United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 06-2217

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In re: Charles Benn, Jr., *

*

Debtor, *

____________________ *

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Charles Benn, Jr., *

*

Appellee, *

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v. *

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James S. Cole, *

*

Appellant, * Appeal from the United States

____________________ * Bankruptcy Appellate Panel

* for the Eighth Circuit.

Steven Mohrhard, Jennifer Mohrhard, *

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Debtors, *

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Steven Mohrhard, Jennifer Mohrhard, *

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Appellees, *

*

v. *

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James S. Cole, *

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Appellant, *

____________________ *

*

John Cruciani, Patricia Brown, Kevin *
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Checkett, Fredrich J. Cruse, Jerald *

Enslein, Janice A. Harder, George *

Johnson, Jere Loyd, Dan Nelson, *

Aunna L. Peoples, Robert A. Pummill, *

John Reed, Norman E. Rouse, *

Maureen Scully, Janice Stanton, *

David C. Stover, Bruce Strauss, *

Thomas J. O’Neal, Robert J. Blackwell, *

Thomas Dewoskin, Chapter 7 Trustees, *

National Association of Bankruptcy *

Trustees, *

*

Amici on behalf of Appellant. *

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Submitted: October 19, 2006

Filed: July 10, 2007

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Before SMITH, BOWMAN, and COLLOTON, Circuit Judges.

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COLLOTON, Circuit Judge.

In these consolidated cases, a bankruptcy trustee appeals a decision of the

Bankruptcy Appellate Panel (“BAP”) that Missouri law exempts tax refunds from a

debtor’s bankruptcy estate. Because we conclude that the relevant law, section

513.427 of the Missouri Revised Statutes, is not an exemption statute and there is no

exemption for tax refunds under state law or applicable federal law, we reverse the

decision of the BAP and affirm the decision of the bankruptcy court.

On November 14, 2003, Steven and Jennifer Mohrhard filed a petition for relief

under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for

the Eastern District of Missouri. On December 31, 2003, Charles Benn, Jr. filed a
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petition under Chapter 7 of the Bankruptcy Code in the same court. The Mohrhards

and Benn (“Debtors”) claimed that their state and federal income tax refunds were

exempt from the bankruptcy estates, while James S. Cole, the Trustee in both cases,

asserted that the refund amounts were part of the estates to be distributed by him. In

both cases, the bankruptcy court ordered that, to the extent the refunds were based on

money accumulated prior to the filings for bankruptcy, the funds should be turned

over to the Trustee. The Debtors appealed to the BAP, which reversed the bankruptcy

court. In a fragmented decision, with each of the three judges writing separately and

no single rationale prevailing, the BAP held that tax refunds are exempt from the

debtor’s estate under section 513.427. This consolidated appeal followed.

The issue presented is one of statutory interpretation: Whether Missouri law,

and in particular section 513.427, permits a debtor to exempt tax refunds from the

debtor’s bankruptcy estate. We review the bankruptcy court’s conclusions of law de

novo. Moon v. Anderson (In re Hixon), 387 F.3d 695, 700 (8th Cir. 2004).

Under the provisions of the federal Bankruptcy Code, when a debtor files for

bankruptcy, an estate is created. 11 U.S.C. § 541(a). Generally speaking, this estate

is comprised of all legal or equitable interests of the debtor in property. Id. A

debtor’s anticipated tax refund, to the extent it is attributable to events occurring prior

to the filing of the petition for bankruptcy, is part of the bankruptcy estate. See

Barowsky v. Serelson (In re Barowsky), 946 F.2d 1516, 1517-18 (10th Cir. 1991). 

The Code then allows a debtor to “exempt” certain property from the estate and

retain it for the purpose of making a “fresh start” after the bankruptcy proceeding is

concluded. See 14 Collier on Bankruptcy Intro-2 (15th ed. rev. 2006). Exempt

property is excluded from property of the estate available to satisfy debts.

Section 522(d) of the Code sets forth a list of property that may be exempted

by the Chapter 7 debtor. “The general rule under the Bankruptcy Code is that a debtor
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is permitted to choose between the scheme of federal exemptions prescribed in section

522(d) of the Code or the exemptions available under other federal law and the law

of the state in which the debtor is domiciled.” Id. A State, however, may “opt out”

of the federal Bankruptcy Code exemptions set forth in § 522(d). 11 U.S.C.

§ 522(b)(2). In that case, the debtor may exempt only property that is exempt under

federal law other than § 522(d), or state or local law that is applicable as of the date

of the bankruptcy filing. Id.; see Owen v. Owen, 500 U.S. 305, 308 (1991). Missouri

has joined thirty-four other States in opting out of the Code’s exemptions. 

