IN THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

JAMES R. WALSH, ESQUIRE, TRUSTEE ) 

OF THE BANKRUPTCY ESTATE OF ) 

ALAN DAVID MCMURRY 1 

) 

Movant/Appellee, 1 

1 

v. 1 Civil Action No. 06-0035 

) 

ALAN DAVID MCMURRY, ) Appeal from Bankruptcy No. 05-29822BM 

1 

Respondent/Appellant. ) 

MEMORANDUM OPINION and ORDER 

GIBSON, J. 

SYNOPSIS 

This matter comes before the Court on appeal from the Order of the United States Bankruptcy 

Court for the Western District of Pennsylvaniadated December 6,2005. The bankruptcy court held that 

Debtor's Individual Retirement Account was not exempt under 11 U.S.C. 5 522(d)(lO)(E). Debtor, 

Alan David McMurry, appealed the decision of the bankruptcy court regarding his Individual 

Retirement Account arguing that he is entitled to exempt his Individual Retirement Account under 1 1 

U.S.C. 8 522(d)(lO)(E). (Document No. 2). Trustee, James R. Walsh, responded by arguing that 

Debtor's Individual Retirement Account is not entitled to exemption under 1 1 U.S.C. 8 522(d)(l O)(E). 

(Document No. 3). The Court finds that the bankruptcy court is incorrect in concluding that the 

Individual Retirement Account is not eligible for exemption under 8 522(d)(l O)(E) and reverses and 

remands this issue for further consideration by the bankruptcy court in accordance with this decision. 

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JURISDICTION and STANDARD OF REVIEW 

The Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. 5 158(a). The Court has 

plenary authority to review the bankruptcy court's legal rulings, but the Court cannot disturb the 

bankruptcy court's factual findings unless it committed clear error. In re Schick, 4 18 F.3d 32 1,323 (3d 

Cir. 2005). 

BACKGROUND' 

Debtor, Alan David McMurry (hereinafter "Debtor"), filed his Voluntary Petition under Chapter 

7 on July 29,2005. (Document No. 2, p. 4; Document No. 3, p. 2). On Debtor's amended Schedule 

C of his bankruptcy petition Debtor listed his Individual Retirement Account (hereinafter "IRA") as an 

asset in the amount of $22,938.17. (Document No. 2, p. 4; Document No. 3, p. 2). Debtor claimed his 

IRA as exempt property under two separate provisions of the Bankruptcy Code. (Document No. 2, p. 

4; Document No. 3, p. 3). First, Debtor claimed $8,780.00 as exempt under 5 522(d)(5), the general 

exemption pro~ision.~ (Document No. 2, p. 4; Document No. 3, p. 3). This exemption is not 

challenged by James R. Walsh, Chapter 7 Trustee (hereinafter "Trustee"), and is not in issue in this 

appeal. (Document No. 2, p. 4; Document No. 3, p. 4). Debtor claimed the remainder of his IRA 

account, $14,158.17, was exempt under 5 522(d)(l 0)(E).3 (Document No. 2, p. 4; Document No. 3, p. 

2). 

'The facts of the case were stipulated to and are uncontroverted. (Document No. 3, p. 2). 

'"The following property may be exempted ...( 5) [tlhe debtor's aggregate interest in any property, not to exceed in 

value $975 plus up to $49,250 of any unused amount of the exemption provided under paragraph (l)[homestead] of this 

subsection." 11 U.S.C. $ 522(d)(5). 

'"The followingproperty maybe exempted ...( 10) [tlhe debtor's right to receive ...( E) apaymentunder a stock bonus, 

pension, profitsharing, 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 ..." 11 U.S.C. $ 

522(d)(lO)(E). 

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A short hearing was held before the bankruptcy judge on December 6,2005. (Document No. 

3, p. 4; Document No. 4, p. 1). After the hearing the bankruptcy court issued an Order dated December 

5,2005 which "ORDERED, ADJUDGED, and DECREED that the exemption as claimed is disallowed 

and that the amount of $14,158.17 from Alan's IRA account is property of this Bankruptcy Estate and 

shall be turned over to the Trustee for distribution to the unsecured creditors." (Record on Appeal - 

December 6,2005 Order). 

The Court disagrees with the bankruptcy court's holding that the amount of $14,158.1 7 from 

Debtor's IRA is not exempt under 5 522(d)(l O)(E). The case is reversed and remanded on this issue 1 

for analysis by the bankruptcy court of whether the IRA is reasonably necessary for the support of the 

Debtor. I 

DISCUSSION 

IS DEBTOR 'S IRA EXEMPT UNDER 1 1 U S. C. $522(d) (I 0) (E) ? I 

Section 522(d)(l O)(E) provides an exemption for the debtor's right to receive: 

"a payment under a stock bonus, pension, profitsharing, 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 ..." 

