and food does not exceed four hundred fifty dollars; all necessary food actually provided for the use of the judgment debtor or his family for sixty days;
- all wearing apparel,
household furniture,
one mechanical, gas or electric refrigerator,
one radio receiver,
one television set,
crockery, tableware and cooking utensils necessary for the judgment debtor and the family; - a wedding ring;
a watch not exceeding thirty-five dollars in value; and - necessary working tools and implements, including those of a mechanic, farm machinery, team, professional instruments, furniture and library, not exceeding six hundred dollars in value, together with the necessary food for the team for sixty days, provided, however, that the articles specified in this paragraph are necessary to the carrying on of the judgment debtor's profession or calling.
- (b) Exemption of cause of action and damages for taking or injuring exempt personal property. A cause of action, to recover damages for taking or injuring personal property exempt from application to the satisfaction of a money judgment, is exempt from application to the satisfaction of a money judgment.
A money judgment and its proceeds arising out of such a cause of action is exempt, for one year after the collection thereof, from application to the satisfaction of a money judgment.
- (c) Trust exemption.
- Except as provided in paragraphs four and five of this subdivision, all property while held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor, is exempt from application to the satisfaction of a money judgment.
- For purposes of this subdivision, all trusts, custodial accounts, annuities, insurance contracts, monies, assets or interests established as part of, and all payments from, either any trust or plan, which is qualified as an individual retirement account under section four hundred eight or section four hundred eight A of the United States Internal Revenue Code of 1986, as amended, a Keogh (HR-10), retirement or other plan established by a corporation, which is qualified under section 401 of the United States Internal Revenue Code of 1986, as amended, or created as a result of rollovers from such plans pursuant to sections 402 (a) (5), 403 (a) (4), 408 (d) (3) or 408A of the Internal Revenue Code of 1986, as amended, or a plan that satisfies the requirements of section 457 of the Internal Revenue Code of 1986, as amended, shall be considered a trust which has been created by or which has proceeded from a person other than the judgment debtor, even though such judgment debtor is
- (i) in the case of an individual retirement account plan, an individual who is the settlor of and depositor to such account plan, or
- (ii) a self-employed individual, or
- (iii) a partner of the entity sponsoring the Keogh (HR-10) plan, or
- (iv) a shareholder of the corporation sponsoring the retirement or other plan or
- (v) a participant in a section 457 plan.
- All trusts, custodial accounts, annuities, insurance contracts, monies, assets, or interests described in paragraph two of this subdivision shall be conclusively presumed to be spendthrift trusts under this section and the common law of the state of New York for all purposes, including, but not limited to, all cases arising under or related to a case arising under sections one hundred one to thirteen hundred thirty of title eleven of the United States Bankruptcy Code, as amended.
- This subdivision shall not impair any rights an individual has under a qualified domestic relations order as that term is defined in section 414(p) of the United States Internal Revenue Code of 1986, as amended or under any order of support, alimony or maintenance of any court of competent jurisdiction to enforce arrears/past due support whether or not such arrears/past due support have been reduced to a money judgment.
- Additions to an asset described in paragraph two of this subdivision shall not be exempt from application to the satisfaction of a money judgment if
- (i) made after the date that is ninety days before the interposition of the claim on which such judgment was entered, or
- (ii) deemed to be fraudulent conveyances under article ten of the debtor and creditor law.
- (d) Income exemptions. The following personal property is exempt from application to the satisfaction of a money judgment, except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents:
- ninety per cent of the income or other payments from a trust the principal of which is exempt under subdivision (c); provided, however, that with respect to any income or payments made from trusts, custodial accounts, annuities, insurance contracts, monies, assets or interest established as part of an individual retirement account plan or as part of a Keogh (HR-10), retirement or other plan described in paragraph two of subdivision (c) of this section, the exception in this subdivision for such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents shall not apply, and the ninety percent exclusion of this paragraph shall become a one hundred percent exclusion;
- ninety per cent of the earnings of the judgment debtor for his personal services rendered within sixty days before, and at any time after, an income execution is delivered to the sheriff or a motion is made to secure the application of the judgment debtor's earnings to the satisfaction of the judgment; and
- payments pursuant to an award in a matrimonial action, for the support of a wife, where the wife is the judgment debtor, or for the support of a child, where the child is the judgment debtor; where the award was made by a court of the state, determination of the extent to which it is unnecessary shall be made by that court.
- (e) Exemptions to members of armed forces.
The pay and bounty of a non-commissioned officer, musician or private in the armed forces of the United States or the state of New York;
a land warrant, pension or other reward granted by the United States, or by a state, for services in the armed forces;
a sword, horse, medal, emblem or device of any kind presented as a testimonial for services rendered in the armed forces of the United States or a state; and
the uniform, arms and equipments which were used by a person in the service, are exempt from application to the satisfaction of a money judgment;
provided, however, that the provisions of this subdivision shall not apply to the satisfaction of any order or money judgment for the support of a person's child, spouse, or former spouse. - (f) Exemption for unpaid milk proceeds.