Section 513.427 of the Missouri Revised Statutes provides:

Every person by or against whom an order is sought for relief under Title

11, United States Code, shall be permitted to exempt from property of

the estate any property that is exempt from attachment and execution

under the law of the state of Missouri or under federal law, other than

Title 11, United States Code, Section 522(d), and no such person is

authorized to claim as exempt the property that is specified under Title

11, United States Code, Section 522(d).

Through enactment of this statute, which is entitled “Bankruptcy, exemptions

allowed,” Missouri has chosen to opt out of § 522(d)’s exemptions, “thereby

restricting Missouri residents to the exemptions available under Missouri law and

under federal statutes other than 11 U.S.C. § 522(d).” Wallerstedt v. Sosne (In re

Wallerstedt), 930 F.2d 630, 631 n.1 (8th Cir. 1991); see also Garner v. Strauss (In re

Garner), 952 F.2d 232, 234 (8th Cir. 1991). Several Missouri statutes other than

section 513.427 set forth specific exemptions available to a debtor in bankruptcy. See,

e.g., Mo. Rev. Stat. §§ 513.430, 513.440, 513.475. 

The Debtors argue that section 513.427 is not merely an “opt-out” statute, but

that it also defines additional forms of property that a debtor may exempt from his

estate in bankruptcy. Focusing on the clause providing that a debtor shall be

permitted to exempt “any property that is exempt from attachment and execution
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under the law of the state of Missouri,” Debtors contend that under the “plain

language” of the statute, any property that is not subject to attachment and execution

under Missouri law is exempt from the estate. The Debtors argue that because tax

refunds still in the custody of the government are not subject to attachment or

execution, these refunds are exempt property that is excluded from the estate and

unavailable to the Trustee.

Even taking the quoted clause standing alone, we think the Debtors’

interpretation is unlikely to be correct. “Exemption” is a term of art in bankruptcy,

and we agree with the dissenting judge of the BAP that “[w]hile exemption may mean

different things in different contexts, in the context of [11 U.S.C.] § 522, it refers to

laws enacted by the legislative branch which explicitly identify property [that]

judgment-debtors can keep away from creditors for reasons of public policy.” Benn

v. Cole (In re Benn), 340 B.R. 905, 914 (8th Cir. BAP 2006) (Kressel, J., dissenting).

On this understanding of the term “exempt,” section 513.427 opts out of the federal

exemptions listed in 11 U.S.C. § 522(d), but announces no new exemptions under

Missouri law. The statute simply provides that where another Missouri statute

specifies that certain property is exempt from attachment and execution, then a debtor

may exempt that property from the bankruptcy estate. Section 513.430, for example,

lists certain property that “shall be exempt from attachment and execution,” but does

not provide that a debtor may exempt this property from the bankruptcy estate. That

task is accomplished by section 513.427, which explains that the items declared

exempt from attachment and execution by section 513.430 (or another exemption

statute) are exempted from the property of the estate.

Textual analysis, of course, involves more than consideration of statutory terms

in isolation. See State v. Johnson, 148 S.W.3d 338, 343 (Mo. Ct. App. 2004). When

the analysis of section 513.427 is expanded to consider the text and structure of the

statute as a whole, and its relationship to other provisions of the Missouri statutes, it

is clear that the Debtors’ interpretation must be rejected. The operative clause of
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section 513.427 is phrased in the disjunctive. It states that a debtor may exempt from

the bankruptcy estate any property “that is exempt from attachment and execution

under the law of the state of Missouri or under federal law, other than Title 11, United

States Code, Section 522(d).” Debtors’ interpretation substitutes the phrase “not

subject to” for “exempt,” thus resulting in two disjunctive clauses as follows: A

debtor may exempt any property (1) “that is [not subject to] attachment and execution

under the law of the state of Missouri,” or (2) “that is [not subject to] attachment and

execution . . . under federal law, other than Title 11, United States Code, Section

522(d).” 

The second disjunctive clause demonstrates that the legislature did not equate

the term “exempt” with “not subject to,” but rather used the term “exempt” to refer to

specific legislative exemptions. The reference to 11 U.S.C. § 522(d) is telling. On

Debtors’ view, the statute is describing property that is “not subject to” attachment

and execution under a federal law other than § 522(d). But it would make no sense

for section 513.427 to speak of property that is “[not subject to] attachment and

execution under . . . § 522(d),” because § 522(d) is not a statute that makes property

subject to attachment and execution. Section 522(d) is a statute that lists property that

may be exempted from the bankruptcy estate. It is evident, therefore, that when the

Missouri legislature spoke of property that is “exempt from attachment and

execution,” it meant property that was specifically declared exempt by another

Missouri statute or a federal statute other than § 522(d).