1 1 U.S.C. 5 522(d)(lO)(E) (hereinafter "5 522(d)(lO)(E)"). 

Therefore, in order for an IRA to be exempted under this provision it must meet three 

requirements: 

"1) the right to receive payment must be from 'a stock bonus, pension, profitsharing, 

annuity, or similar plan or contract'; 2) the right to receive payment must be 'on account 

of illness, disability, death, age, or length of service'; and 3) even then, the right to 

receive payment may be exempted only 'to the extent' that it is 'reasonably necessary 

to support' the accountholder or [her] dependents." 

Rousey v. Jacoway , 544 U.S. 320, 326, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005) (quoting § 

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In Rousey the United States Supreme Court (hereinafter "Supreme Court") addressed the first 

two requirements and held that IRAs do fulfill these two requirements. Rousey, 544 U.S. at 326. The 

Supreme Court held that the first requirement was met because "[tlhe common feature of all of [the 

listed] plans is that they provide income that substitutes for wages earned as salary or hourly 

compensation" and IRAs constitute income that substitutes for wages. Id. at 33 1. The Supreme Court 

reasoned that IRA income is a substitute for wages as demonstrated by several things including: 1) 

minimum distribution requirements starting at age seventy and one-half when accountholders are likely 

to be retired and lack wage income; 2) tax deferment until withdraw occurs; 3) tax penalties for 

withdraw prior to retirement years; and 4) tax penalties for failure to withdraw during retirement years. 

Id, at 33 1-32. The Supreme Court held that an IRA meets the second requirement because "IRAs 

provide a right to payment on account of age." Id. at 328. The Supreme Court reasoned that the right 

to payment "is causally connected to [I age" because the 10% penalty for early withdraw, prior to age 

fifty-nine and one-half, effectively prevents access to the entire balance of the IRA." Id. at 327-28. 

The Court disagrees with the bankruptcy court's holding that the amount of $14'15 8.17 from 

Debtor's IRA is not exempt under 8 522(d)(lO)(E). Although the bankruptcy court's Order states no 

reasons for the holding, the Court finds it clear that the bankruptcy court's holding is based on the 

4"See Amromin & Smith, What Explains Early Withdrawals from Retirement Accounts? Evidence from a Panel 

of Taxpayers, 56 National Tax Journal 595, 602 (Sept. 2003) (Table 1) (3.4 percent of IRA holders took penalized 

withdrawals in 1996); In re Cilek, 115 B.R. 974, 988, n. 15 ([Bankr]. Ct. W.D. Wis. 1990) ("[Olf the $6,457,306,674 

deposited in IRAs in the nation's credit unions, only 1.2% was withdrawnearly and suffered a tax penalty during 1987, and 

only 1.27% was withdrawn during 1988"); see also Sabelhaus, Projecting IRA Balances and Withdrawals, 20 Employee 

Benefit Research Institute Notes 1, 3 (May 1999) (finding that "[tlhe pattern in both [I993 and 19961 suggests infrequent 

withdrawals from IRAs" by those under 59 %and noting the consistency of this pattern with the view that the penalty has 

a big impact on withdrawal behavior")." Rousey v. Jacowuy, 544 U.S. 320, 329 n.2, 125 S.Ct. 1561, 161 L.Ed.2d 563 

(2005). 

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premise that In re Clark remains good law. It is the opinion of the Court, as discussed below, that 1 

Rousey implicitly overruled .the Third Circuit's decision in In re Clark. 

The Third Circuit held in In re Clark, 71 1 F.2d 21 (3d Cir. 1983) that if the debtor does not have 

a present right to receive payment under the plan in question, the debtor does not have a right to claim 

an exemption for the plan under $522(d)(l O)(E). Id. at 23. The Third Circuit focused on House Report I 

8200 where it was noted that the "historical purpose [I of the exemption laws has been to protect a I 

debtor from his creditors, to provide him with the basic necessities of life ..." Id. at 23. Based on this 

language the Third Circuit affirmed the district court's decision that "because Clark had no present right 

to receive payments from the plan, his exemption does not fall within the literal terms of section 

522(d)(lO)(E)." Id. at 22. As additional support for its holding the Third Circuit also cited Matter of I 

Kochell, 26 B.R. 86 (Bankr. W.D. Wis. 1982) which held, when looking at the issue of whether 5 I 

522(d)(l O)(E) entirely exempts pension plans or just present payments, that the underlying purpose of I 

the section was to alleviate present rather than long-term need and a 44 year old doctor in apparent good 

health could not demonstrate such need. Id. 1 

Since the Rousey decision courts in the Third Circuit have struggled with the question of 

whether or not the decision overruled In re Clark. In re Wiggins, 341 B.R. 506, 509-512 (M.D. Pa. 