Ninety per cent of any money or debt due or to become due to the judgment debtor for the sale of milk produced on a farm operated by him and delivered for his account to a milk dealer licensed pursuant to article twenty-one of the agriculture and markets law is exempt from application to the satisfaction of a money judgment. - (g) Security deposit exemption.
Money deposited as security for the rental of real property to be used as the residence of the judgment debtor or the judgment debtor's family; and money deposited as security with a gas, electric, water, steam, telegraph or telephone corporation, or a municipality rendering equivalent utility services, for services to judgment debtor's residence or the residence of judgment debtor's family, are exempt from application to the satisfaction of a money judgment. - (h) The following personal property is exempt from application to the satisfaction of money judgment,
except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents:
- any and all medical and dental accessions to the human body and all personal property or equipment that is necessary or proper to maintain or assist in sustaining or maintaining one or more major life activities or is utilized to provide mobility for a person with a permanent disability; and
- any guide dog, service dog or hearing dog, as those terms are defined in section one hundred eight of the agriculture and markets law, or any animal trained to aid or assist a person with a permanent disability and actually being so used by such person, together with any and all food or feed for any such dog or other animal.
- (i) Exemption for life insurance policies.
The right of a judgment debtor to accelerate payment of part or all of the death benefit or special surrender value under a life insurance policy, as authorized by paragraph one of subsection (a) of section one thousand one hundred thirteen of the insurance law[*see below], or to enter into a viatical settlement pursuant to the provisions of article seventy-eight of the insurance law, is exempt from application to the satisfaction of a money judgment. - (j) Exemption for New York state college choice tuition savings program trust fund payment monies. Monies in an account created pursuant to article fourteen-A of the education law are exempt from application to the satisfaction of a money judgment as follows:
- one hundred percent of monies in an account established in connection with a scholarship program established pursuant to such article is exempt;
- one hundred percent of monies in an account is exempt where the judgment debtor is the account owner and designated beneficiary of such account and is a minor; and
- an amount not exceeding ten thousand dollars in an account, or in the aggregate for more than one account, is exempt where the judgment debtor is the account owner of such account or accounts.
- (k) Notwithstanding any other provision of law to the contrary, where the judgment involves funds of a convicted person as defined in paragraph (c) of subdivision one of section six hundred thirty-two-a of the executive law,
and all or a portion of such funds represent compensatory damages awarded by judgment to a convicted person in a separate action,
a judgment obtained pursuant to such section six hundred thirty-two-a shall not be subject to execution or enforcement against the first ten percent of the portion of such funds that represents compensatory damages in the convicted person's action;
provided, however, that this exemption from execution or enforcement shall not apply to judgments obtained by a convicted person prior to the effective date of the chapter of the laws of two thousand one which added this sentence or to any amendment to such judgment where such amendment was obtained on or after the effective date of this subdivision.
For the purpose of determining the amount of a judgment which is not subject to execution or enforcement pursuant to this subdivision:
- (i) the court shall deduct attorney's fees from that portion of the judgment that represents compensatory damages and multiply the remainder of compensatory damages by ten percent; and
- (ii) when the judgment includes compensatory and punitive damages, attorney's fees shall be pro rated among compensatory and punitive damages in the same proportion that all attorney's fees bear to all damages recovered.
CPLR Sect. 5206:
5206. Real property exempt from application to the satisfaction of money judgments.
- (a) Exemption of homestead. Property of one of the following types, not exceeding fifty thousand dollars in value above liens and encumbrances, owned and occupied as a principal residence, is exempt from application to the satisfaction of a money judgment, unless the judgment was recovered wholly for the purchase price thereof:
- a lot of land with a dwelling thereon,
- shares of stock in a cooperative apartment corporation,
- units of a condominium apartment, or
- a mobile home.
- (b) Homestead exemption after owner's death. The homestead exemption continues after the death of the person in whose favor the property was exempted for the benefit of the surviving spouse and surviving children until the majority of the youngest surviving child and until the death of the surviving spouse.
- (c) Suspension of occupation as affecting homestead. The homestead exemption ceases if the property ceases to be occupied as a residence by a person for whose benefit it may so continue, except where the suspension of occupation is for a period not exceeding one year, and occurs in consequence of injury to, or destruction of, the dwelling house upon the premises.
- (d) Exemption of homestead exceeding fifty thousand dollars in value. The exemption of a homestead is not void because the value of the property exceeds fifty thousand dollars but the lien of a judgment attaches to the surplus.
- (e) Sale of homestead exceeding fifty thousand dollars in value.
A judgment creditor may commence a special proceeding in the county in which the homestead is located against the judgment debtor for the sale, by a sheriff or receiver, of a homestead exceeding fifty thousand dollars in value.
The court may direct that the notice of petition be served upon any other person.
The court, if it directs such a sale, shall so marshal the proceeds of the sale that the right and interest of each person in the proceeds shall correspond as nearly as may be to his right and interest in the property sold.
