Opinion ID: 2810604
Heading Depth: 1
Heading Rank: 5

Heading: life insurance exemption

Text: A. Statutory analysis Georgia Code § 44-13-100(a)(9) explicitly limits—at $2,000—a bankruptcy debtor’s ability to exempt the “cash value” of his “unmatured life insurance contract.” Nevertheless, McFarland contends he should be permitted to rely on 5 We also need not decide whether McFarland’s Annuity was “reasonably necessary” for support for him and his wife. It seems unlikely, however, that the Annuity would qualify under this prong. See, e.g., Aplt’s App., Exhibit 7, at 60–63 (testimony from McFarland’s son that McFarland is apparently able to meet his financial obligations without help from the Annuity, and that his wife has a separate, similarly sized and structured annuity in her own name). 12 Case: 14-14514 Date Filed: 06/22/2015 Page: 13 of 25 Georgia Code § 33-25-11(c)—a non-bankruptcy provision—to exempt the entire cash value of his whole life insurance policy. (This would allow him to exempt an additional $11,000 or so from the bankruptcy estate.) The bankruptcy court disagreed and capped McFarland’s life insurance exemption at $2,000. Thus, we must decide whether McFarland was stuck with § 44-13-100(a)(9) or whether he could use a provision protecting debtors more generally. In our view, he was restricted to $2,000 under Georgia’s explicit bankruptcy provision. According to McFarland, federal law allows him to exempt property beyond that which is covered by explicit Georgia bankruptcy statutes. See 11 U.S.C. §§ 522(b)(3)(B) & 541(c)(2) (allowing bankruptcy debtors to exempt property that is protected “under applicable non-bankruptcy law”); see also Meehan v. Wallace (In re Meehan), 102 F.3d 1209 (11th Cir. 1997) (allowing bankruptcy debtor to rely on non-bankruptcy Georgia statute to exclude IRA from bankruptcy estate). McFarland also contends nothing in the text or immediate context of Georgia Code § 33-25-11(c) indicates it cannot be utilized by a bankruptcy debtor. Even assuming McFarland is correct on these two points, it is well-settled that “[f]or purposes of statutory interpretation, a specific statute will prevail over a general statute, absent any indication of a contrary legislative intent.” Vines v. State, 499 S.E.2d 630, 632 (Ga. 1998). So, regardless of the lack of limiting language in § 33-25-11, McFarland can only use § 44-13-100(a)(9) because that statute specifically restricts bankruptcy debtors to a cash value life insurance 13 Case: 14-14514 Date Filed: 06/22/2015 Page: 14 of 25 exemption of $2,000. Put differently, although Georgia allows debtors, in general, to utilize § 33-25-11(c), Georgia restricts bankruptcy debtors to $2,000 with § 4413-100(a)(9). The specific trumps the general, plain and simple. 6 To be sure, one could argue—although McFarland does not do so—that by enacting § 33-25-11 in 2006 Georgia intended to amend, clarify, or repeal § 44-13100(a)(9), which had been on the books since 1980. This argument, though, would require textual evidence of the Georgia Legislature’s intent. See Vines, 499 S.E.2d at 632. And again, McFarland does not attempt to prove such intent.7 Instead, McFarland asserts that §§ 33-25-11(c) and 44-13-100 do not entirely overlap. Most significantly, he points out, § 33-25-11(c) applies to Georgia residents and citizens, whereas § 44-13-100(a)(9) applies regardless of residency or citizenship.8 Therefore, McFarland claims, it is perfectly plausible that Georgia intended for the two statutes to coexist in a manner different than what we have described above: 6 Eleven U.S.C. §§ 522(b)(3)(B) and 541(c)(2) do not help McFarland because Georgia has made Ga. Code Ann. § 33-25-11(c) inapplicable to him through § 44-13-100(a)(9). 7 Several bankruptcy courts have concluded that Georgia did not intend to repeal or amend § 4413-100(a)(9). See In re Dean, 470 B.R. 643, 648 (Bankr. M.D. Ga. 2012) (“[N]othing in the history or language of § 33–25–11(c) indicates the legislature intended it to apply in bankruptcy.”); Roach v. Ryan (In re Ryan), No. 11-40712, 2012 WL 423854, at  (Bankr. S.D. Ga. Jan. 19, 2012) (similar); In re Allen, No. 10-50827, 2010 WL 3958171, at  (Bankr. M.D. Ga. Oct. 4, 2010) (similar). We need not reach this issue. 