2006) presents a very well reasoned argument that Rousey did in fact overrule In re Clark.' The In re 

Wiggins court held that the In re Clark decision is inconsistent with the Rousey decision and, therefore, 

is implicitly overruled. Id. at 5 1 1-1 2. The In re Wiggins court reasoned and held as follows: 

'On the other hand, Walsh v. Reott, Civil Action No. 06-240 (W.D. Pa. 2006) holds that since Rousey did not 

address the third requirement or explicitly overrule In re Clark that it remains good law and controlling law in the Third 

Circuit. Therefore, the Reott court held that an IRA without a present right to payment, regardless of the age of the debtor, 

is not exempt under 11 U.S.C. 3 522(d)(lO)(E). Id. at 3. See also In re Andrezejewski, 337 B.R. 835 (Bankr. W.D. Pa. 

2006) (holding In re Clark is still good law). 

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We agree with the bankruptcy court that Clark is no longer good law in light of 

Rousey. We cannot "lightly abjure" a binding decision of the court of appeals, Pappas 

v. City of Lebanon, 33 1 F. Supp. 2d 3 1 1,3 19 (M.D. Pa. 2004), but when the decision 

has been "undermined" by a later decision of the Supreme Court, we are obligated to 

recognize that the circuit case has been overruled. Id. An implicit overruling is 

sufficient. Id. So is an inconsistency in the holdings. Finch v. Hercules, Inc. 865 F. 

Supp. 1 104, 1 12 1 (D. Del. 1994). 

We cannot see how Clark can be applied consistently with Rousey. Clark 

focused on the broad purpose of the exemption provisions to provide a "fresh start" for 

the debtor. In this light, a fund providing payments only in the long term was not 

necessary for the support of the debtor and hence not exemptible unless the debtor was 

currently receiving payments (or under Velis eligible for payments). On the other hand, 

Rousey focused narrowly on the statutory language itself and explained that the types of 

plans or contracts exemptible under section 552(d)(lO)(E) as "similar" to those 

specifically mentioned in the section are those that provide income that substitutes for 

wages. No other limitation is imposed, and no higher purpose of the Bankruptcy Code 

is invoked. And, of course, the [Supreme] Court specifically detailed just how an IRA 

does provide income that substitutes for wages and hence is exemptible. 

Significantly, the [Supreme] Court noted the ways that the plans or contracts 

mentioned in section 552(d)(lO)(E) differed from each other, but did not include those 

differences in its analysis of what constitutes a "similar plan or contract" under the 

section. Some of those differences shed some light here. Pension plans and annuities 

provide deferred payment, but profitsharing and stock bonus plans do not, and a pension 

provides retirement income, but none ofthe other plans necessarily do. 544 U.S. at 330- 

32, 125 S. Ct. at 1569,161 L. Ed. 2d at 574. In other words, the factor essential [I to the 

Third Circuit's rule, whether the plan or contract provides for immediate payments or 

deferred payments (or deferred payments by way of retirement income), is immaterial 

to the Supreme Court's approach, which looks only to the elements that the plan or 

contract at issue have in common with the statutorily enumerated arrangements. Hence, 

we agree with the bankruptcy judge that Rousey implicitly overruled Clark, and 

respectfully disagree with courts that have decided that Clark maintains its vitality. 

Id. at 51 1-12. 

The Court agrees with the reasoning and holding in In re Wiggins. Further, the Court finds that 

to the extent the Third Circuit held that an IRA without a present right to receive a payment is per se 

not entitled to exemption under 5 522(d)(l O)(E) the Rousey decision overruled it by holding that IRAs 

of debtors who were under fifty-nine and one-half years of age when they filed their bankruptcy petition 

were exempt under 5 522(d)(l O)(E). The Rouseys did not have a present right to payment without 

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1 penalty until they were fifty-nine and one-half years old, therefore, at the time of their bankruptcy 

1 petition when they could only withdraw from their IRA by incurring the ten percent penalty for early 

withdraw, they had not reached fifty-nine and one-half years of age and clearly had no present right of 

payment6 Despite the fact the Rouseys were under fifty-nine and one-half years of age at the time they 

filed their bankruptcy petition, the Supreme Court still held their IRAs were exempt under 5 