Money, not exceeding fifty thousand dollars, paid to a judgment debtor, as representing his interest in the proceeds, is exempt for one year after the payment, unless, before the expiration of the year, he acquires an exempt homestead, in which case, the exemption ceases with respect to so much of the money as was not expended for the purchase of that property; and the exemption of the property so acquired extends to every debt against which the property sold was exempt.
Where the exemption of property sold as prescribed in this subdivision has been continued after the judgment debtor's death, or where he dies after the sale and before payment to him of his portion of the proceeds of the sale, the court may direct that portion of the proceeds which represents his interest be invested for the benefit of the person or persons entitled to the benefit of the exemption, or be otherwise disposed of as justice requires.
- (f) Exemption of burying ground. Land, set apart as a family or private burying ground, is exempt from application to the satisfaction of a money judgment, upon the following conditions only:
- a portion of it must have been actually used for that purpose;
- it must not exceed in extent one-fourth of an acre; and
- it must not contain any building or structure, except one or more vaults or other places of deposit for the dead, or mortuary monuments.
Insurance Law Section 1113(a)(1):
"Life Insurance," means
every insurance upon the lives of human beings, and
every insurance appertaining thereto,
including the granting of endowment benefits,
additional benefits in the event of death by accident,
additional benefits to safeguard the contract from lapse,
accelerated payments of part or all of the death benefit or a special surrender value upon
(A) diagnosis of terminal illness defined as a life expectancy of twelve months or less,
(B) diagnosis of a medical condition requiring extraordinary medical care or treatment regardless of life expectancy,
(C) certification by a licensed health care practitioner of any condition which requires continuous care for the remainder of the insured's life in an eligible facility or at home when the insured is chronically ill as defined by Section 7702(B) of the Internal Revenue Code and regulations thereunder,
provided the accelerated payments qualify under Section 101(g)(3) of the Internal Revenue Code and all other applicable sections of federal law in order to maintain favorable tax treatment, or
(D) certification by a licensed health care practitioner that the insured is chronically ill as defined by Section 7702 (B) of the Internal Revenue Code and regulations thereunder,
provided the accelerated payments qualify under Section 101(g)(3) of the Internal Revenue Code and all other applicable sections of federal law in order to maintain favorable tax treatment and the insurer that issues such policy is a qualified long term care insurance carrier under Section 4980c of the Internal Revenue Code or
provide a special surrender value, upon total and permanent disability of the insured, and optional modes of settlement of proceeds.
"Life insurance" also includes additional benefits to safeguard the contract against lapse in the event of unemployment of the insured or in the event the insured is a resident of a nursing home.
Amounts paid the insurer for life insurance and proceeds applied under optional modes of settlement or under dividend options may be allocated by the insurer to one or more separate accounts pursuant to section four thousand two hundred forty of this chapter.
Insurance Law 3212:
3212. Exemption of proceeds and avails of certain insurance and annuity contracts.
- (a) In this section:
- The term "proceeds and avails", in reference to policies of life insurance, includes death benefits, accelerated payments of the death benefit or accelerated payment of a special surrender value, cash surrender and loan values, premiums waived, and dividends, whether used in reduction of premiums or in whatever manner used or applied, except where the debtor has, after issuance of the policy, elected to receive the dividends in cash.
- An annuity contract includes any obligation to pay certain sums at stated times, during life or lives, or for a specified term or terms, issued for a valuable consideration, regardless of whether such sums are payable to one or more persons, jointly or otherwise, but does not include payments under a life insurance policy at stated times during life or lives, or for a specified term or terms.
- The term "creditor" includes every claimant under a legal obligation contracted or incurred after December thirty-first, nineteen hundred thirty-nine.
- The term "execution" includes execution by garnishee process and every action, proceeding or process whereby assets of a debtor may be subjected to the claims of creditors.
- (b)
- If a policy of insurance has been or shall be effected by any person on his own life in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person effecting the insurance.
- If a policy of insurance has been or shall be effected upon the life of another person in favor of the person effecting the same or made payable otherwise to such person, the latter shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured. If the person effecting such insurance shall be the spouse of the insured, he or she shall be entitled to the proceeds and avails of such policy as against his or her own creditors, trustees in bankruptcy and receivers in state and federal courts.
- If a policy of insurance has been or shall be effected by any person on the life of another person in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured and of the person effecting the insurance.
-
- (A) The person insured pursuant to paragraph one of this subsection or the person effecting the insurance other than the spouse of the insured pursuant to paragraph two hereof, and the person effecting the insurance pursuant to paragraph three hereof, or the executor or administrator of any such persons, or a person entitled to the proceeds or avails of such policy in trust for such persons shall not be deemed a third person beneficiary, assignee or payee.
- (B) A policy shall be deemed payable to a third person beneficiary if and to the extent that a facility-of-payment clause or similar clause in the policy permits the insurer to discharge its obligation after the death of the person insured by paying the death benefits to a third person.