The interplay between section 513.427 and the principal Missouri exemption

statute also supports this conclusion. Section 513.430 sets forth a list of property that

shall be “exempt from attachment and execution,” including a debtor’s interest in a

retirement plan or profit-sharing plan that is qualified under relevant provisions of the

Internal Revenue Code. Mo. Rev. Stat. § 513.430(10)(f). It is well established,

however, that a debtor’s interest in a qualified retirement plan is not subject to

attachment or execution under state law, 29 U.S.C. § 1056(d)(1); Guidry v. Sheet
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Metal Workers Nat’l Pension Fund, 493 U.S. 365, 371-72 (1990), and there would be

no need for this statutory exemption if the Missouri legislature, through section

513.427, exempted from a bankruptcy estate all property that is “not subject to”

attachment and execution. The relationship of these statutes thus provides further

reason to believe that section 513.427 is an opt-out statute, and that the statute’s

reference to property “exempt from attachment and execution” under Missouri law

means property that is declared exempt in one of the Missouri exemption statutes,

such as section 513.430.

Our conclusion that section 513.427 is not an exemption statute has the salutary

effect of avoiding other anomalies as well. As a practical matter, Debtors’

interpretation would exempt from the bankruptcy estate a debtor’s property in

partnerships, limited partnerships, and limited liability companies, even though the

Missouri legislature has provided a means for creditors outside bankruptcy to seize

this property. Missouri law allows creditors to access these assets through “charging

orders,” see Mo. Rev. Stat. §§ 347.119, 358.280, 359.421, but not through writs of

attachment or execution, Wills v. Wills, 750 S.W.2d 567, 574 (Mo. Ct. App. 1988), so

Debtors’ view of the statute would make this property exempt. Likewise, the Debtors’

“plain language” approach, taken to its logical conclusion, would exclude many

causes of action from a bankruptcy estate, because a cause of action is subject only to

a creditor’s bill, not a writ of attachment or execution. Cf. Scarlett v. Barnes, 121

B.R. 578, 580 (W.D. Mo. 1990) (stating that “it appears certain” that Missouri would

hold that “a claim for cause of action for unliquidated damages is not subject to

traditional attachment and execution,” but then concluding that “attachment or

execution” in section 513.427 extends beyond “attachment and execution” to include

a creditor’s bill). Debtors’ view could even mean that property owned by a debtor,

but located in a State other than Missouri, would be exempt from the bankruptcy

estate, because it is not subject to attachment or execution under Missouri law. In re

Benn, 340 B.R. at 915 (Kressel, J., dissenting). Our recognition that the Missouri

legislature did not exempt tax refunds from the bankruptcy estate also “operates as a
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deterrent to devious debtors who would attempt to put their income beyond the reach

of most creditors by increasing their withholdings, in hopes of receiving their tax

refund post-petition and emerging from bankruptcy with a hefty supply of cash.”

Davis v. Robinson (In re Robinson), 152 B.R. 956, 959-60 (Bankr. E.D. Mo. 1993).

Debtors suggest that the Missouri legislature would not have enacted section

513.427 purely as an opt-out statute, because it would have the effect of including

some non-attachable assets in the bankruptcy estate, and thus granting the bankruptcy

trustee access to property that is not accessible to creditors outside bankruptcy. Aside

from the textual difficulties with Debtors’ position, we do not think it unreasonable

to expect that the Missouri legislature might grant powers or remedies to a bankruptcy

trustee that are unavailable to a non-bankruptcy creditor. As the Trustee points out,

it is “a basic quid pro quo of bankruptcy” that “debtors receive extraordinary relief

that is unavailable outside of bankruptcy by obtaining a bankruptcy discharge, and

bankruptcy trustees have powers that are unavailable to creditors outside of

bankruptcy in order to provide the body of creditors as a whole a chance at some

recovery.” (Appellant’s Reply Br. 7). That common law remedies available to a nonbankruptcy creditor would not reach certain property interests of the debtor does not

inexorably lead to the conclusion that the legislature would elect as a matter of policy

to create an exemption that excludes that property from the bankruptcy estate. See

Howe v. Richardson, 193 F.3d 60, 62 (1st Cir. 1999).

In summary, the Debtors’ anticipated tax refunds, to the extent they are

attributable to events occurring prior to the filing of the petition for bankruptcy, are

part of the bankruptcy estate. Section 513.427 does not create an exemption for tax

refunds, and no other Missouri statute or non-bankruptcy federal exemption statute
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The Internal Revenue Service has specific procedures for turning tax refunds

over to trustees. “A Chapter 7 debtor’s right to a refund . . . is considered property of

the bankruptcy estate to the extent the refund is attributable to prepetition events. As

such they are subject to turnover to the Chapter 7 trustee even though the debtor may

be in full tax compliance.” Internal Revenue Manual § 5.9.6.1.3. The IRS has an

agreement with the Executive Office of the United States Trustees regarding how

refunds are to be transferred to trustees. Id.

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permits a debtor to exempt tax refunds from the bankruptcy estate. Accordingly, the

bankruptcy court properly ordered the refunds turned over to the Trustee.1

For the foregoing reasons, we reverse the decision of the BAP and affirm the

decisions of the United States Bankruptcy Court.

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