522(d)(lO)(E). Rousey, 544 U.S. at 326-31. This inconsistency between Rousey and In re Clark 

requires that In re Clark be regarded as overruled on this point. See also In re Booth, 33 1 B.R. 233,236 

(Bankr. W.D. 2005) (holding any inconsistency must be resolved in favor of the United States Supreme 

Court and based on the Rousey decision "it matters not when considering whether [I the IRA may be 

exempted under 5 522(d)(lO)(E) whether the debtors are receiving, or are presently entitled to receive, 

payments therefrom[]"); In re Seaton, - B.R. -, 2006 WL 214608 *4 (Bankr. W.D. Pa. August 2, 

2006) ("it is now irrelevant to Debtor's exemption ... under 522(d)(lO)(E) that Debtor is neither 

presently receiving nor currently entitled to receive a distribution..."). Therefore, in the case sub judice 

the Court finds that Debtor's IRA meets the first two requirements to be exempt under 5 522(d)(l O)(E), 

and whether Debtor has a present right to payment under his IRA is irrelevant to the analysis of whether 

or not his IRA is exempt under this section. 

The Court recognizes that the Supreme Court did not address the third requirement for an IRA 

to be exempt under 5 522(d)(lO)(E), that the right to receive payment be exempt only to the extent 

reasonably necessary for the support of the debtor. Relevant caselaw sets forth factors that are to be 

used by a bankruptcy court in assessing whether the right to receive payment is reasonably necessary 

6The Rouseys were under the age of fifty-nineand one-half years when they filed for bankruptcy. See In re Rousey, 

275 B.R. 307,309,3 11 (Bankr. W.D. Ark. 2002) (debtors testified that they had a right to withdraw their IRA funds at any 

time subject to the ten percent federal tax penalty imposed for withdrawal before reaching age fifty-nine and one-half). 

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, to support the debtor and how much of the right to receive payment is subject to exemption. In re 

1 Booth, 331 B.R. 233,236 (Bankr. W.D. 2005). These factors are: 1) debtor's present and anticipated 

living expenses; 2) debtor's present and anticipated income from all sources; 3) the age of the debtor 

and his dependents; 4) the health of the debtor and his dependents; 5) debtor's ability to earn a living; 

6) debtor's job skills, training and education; 7) debtor's other assets, including exempt assets; 8) the 

liquidity of other assets; 9) debtor's ability to save for retirement; 10) the special needs of the debtor 

and his dependents; and 11) debtor's continuing financial obligations, e.g., alimony or support 

payments. Id. at 236-37. 

The record from the bankruptcy court indicates these factors were not considered in connection 

with the bankruptcy court's Order dated December 6, 2005. (Record on Appeal - Order dated 

December 6,2005). Therefore, in light of this holding the bankruptcy court's decision is reversed and 

this case is remanded for further consideration in accordance with this decision, specifically, whether 

the IRA is reasonably necessary for the support of the Debtor. 

An appropriate order follows. 

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IN THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

JAMES R. WALSH, ESQUIRE, TRUSTEE ) 

OF THE BANKRUPTCY ESTATE OF ) 

ALAN DAVID MCMURRY 1 

) 

Movant/Appellee, 1 

1 

v. 1 Civil Action No. 05-2905 

1 

ALAN DAVID MCMURRY, 1 Appeal from Bankruptcy No. 03-343 1 8BM 

) 

RespondentIAppellant. ) 

ORDER I 

GIBSON, J. 

AND NOW, this 18th day of August, 2006, after considering the appeal from the December 6, I 

2005 Order of the United States Bankruptcy Court for the Western District of Pennsylvania filed by 

Debtor, Alan David McMuny, (Document No. 2) and Trustee, James R. Walsh's, Response (Document 

No. 3) IT IS HEREBY ORDERED that the bankruptcy court's decision that the amount of $14,158.17 

from Debtor's IRA is not exempt under $ 522(d)(lO)(E) is REVERSED and REMANDED in 

accordance with this Memorandum Opinion and Order which holds In re Clark was impliedly overruled 

by Rousey, therefore, Debtor's IRA meets the first two requirements for exemption under § 

522(d)(lO)(E), consideration of whether Debtor has a present right to payment from his IRA is 

irrelevant to the analysis of whether his IRA is exempt under this section and the only issue remaining 

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regarding whether Debtor's IRA meets the requirements for exemption under fj 522(d)(lO)(E) is 

whether the IRA is reasonably necessary for his support, a fact intensive question for the bankruptcy 

court's determination. 

BY THE COURT: 

UFk 

KIM R. GIBSON, 

UNITED STATES DISTRICT JUDGE 

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