- This section shall be applicable whether or not the right is reserved in any such policy to change the designated beneficiary and whether or not the policy is made payable to the person whose life is insured if the beneficiary, assignee or payee shall predecease such person; and no person shall be compelled to exercise any rights, powers, options or privileges under such policy.
- If a policy of insurance has been or shall be effected by any person on his own life or upon the life of another person, the policyowner shall be entitled to any accelerated payments of the death benefit or accelerated payment of a special surrender value permitted under such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the policyowner.
- (c)
- No money or other benefits payable or allowable under any policy of insurance against disability arising from accidental injury or bodily infirmity or ailment of the person insured, shall be liable to execution for the purpose of satisfying any debt or liability of the insured, whether incurred before or after the commencement of the disability, except as provided in subsection (e) hereof.
- With respect to debts or liabilities incurred for necessaries furnished the insured after the commencement of disability, the exemption shall not include any income payment benefits payable as a result of any disability of the insured, and with respect to all other debts or liabilities incurred after the commencement of disability of the insured, the exemption of income payment benefits payable as a result of any disability of the insured shall not at any time exceed payment at a rate of four hundred dollars per month for the period of such disability.
- When a policy provides for lump sum payment because of a dismemberment or other specific loss of insured, such payment shall be exempt from execution of insured's creditors.
- This subsection shall not affect the assignability of any benefit otherwise assignable.
- (d)
- The benefits, rights, privileges and options which, under any annuity contract are due or prospectively due the annuitant, who paid the consideration for the annuity contract, shall not be subject to execution.
- The annuitant shall not be compelled to exercise any such rights, powers or options contained in the annuity contract, nor shall creditors be allowed to interfere with or terminate the contract, except as provided in subsection (e) hereof and except that the court may order the annuitant to pay to a judgment creditor or apply on the judgment in installments, a portion of such benefits that appears just and proper to the court, with due regard for the reasonable requirements of the judgment debtor and his family, if dependent upon him, as well as any payments required to be made by the annuitant to other creditors under prior court orders.
- The benefits, rights, privileges or options accruing under such contract to a beneficiary or assignee shall not be transferable nor subject to commutation. If the benefits are payable periodically or at stated times, the same exemptions and exceptions contained herein for the annuitant shall apply with respect to such beneficiary or assignee.
- The benefits, rights, privileges or options accruing under an annuity contract funding a structured settlement which would otherwise be nontransferable under this subsection may be transferred in accordance with title seventeen of article five of the general obligations law. As used in this paragraph the term "structured settlement" means an arrangement for periodic payments of damages for personal injuries established by settlement or judgment in resolution of a tort claim; and the term "periodic payments" shall include scheduled future lump sum payments.
- (e)
- Every assignment or change of beneficiary or other transfer is valid, except in cases of transfer with actual intent to hinder, delay or defraud creditors, as defined by article ten of the debtor and creditor law. In such cases creditors shall have all the remedies provided by such article ten.
- (A) Subject to the statute of limitations, the amount of premiums or other consideration paid with actual intent to defraud creditors as provided in article ten of the debtor and creditor law, together with interest on such amount, shall enure to the benefit of creditors from the proceeds of the policy or contract; but the insurer issuing such policy or contract shall be discharged of liability thereunder by making payments in accordance with its terms, or in accordance with any assignment, change of beneficiary or other transfer, unless before any such payment such insurer shall have received written notices, by or on behalf of any such creditor, of a claim to recover any benefits on the ground of a transfer or payment made with intent to defraud such creditor.
(B) The notice shall specify the amount claimed or sufficient facts to enable the insurer to ascertain such amount, the insurance or annuity contract, the person insured or annuitant, and the transfers or payments sought to be avoided on the ground of fraud. - ) (A) Notwithstanding any inconsistent provision of this section or other law, any right of subrogation to benefits to which a local social services district, the department of social services, or the commissioner of health or his designee, shall be entitled shall be valid and enforceable to the extent benefits are available under any individual accident and health insurance, group or blanket accident and health insurance, or noncancellable disability insurance policy, or any subscriber contract made by a corporation subject to the provisions of article forty-three of this chapter, except that no such right of subrogation shall be enforceable if such benefits may be claimed by the department of social services, an appropriate social services official or the commissioner of health or his designee, by agreement or other established procedure, directly from an insurance carrier.
(B) The right of subrogation does not attach to insurance benefits paid or provided under any health insurance policy prior to the receipt by the carrier issuing such insurance of written notice from the department of social services, a local social services district, or the commissioner of health or his designee, of the exercise of subrogation rights.
(C) No right of subrogation to insurance benefits available under any health insurance policy shall be enforceable unless written notice of the exercise of such subrogation right is received by the carrier within two years from the date services for which benefits are provided under the policy or contract are rendered. - No terms of any policy or contract which directly or indirectly prevent or prohibit the assignment of rights under any policy or contract prevent a local social services district, the department of social services, or the commissioner of health or his designee, from claiming benefits to which it shall be subrogated. The right of subrogation attaches to any benefits paid or provided under any policy, plan or contract upon receipt of written notice of the exercise of such subrogation rights.
