EXCLUSION OF RETIREMENT FUNDS FROM THE ESTATE

EXCLUSION OF RETIREMENT FUNDS FROM THE ESTATE

Patterson v. Shumate has come to define the rules around exemption of retirement accounts in bankruptcy. That court looked at Section 541(c)(2), which provides the following exclusion from the otherwise broad definition of “property of the estate” contained in § 541(a)(1) of the Code:“A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.” (Emphasis added.) 758*758 The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law. Nothing in § 541 suggests that the phrase “applicable nonbankruptcy law” refers, as petitioner contends, exclusively to state law. The text contains no limitation on “applicable nonbankruptcy law” relating to the source of the law.Reading the term “applicable nonbankruptcy law” in § 541(c)(2) to include federal as well as state law comports with other references in the Bankruptcy Code to sources of law. The Code reveals, significantly, that Congress, when it desired to do so, knew how to restrict the scope of applicable law to “state law” and did so with some frequency. See, e. g., 11 U. S. C. § 109(c)(2) (entity may be a debtor under chapter 9 if authorized “by State law”); § 522(b)(1) (election of exemptions controlled by “the State law that is applicable to the debtor”); § 523(a)(5) (a debt for alimony, maintenance, or support determined “in accordance with State or territorial law” is not dischargeable); § 903(1) (“[A] State law prescribing a method of composition of indebtedness” of municipalities is not binding on nonconsenting creditors); see also §§ 362(b)(12) and 1145(a).Having concluded that “applicable nonbankruptcy law” is not limited to state law, the U.S. Supreme Court next determined whether the antialienation provision contained in ERISA-qualified Plans satisfy the literal terms of § 541(c)(2).Section 206(d)(1) of ERISA, which states that “[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated,” 29 U. S. C. § 1056(d)(1), clearly imposes a “restriction on the transfer” of a debtor’s “beneficial interest” in the trust. The coordinate section of the Internal Revenue Code, 26 U. S. C. § 401(a)(13), states as a general rule that “[a] trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated,” and thus contains similar restrictions. See also 26 CFR § 1.401(a)—13(b)(1) (1991).Moreover, these transfer restrictions are “enforceable,” as required by § 541(c)(2). Plan trustees or fiduciaries are required under ERISA to discharge their duties “in accordance with the documents and instruments governing the plan.” 29 U. S. C. § 1104(a)(1)(D). A plan participant, beneficiary, or fiduciary, or the Secretary of Labor may file a civil action to “enjoin any act or practice” which violates ERISA or the terms of the plan. §§ 1132(a)(3) and (5). Indeed, this Court itself vigorously has enforced ERISA’s prohibition on the assignment or alienation of pension benefits, declining to recognize any implied exceptions to the broad statutory bar. See Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U. S. 365 (1990).[3]The antialienation provision required for ERISA qualification and contained in the Plan at issue in this case thus constitutes an enforceable transfer restriction for purposes of § 541(c)(2)’s exclusion of property from the bankruptcy estate.Rosenberg Law Group, PLLC:  Filing, A FREE consultation, Individualized Treatment, and NO HIDDEN FEES.If you find yourself caught up in the current economic downturn a Chapter 7 bankruptcy filing or Chapter 13 bankruptcy filing can give you a fresh financial start. Filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy can help relieve the financial distress due to a job loss, illness, divorce, or wages that simply cannot keep up with the increased costs of living.If you find yourself drowning in debt a Chapter 7 bankruptcy filing or a Chapter 13 bankruptcy filing can help get rid of your creditors. A Chapter 7 bankruptcy or a Chapter 13 bankruptcy can literally wipe out all of your credit card, medical or home mortgage debt and prevent foreclosure on your home or the repossession of your car.

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