1

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

GARY V. SKIBA, TRUSTEE )

) 

Appellant, )

)

) Civil Action No. 05-261 Erie

)

) Bankruptcy No. 05-11208

)

v. )

)

LISA N. AUMAN, )

)

Appellees. )

MEMORANDUM OPINION

McLAUGHLIN, SEAN J.

This is an appeal by trustee Gary V. Skiba (“Trustee”) from the Bankruptcy Court’s Order

dated July 28, 2005. The underlying proceeding was commenced on April 14, 2005, when debtor

Lisa N. Auman filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the Bankruptcy

Court for the Western District of Pennsylvania. The debtor, a single mother in her mid-thirties,

petitioned for bankruptcy following an onset of Myasthenia Gravis, a progressive, incurable disease

that has left her confined to a wheelchair. Auman has continued to work part-time and, due to the

generosity of her employer, she is still receiving full-time compensation. There is no suggestion in

the record that Auman is legally disabled or has filed for disability benefits.

Upon reviewing the debtors’ schedules, the Trustee learned that Auman had an individual

retirement account (“IRA”), rolled over from a 401(k) plan, with a value of $20,823.58. In Schedule

C, Auman claimed that the retirement plan was excluded from the estate under section 541(c)(2) of

the Bankruptcy Code and/or exempt under 11 U.S.C. § 522(d)(10)(E). On June 24, 2005, the trustee

objected to both the exclusion and the claim for exemption. On July 28, 2005, the Bankruptcy Judge

dismissed the trustee’s objections without comment or opinion. We have appellate jurisdiction over

the Bankruptcy Court’s final order pursuant to 28 U.S.C. § 158(a). For the reasons set forth below,

we reverse the Bankruptcy Court’s ruling and remand for further proceedings.

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I. STANDARD OF REVIEW

A district court’s appellate review of a bankruptcy court’s decision is two-fold. The

bankruptcy court’s findings of fact shall not be set aside unless clearly erroneous. Fellheimer,

Eichen & Braverman, P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1223 (3rd Cir. 1995). The

bankruptcy court’s legal conclusions, however, are subject to plenary review. Id. As there are no

factual issues in dispute, our review in this instance is plenary.

II. DISCUSSION 

As a preliminary matter, we note that, although the issue was argued before the Bankruptcy

Judge, the debtor, in her appellate brief, concedes that “[t]he debtor’s individual retirement account

is not excluded from the property of the estate under Bankruptcy Code § 541(c)(2).” (See Brief for

the Appellee, p. 2). Thus, the only remaining issue on appeal is whether the individual retirement

account is exempted under § 522(d)(10)(E). 

Section 522(d) of the bankruptcy code provides debtors with an exemption for certain assets

that become part of the bankruptcy estate pursuant to § 541(c)(2). Subsection (10)(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.”

Thus, a debtor’s right to receive payments under an IRA must meet three requirements to be

exempted under this provision:

(1) the right to receive payments 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 his

dependents.”

Rousey v. Jacoway, __ U.S. __, 125 S.Ct. 1561, 1566 (2005)

Here, it is undisputed that Auman’s IRA is a “payment under . . . a similar plan or contract”

and that the right to receive that payment must be “on account of illness, disability, death, age, or

length of service . . .”. See Id. The trustee argues, however, that Auman cannot demonstrate that

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her right to receive payments from the IRA is “reasonably necessary for the support of the debtor”

because she is not presently entitled to receive those payments.

In Clark v. O’Neill (In re Clark), 711 F.2d 21 (3rd Cir. 1983), the Third Circuit addressed a

debtor’s claim that a Keogh pension plan was reasonably necessary to support the debtor. The

debtor, a 43 year old family therapist, sought to exempt a retirement plan that prohibited withdrawals

until the debtor had attained the age of 59 1⁄2 and imposed a 10% penalty on attempts to withdraw

funds early. The Third Circuit held that the debtor could not demonstrate that a pension is

“reasonably necessary for . . . support” when the debtor was not receiving payments from that

pension when the petition was filed:

The general purpose of the exemption provisions of the Bankruptcy

Code is to give debtors a fresh start. 

* * * * * * * *

The exemption of present . . . payments, to the extent they are

necessary for the support of the debtor, is consistent with this goal.