- (f) This section shall likewise apply to group insurance policies or annuity contracts, to the certificates or contracts of fraternal benefit societies, and to the policies or contracts of cooperative life and accident insurance companies.
Cash value of life insurance: UST memo:
Here is my "memo of law" that I have been providing on the cash value life insurance issue.
To summarize:
H or W file alone
- policy lists other spouse/children - exempt
- If lists self or "estate" as beneficiary - not exempt
H & W files joint petition:
a) H has cash value policy listing W as beneficiary - not exempt
b) W has cash value policy listing H as beneficiary - not exempt
c) H or W have a cash value policy listing children or other than H or W - exempt.
The controlling case is In re Teufel, a WNY District Court case decided by Judge Skretny. The citation and discussion can be found in the following 2 cases, excerpts are set out below: As a result, "WE" are bound by Judge Skretny's decision which found in jointly filed cases - cash value life insurance is not exempt and is an asset able to be administered by the Trustee.
HERE ARE THE CASE EXCERPTS:
United States Bankruptcy Court,W.D. New York.
In re Helen Gladyce TRAUTMAN, Debtor.
In re Patricia A. Trautman, Debtor.Nos. 02-15493 B, 02-15404 B.
July 25, 2003.
REPORTED AT 296 B.R. 651:
CARL L. BUCKI, Bankruptcy Judge.
In Teufel, the trustee objected to a claim of exemption in two polices of whole life insurance. Each of the co-debtor spouses had purchased or "effected" one of these policies in order to insure his or her own life, and each spouse had designated the other as his or her beneficiary. The respective policy owners retained exclusive rights to change beneficiary and to liquidate the cash surrender value of the policy. In the Bankruptcy Court, Judge Kaplan sustained the trustee's objection and ruled that the policies were subject to administration. On appeal to the District Court, the Honorable William M. Skretny affirmed the order of Judge Kaplan. In his written opinion, Judge Skretny did accept a portion of the rationale that I had adopted in Polanowski:
As was established by the Second Circuit in In re Messinger, 29 F.2d 158, 161-62 (1928) and reiterated in In re Polanowski, 258 B.R. 86, 89 (Bankr.W.D.N.Y.2001) , absent a fraudulent transfer, one spouse may pay for a life insurance policy on his or her life for the benefit of the other spouse, and that policy, including any cash surrender value, is beyond the reach of the creditors of the insured spouse. While the Second Circuit upheld an exemption In re Messinger for the cash value of a life insurance policy as against creditors of the insured/policy owner/debtor, the court did not address whether such an exemption existed as against the creditors of a beneficiary, when that beneficiary is a joint debtor in a bankruptcy case.
In re Teufel, No. 02-CV-81S, slip op. at 8 (W.D.N.Y. Sept. 24, 2002). The District Court disagreed with Polanowski, however, with respect to the exempt status of the interest of the beneficiary. Judge Skretny ruled that although section 3212(b)(1) of the Insurance Law created an exemption as against claims of the owner's creditors, *654 the statute did not insulate the cash value of the life insurance policy from the beneficiary's creditors. Accordingly, in the context of a joint filing, the bankruptcy estate would include the insurance as a non-exempt asset of the beneficiary. In support of this outcome, Judge Skretny further noted that Insurance Law 3212(b)(2) created a limited exemption for insurance that a debtor effects not on his or her own life, but on the life of the spouse. Rather than to fit into the exception of subdivision (b)(2), Mr. and Mrs. Teufel each chose to purchase insurance on their own lives. In conclusion, Judge Skretny stated that he declined "the invitation to judicially create an exemption that was not provided by the New York Legislature in New York's exemption statutes." In re Teufel, No. 02-CV-81S, slip op. at 10 (W.D.N.Y. Sept. 24, 2002).
[1] In the Western District of New York, a decision of any one of the District Judges has always been accepted as a binding precedent in bankruptcy proceedings, unless that decision is reversed or until it is contradicted by a ruling of higher or equal authority. In re Thorsell, 229 B.R. 593, 597 (Bankr.W.D.N.Y.1999). Accordingly, I view my prior decision in In re Polanowski to be effectively overruled with regard to its holding on the exempt status of a policy of life insurance that a debtor effects on his or her own life for the benefit of a co-debtor spouse. These, however, are not the facts of the instant case. Here, the insured owner and beneficiary filed separate petitions. FN1 Being mother and daughter, they had no access to the right that the Bankruptcy Code reserves only to husband and wife for the filing of a joint case. Nonetheless, while its facts are distinguishable, Teufel provides the starting point for analysis of the exemptibility of whole life insurance.
United States Bankruptcy Court,W.D. New York.
In re James A. STUTZMAN Angela M. Stutzman DebtorsNo. 03-17492-K.
April 7, 2004.
REPORTED AT 2004 WL 1465806 (Bankr. W.D.N.Y.):
KAPLAN
*1 This writer agrees with his colleague that the District Court decision in In re Teufel binds each of us. See In re Trautman, 296 B.R. 651 (Bankr.W.D.N.Y.2003) (Bucki, J.). Although Teufel involved reciprocal policies, the District Court's holding was not limited to such a fact pattern. This writer concludes that the Bankruptcy Court is bound by Teufel to conclude that even if there is only one policy, its value may be realized for the benefit of the creditors of the beneficiary in a joint bankruptcy case in which the beneficiary does not own the policy.
This writer expresses no opinion as to what the ruling might be if this Court were not constrained by In re Teufel.
The Trustee's Motion is granted.
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF NEW YORK
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In re
HELEN GLADYCE TRAUTMAN, 02-15493 B
Debtor
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In re
PATRICIA A. TRAUTMAN, 02-15494 B
Debtor
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Goldstein, Bulan & Chiari
Harold P. Bulan, Esq., of counsel
1440 Rand Building
14 Lafayette Square
Buffalo, New York 14203
Attorneys for Trustee
Richard O. Robinson, Esq.
800 Rand Building
14 Lafayette Square
Buffalo, New York 14203
Attorney for Debtors
Bucki, U.S.B.J.
These cases present a further nuance to the determination of when reciprocal policies of life insurance are exempt from the administration of a bankruptcy trustee, by reason of New York Insurance Law 3212(b). Patricia A. Trautman filed a petition for relief under chapter 7 of the Bankruptcy Code at 8:58 A.M. on September 9, 2002. A few minutes later, at 9:01 A.M., Patricia's mother, Helen Gladyce Trautman, filed her own petition for relief under chapter 7. In her schedules, Patricia reported ownership of two policies of whole life insurance having a combined value of $9,578.66. Meanwhile, in her schedules, Helen acknowledged ownership of three policies with cash values totaling $1,935.75. All five contracts insure the life of the owner, and reserve to the owner the right to change beneficiary. For the beneficiary on their respective policies, Patricia and Helen have each designated the other. Both daughter and mother have claimed an exemption for this insurance. In his capacity as trustee for both cases, Harold P. Bulan now objects to these claims of exemption.
The trustee contends that Patricia and Helen Trautman have maintained reciprocal policies of insurance, in that each debtor has designated the other as her beneficiary. As the trustee for both debtors, Mr. Bulan claims to hold a totality of interest in the policies. Relying on the recent decision of the Honorable William M. Skretny in In re Teufel, No. 02-CV-81S (W.D.N.Y. Sept. 24, 2002), the trustee asserts that such reciprocal policies are not exempt from administration. The debtors would distinguish Teufel on the basis that that case involved co-debtors who, as husband and wife, had purchased insurance contemporaneously on their own respective lives for the benefit of the other. Here, Patricia and Helen Trautman filed separate petitions in bankruptcy, and procured each of their respective policies on dates that were separate and distinct.
Section 282 of the New York Debtor and Creditor Law provides that an individual debtor may exempt from the property of her bankruptcy estate "insurance policies and annuity contracts and the proceeds and avails thereof as provided in section three thousand two hundred twelve of the insurance law." Of special relevance to the present dispute are the following subdivisions of section 3212:
(a)(1) The term "proceeds and avails", in reference to policies of life insurance, includes death benefits, accelerated payments of the death benefit or accelerated payment of a special surrender value, cash surrender and loan values, premiums waived, and dividends, whether used in reduction of premiums or in whatever manner used or applied, except where the debtor has, after issuance of the policy, elected to receive the dividends in cash.
(b)(1) If a policy of insurance has been or shall be effected by any person on his own life in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person effecting the insurance.
(2) If a policy of insurance has been or shall be effected upon the life of another person in favor of the person effecting the same or made payable otherwise to such person, the latter shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured. If the person effecting such insurance shall be the spouse of the insured, he or she shall be entitled to the proceeds and avails of such policy as against his or her own creditors, trustees in bankruptcy and receivers in state and federal courts.
During the past four years, the bankruptcy courts in this district have expressed contrasting views about the application of these provisions to insurance that a debtor owns on his or her own life, but which designates a co-debtor spouse as beneficiary. My esteemed colleague, the Honorable Michael J. Kaplan, ruled twice in written opinions that such polices were not exempt under New York law. In In re Mata, 244 B.R. 580, 582 (1999), he reasoned that rights under a whole life policy "cannot reside 'nowhere'". While Insurance Law 3212(b)(1) protects the interest of a third person beneficiary in the "proceeds and avails" of an insurance policy that the debtor effects on his own life, Judge Kaplan held that when that third person beneficiary was a codebtor, the joint bankruptcy petition could not insulate the proceeds and avails of the policy from both the creditors of the insured owner and the creditors of the beneficiary. Reiterating this conclusion in In re Jacobs, 264 B.R. 274 (2001), Judge Kaplan noted that the parties had failed to satisfy the requirements of Insurance Law 3212(b)(2), which would allow an exemption to a spouse who, as beneficiary, effects a policy of insurance on the life of an insured debtor.