The exemption of future payments, however, demonstrates a concern

for the debtor’s long-term security which is absent from the statute.

Id. at 23 (emphasis in original). Subsequent decisions have clarified that the critical inquiry

regarding exemption of IRAs under § 522(d)(10)(E) is whether “the debtor is presently entitled to

receive said payments” on account of age or disability. In re Gralka, 204 B.R. 184, 189 (Bankr.

W.D.Pa. 1997) (“[T]he pertinent inquiry is not whether the debtor is presently receiving payments

from a retirement plan or contract but (a) whether the debtor is presently entitled to receive said

payments, and (b) with respect to an IRA in particular, whether such right to payment presently

exists because the debtor has either reached age 59 1/2, died, or become disabled, thereby permitting

the debtor to avoid imposition of the ten percent tax penalty.”) (citing Velis v. Kardanis, 949 F.2d

78, 82 (3rd Cir. 1991)); In re Brewer, 154 B.R. 209, 213 (Bankr. W.D.Pa. 1993). 

Courts within the jurisdiction of the Third Circuit have uniformly followed Clark. See, e.g.,

Gralka, 204 B.R. 184 (“Unfortunately for the debtors, they do not presently possess the right to

receive payments from their IRAs on account of either having reached 59 1⁄2, death, or disability.

Therefore this court must DENY their claimed exemption . . . on the basis that, pursuant to existing

Third Circuit precedent, they are not presently entitled to receive payment therefrom.”); Brewer, 154

B.R. 209. In Brewer, the court noted:

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The Third Circuit has held that payments under a Keogh plan are

exemptible pursuant to § 522(d)(10)(E) only if the debtor has a

present right to receive payments. A future right to receive such

payments is not so exemptible. See In re Clark, 711 F.2d 21, 23 (3d

Cir.1983).

Some courts outside of this circuit have been critical of In re Clark

and have declined to follow it. See In re Cilek, 115 B.R. 974, 978-79

(Bankr.W.D.Wis.1990).This court, however, is constrained to adhere

to the holding of In re Clark where it is applicable.

It is immaterial that this debtor seeks to exempt an IRA, as opposed

to a Keogh plan. The rationale of In re Clark applies with equal force

to an IRA where, as here, the debtor has no present right to receive

payments but has only a future right to receive them. 

Brewer, 154 B.R. at 213. It is undisputed that Auman has not demonstrated a right to receive

payment from the IRA based upon any of the relevant statutory factors - age, illness, or disability -

and, therefore, does not possess a present right to payments from her IRA. Thus, so long as Clark

remains good law, we cannot exempt the IRA under § 522(d)(10)(E).

In this regard, Auman argues that Clark’s holding relative to the requirement of a “present

entitlement” to benefits has been overruled by the United States Supreme Court’s holding in Rousey,

125 S.Ct. 1561. In Rousey, the bankruptcy petitioners, both of whom had reached retirement age,

sought to shield portions of their IRA from their creditors by exempting them under § 522(d)(10)(E).

The trustee objected, arguing that payments from an IRA are neither “on account of” an account

holders age nor similar to a stock bonus, pension, profit sharing or annuity plan, thus failing to

satisfy the first and second requirements of the statutory provision.. The Supreme Court disagreed,

holding that the penalty imposed upon withdrawals from an IRA taken before age 591⁄2 is a

sufficiently effective barrier to access so as to make the right to receive the payment “on account of”

the IRA holder’s age and that an IRA is similar enough to a stock bonus, pension, profit sharing or

annuity plan to qualify under the first requirement. Id. at 1567. 

We conclude, however, that Clark remains good law in the wake of Rousey. Significantly,

Rousey did not address the third requirement of § 522(d)(10)(E), that the payments be reasonably

necessary for the support of the debtors, much less the Third Circuit’s gloss on that requirement that

there be a “present entitlement” to those benefits. Indeed, the issue was never presented, as the

debtors in Rousey “ha[d] reached retirement age, and the Eighth Circuit [in the underlying case] did

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1 The trustee’s brief contains a reference to Makoroff v. Booth (In re Booth), 2005

WL 2562650 (Bankr. W.D.Pa. 2005), where the court stated in dicta that

“[a]lthough the Supreme Court did not specifically reject (or even consider . . .