For all of the reasons stated in my decision in In re Polonowski, 258 B.R. 86 (2001), I disagreed with the decisions and reasoning of Judge Kaplan. In my view, subdivisions (b)(1) and (b)(2) of Insurance Law 3212 stood independently, and provided separate but limited bases for exemptibility. I felt that the interest of the insured owner was always exempt under subdivision (b)(1), and that the beneficiary held no interest that a trustee could administer. Agreeing with this position was my other esteemed colleague, the Honorable John C. Ninfo, II, in his decision in In re Hickson, No. 00-20130 (Bankr. W.D.N.Y. Aug. 14, 2000). Nonetheless, I recognized the need to resolve the conflict of authority, and urged the parties to appeal my decision in Polonowski
Although no appeal was taken in that case, other litigants obtained a ruling from the district court on a similar dispute in In re Teufel. In Teufel, the trustee objected to a claim of exemption in two polices of whole life insurance. Each of the co-debtor spouses had purchased or "effected" one of these policies in order to insure his or her own life, and each spouse had designated the other as his or her beneficiary. The respective policy owners retained exclusive rights to change beneficiary and to liquidate the cash surrender value of the policy. In the Bankruptcy Court, Judge Kaplan sustained the trustee's objection and ruled that the policies were subject to administration. On appeal to the District Court, the Honorable William M. Skretny affirmed the order of Judge Kaplan. In his written opinion, Judge Skretny did accept a portion of the rationale that I had adopted in Polanowski:
As was established by the Second Circuit in In re Messinger, 29 F2d. 158, 161-62 (1928), and reiterated in In re Polanowski, 258 B.R. 86, 89 (Bankr. W.D.N.Y. 2001), absent a fraudulent transfer, one spouse may pay for a life insurance policy on his or her life for the benefit of the other spouse, and that policy, including any cash surrender value, is beyond the reach of the creditors of the insured spouse. While the Second Circuit upheld an exemption In re Messinger for the cash value of a life insurance policy as against creditors of the insured/policy owner/debtor, the court did not address whether such an exemption existed as against the creditors of a beneficiary, when that beneficiary is a joint debtor in a bankruptcy case. In re Teufel, No. 02-CV-81S, slip op. at 8 (W.D.N.Y. Sept. 24, 2002). The District Court disagreed with Polanowski, however, with respect to the exempt status of the interest of the beneficiary. Judge Skretny ruled that although section 3212(b)(1) of the Insurance Law created an exemption as against claims of the owner's creditors, the statute did not insulate the cash value of the life insurance policy from the beneficiary's creditors. Accordingly, in the context of a joint filing, the bankruptcy estate would include the insurance as a non-exempt asset of the beneficiary. In support of this outcome, Judge Skretny further noted that Insurance Law 3212(b)(- 2) created a limited exemption for insurance that a debtor effects not on his or her own life, but on the life of the spouse. Rather than to fit into the exception of subdivision (b)(2), Mr. and Mrs. Teufel each chose to purchase insurance on their own lives. In conclusion, Judge Skretny stated that he declined "the invitation to judicially create an exemption that was not provided by the New York Legislature in New York's exemption statutes." In re Teufel, No. 02-CV-81S, slip op. at 10 (W.D.N.Y. Sept. 24, 2002).
In the Western District of New York, a decision of any one of the District Judges has always been accepted as a binding precedent in bankruptcy proceedings, unless that decision is reversed or until it is contradicted by a ruling of higher or equal authority. In re Thorsell, 229 B.R. 593, 597 (Bankr. W.D.N.Y. 1999). Accordingly, I view my prior decision in In re Polonowski to be effectively overruled with regard to its holding on the exempt status of a policy of life insurance that a debtor effects on his or her own life for the benefit of a co-debtor spouse. These, however, are not the facts of the instant case. Here, the insured owner and beneficiary filed separate petitions.
{Footnote 1: 1The debtors also contend that the instant case is distinguishable because Helen and Patricia Trautman purchased their insurance policies at different times and without any arrangement or understanding of reciprocity. Section 3212(b) of the Insurance Law does not speak to the question of reciprocity. Accordingly, the contemporaneousness of insurance purchases is a distinction of no consequence to the issue of exempt status.}
Being mother and daughter, they had no access to the right that the Bankruptcy Code reserves only to husband and wife for the filing of a joint case. Nonetheless, while its facts are distinguishable, Teufel provides the starting point for analysis of the exemptibility of whole life insurance. For the reasons stated in Polonowski, I agree fully with that portion of the Teufel decision which recognized that absent a fraudulent transfer, a policy of insurance that a debtor owns on his or her own life for the benefit of another is exempt from the claims of the owner's creditors. Pursuant to Insurance Law 3212(b)(1), the owner may exempt this type of insurance from property of her own bankruptcy estate, without regard to the marital relationship of the insured and beneficiary. Thus, in the present instance, the insurance policy owned by Patricia A. Trautman is exempt from the claims of Patricia's creditors, while the insurance policy owned by Helen Gladyce Trautman is exempt from the claim's of Helen's creditors. The more difficult issue is whether the bankruptcy estate for Patricia includes any interest in insurance on the life of Helen, and whether the bankruptcy estate for Helen includes any interest in insurance on the life of Patricia. In my view, none of these interests is subject to the trustee's administration. As between Patricia and Helen, if only one had sought relief in bankruptcy, the insurance owned by that debtor would have been fully exempt. In re Messinger, 29 F.2d 158 (2nd Cir. 1928). The present controversy arises only because the interests both of the insured owner and of her designated beneficiary are included in a bankruptcy estate. Unlike the situation in Teufel, however, these respective interests are not administered in the same bankruptcy proceeding. In their argument, the parties have presented the issue to be a question of exemption. As Judge Skretny noted in Teufel, Insurance Law 3212(b)(1) does not create an exemption from any creditors of the beneficiary. Rather, the issue is more accurately stated to be whether the interest of an insurance beneficiary is property of her bankruptcy estate, when that interest is segregated from ownership rights that have become property of a separately administered estate in bankruptcy.
Section 541(a)(1) 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." In the present instance, the respective owners of the insurance policies have retained the right to change their beneficiary. When separated from the interest of the owner, the rights of such a beneficiary constitute a mere expectancy, and do not become the type of legal or equitable interest that is property of the bankruptcy estate under section 541(a)(1). Simply stated, a revocable beneficiary has no interest that a trustee can administer in isolation from the interest of the owner. The Second Circuit Court of Appeals reached this same conclusion in In re Greenberg, 271 F. 258, 259 (1921), where it found that "[t]he beneficiary of a life insurance policy, who may at any time be removed from the benefitted position by the insured and against the beneficiary's will, cannot have a vested interest." In recognition of this outcome, section 541(a)(5) of the Bankruptcy Code expressly incorporates into the bankruptcy estate any interest in property that the debtor "becomes entitled to acquire within 180 days after [the date of the filing of the petition] . . . .(C) as a beneficiary of a life insurance policy or of a death benefit plan." This language would not have been necessary if the rights of the beneficiary had otherwise become property of the estate upon her bankruptcy filing. When Patricia Trautman filed her bankruptcy petition at 8:58 AM, she held no legal or equitable interest in the contracts of insurance on the life of Helen, but possessed a mere expectancy of payment in the event that Helen might die before exercising her right to change beneficiary. Nor was the interest of Patricia's bankruptcy estate enhanced upon the filing of Helen's bankruptcy at 9:01 AM. That the same trustee serves in both cases is a matter of mere coincidence. In his capacity as trustee for Patricia, Mr. Bulan possessed no rights under policies owned by the estate of Helen, and would acquire such rights only in the event of Helen's death within 180 days of the date of bankruptcy filing. Similarly, with respect to Patricia's policies, the filing of Helen's petition created an estate that included only an expectancy of property in the event of Patricia's death within 180 days. Now that the requisite period of time has passed without the demise of either debtor, the respective bankruptcy estates possess no further interest in the policies of insurance.
What distinguishes the present circumstances from those of Teufel is that in a joint case, the trustee may jointly administer the interests of insurance owner and beneficiary. 11 U.S.C. 302(b). As stated by Judge Skretny in his decision, the courts of the Second Circuit had not previously decided the exempt status of reciprocal policies of insurance "because debtors were not permitted to file joint petitions for bankruptcy until the 1978 Bankruptcy Reform Act." In re Teufel, No. 02- CV-81S, slip op. at 8 (W.D.N.Y. Sept. 24, 2002). Further, he observed that the controversy in Teufel arose precisely because "the changes in the 1978 Bankruptcy Reform Act permit spouses to file joint bankruptcy petitions." Id. Based upon the ruling of Teufel and for purposes of the present analysis only, this court is obliged to assume that the joint administration of spousal estates will effect a merger of the respective insurance interests of husband and wife into a single estate. Within that estate, the trustee will administer the insurance for the benefit of the beneficiary's creditors. While the Bankruptcy Rules expressly allow the joint administration of the estates of a husband and wife, no such authority is granted for the administration of the estates of a parent and child who are not otherwise in partnership with each other. FED. R. BANKR. P. 1015(b). When the estates of owner and beneficiary are separated, the rights of the revocable beneficiary are too ephemeral to constitute property of the bankruptcy estate within the meaning of 11 U.S.C. 541(a), unless this expectancy matures into a death benefit within 180 days.
Patricia A. Trautman and Helen Gladyce Trautman have each claimed an exemption for polices of whole life insurance. To the extent that they are property of either of these estates, these policies are fully exempt under New York Insurance Law. Accordingly, the trustee's objections to the claims of exemption are overruled.
So ordered.
Dated: Buffalo, New York ________________________
July 25, 2003 U.S.B.J.