[the Clark court’s] interpretation of § 522(d)(10)(E) in Rousey v. Jacoway, its

opinion [in Rousey] leaves no room for th[e] interpretation [in Clark].” Id. at *2. 

The bankruptcy court did not support or explain that statement. Given that the

debtor in Makoroff had attained the age of 60 years old, the IRA at issue would

have been exemptible regardless of Clark’s vitality. 

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not doubt that their IRAs are necessary to their support.” See Brief for the Petitioners at 12, Rousey,

125 S.Ct. 1561, 2004 WL 1900505 at *7. Moreover, at least two bankruptcy courts in this district

have considered this question and concluded that Clark remains binding. In Walsh v. Benson (In

re Benson), Bankr. No. 03-34318 BM (Bankr. W.D.Pa. June 3, 2005), the court discussed the import

of Clark and the impact of Rousey: 

Although [Clark] has been criticized by numerous courts outside of

the Third Circuit, it is binding law in this circuit that an exemption

taken in accordance with § 522(d)(10)(E) of the Bankruptcy Code is

allowable only if the debtor was presently receiving payments when

the bankruptcy petition was filed. The general purpose of the

exemption provisions set forth in the Bankruptcy Code is to provide

a debtor with a “fresh start.” Exemption of present payments is

consistent with this purpose. Clark v. O’Neill (In re Clark), 711 F.2d

21, 23 (3rd Cir. 1983). The same is not, however, true of future

payments. Exemptions of future payments demonstrates a concern

for a debtor’s long-term security, a concern which is absent from §

522(d) of the Bankruptcy Code. Id., 711 F.2d at 23. 

Rousey does not in our estimation undermine or nullify the holding

of In re Clark. The issue decided in In re Clark was not at issue and

was not addressed in Rousey.

Slip opinion at 13-14. Similarly, in In re Reutzel, Bankr. No. 04-10092-WWB (Bankr. W.D.Pa.

August 30, 2005), Bankruptcy Judge Bentz expressly adopted the opinion and reasoning of Benson

in holding that a debtor could not utilize § 522(d)(10)(E) to exempt an IRA when he was not

presently receiving payments.

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Auman’s final argument is that, even if she does not have a right to present payments from

the IRA account, her financial need is such that she intends to pay the penalty for early withdrawals

and access the money immediately. Auman contends that by withdrawing the balance of the IRA

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Indeed, if Auman qualified for the benefits under any of the conditions such as

illness or disability, she could simply have applied to receive present payments

from the IRA in the fashion envisioned by the statute.

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for present use, functionally treating it as a savings account, she can circumvent the Clark court’s

holding that a right to future payments cannot be exempted. We disagree.

Although Auman has phrased her argument in terms of “present need,” she has not

demonstrated how a lump-sum withdrawal from her IRA account, accompanied by the payment of

the tax penalty, would fit within the statutory exemption of § 522(d)(10)(E). The statute requires

that a payment be “on account of illness, disability, death, age, or length of service” in order for the

exemption to apply. An early, lump-sum withdrawal of funds from an IRA account does not require

an account holder to demonstrate any of these conditions; rather, such a withdrawal can be done at

any time, for any purpose, provided the account holder is willing to pay the substantial penalty.

Otherwise stated, a claim of “present need” is not synonymous with “present entitlement” under the

statutory scheme.2

III. CONCLUSION

For the reasons state above, we conclude that the bankruptcy court failed to correctly apply

the appropriate law to the facts of this case. Accordingly, the bankruptcy court’s decision is

REVERSED and this case is REMANDED for entry of an order consistent with this opinion.

An appropriate Order follows. 

 

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GARY V. SKIBA, TRUSTEE )

) 

Appellant, )

)

) Civil Action No. 05-261 Erie

)

) Bankruptcy No. 05-11208

)

v. )

)

LISA N. AUMAN, )

)

Appellees. )

O R D E R

AND NOW, this 3rd day of February, 2006, for the reasons set forth in the accompanying

Memorandum Opinion,

IT IS HEREBY ORDERED that the Bankruptcy Court’s Order of July 28, 2005 is

REVERSED and this matter is REMANDED for proceedings consistent with this opinion.

/s/ Sean J. McLaughlin 

United States District Judge

cm: All counsel of record.___

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