8 He gives other examples, as well. For instance, § 33-25-11(c) applies to the “cash surrender value[]” of the life insurance policy, whereas § 44-13-100(a)(9) applies to the “loan or cash value.” Moreover, § 33-25-11(c) does not apply to dependents, whereas § 44-13-100(a)(9) does. 14 Case: 14-14514 Date Filed: 06/22/2015 Page: 15 of 25 [T]he two statutory provisions are not identical, do not apply to identical classes of individuals, and apply to different interests in life insurance policies. These distinctions are not merely semantic, and provide a rational basis for Georgia to enact two different provisions, either or both of which may, or may not, be available to a bankruptcy debtor if the debtor and the asset qualify under each statute. Aplt’s Br., at 8–9. Applying this argument to his situation, McFarland contends Georgia intended for bankruptcy debtors who are residents to have access to § 3325-11(c)’s broad policy and for non-resident bankruptcy debtors to be limited to $2,000 by § 44-13-100(a)(9). At minimum, McFarland protests, we must adopt this view because of our duty to construe exemptions liberally. In liberally construing exemption statutes, though, we cannot ignore a statute’s plain language. See Carter v. Progressive Mountain Ins., 761 S.E.2d 261, 264 (Ga. 2014) (“When we consider the meaning of a statute, we look first to the text of the statute, and if the text is clear and unambiguous, we look no further, attributing to the statute its plain meaning.” (citation and internal marks omitted)). Again, § 44-13-100(a)(9) says a bankruptcy debtor’s life insurance exemption is “not to exceed $2,000.00.” Put simply, “not to exceed” means not to exceed. Georgia has explicitly declared that bankruptcy debtors in this situation—residents or not—may exempt $2,000 at most, and no more. For a bankruptcy debtor seeking this life insurance exemption in Georgia, the explicit language in § 44-13100(a)(9) governs over the more general debtor language in § 33-25-11(c). 15 Case: 14-14514 Date Filed: 06/22/2015 Page: 16 of 25 This helps distinguish In re Meehan and other similar cases relied upon by McFarland. In Meehan, in particular, we held pursuant to 11 U.S.C. § 541(c)(2) that a bankruptcy debtor could exclude his IRA from the bankruptcy estate by using an “applicable” non-bankruptcy Georgia statute. In re Meehan, 102 F.3d at 1210–12. Meehan, however, made no mention of any Georgia statute specifically barring bankruptcy debtors from doing what the non-bankruptcy statute allowed debtors to do, more generally. Id.; see also Matter of Geise, 992 F.2d 651, 657 (7th Cir. 1993) (“[A] brief glance at a collection of the state exemption statutes confirms, even in those states that have enacted specific statutory listings of exempt property, other statutory sections also have been considered exemptions.”). McFarland, on the other hand, is restricted to § 44-13-100(a)(9) because (at risk of sounding like a broken record) that statute specifically limits what bankruptcy debtors can exempt. McFarland tries other arguments, none of which fare better. For instance, he asserts Georgia Code § 44-13-100 “lacks any language prohibiting the Debtor from utilizing any state law exemptions outside of § 44-13-100.” Indeed, he points out, § 44-13-100(a) states a bankruptcy debtor “may” utilize its exemptions—not “must.” But this (once again) misses the point. Even if Georgia, broadly speaking, does not prohibit a bankruptcy debtor from going outside Georgia’s bankruptcy exemptions, the specific statute at issue here—§ 44-13-100(a)(9)—explicitly limits bankruptcy debtors in this particular life insurance situation to its provisions. True, 16 Case: 14-14514 Date Filed: 06/22/2015 Page: 17 of 25 a bankruptcy debtor in Georgia “may” decide not to utilize § 44-13-100(a)(9)—no one, after all, is going to force a bankruptcy debtor to exempt anything. If a bankruptcy debtor decides to exempt the cash value of a life insurance policy, though, we believe Georgia intended for that exemption “not to exceed $2,000.00.” B. Constitutional analysis We now address McFarland’s alternative view that restricting bankruptcy debtors to § 44-13-100(a)(9) violates: (1) the Georgia Constitution’s Equal Protection Clause; 9 and (2) the United States Constitution’s Bankruptcy Clause.10 1. Section § 44-13-100(a)(9) does not violate equal protection In Georgia, “Protection to person and property is the paramount duty of government and shall be impartial and complete. No person shall be denied the equal protection of the laws.” Ga. Const. Art. I, § 1, para. 2. Where “no fundamental right or suspect class is involved, . . . statutory classifications are permitted when the classification is based on rational distinctions and bears a direct relationship to the purpose of the legislation.” Grissom v. Gleason, 418 S.E.2d 27, 30 (Ga. 1992) (emphasis added); see also Wood v. United States (In re 9 McFarland does not challenge Georgia’s statutory scheme under the Equal Protection Clause found in the United States Constitution. 10 McFarland also mentions a Supremacy Clause violation. His brief, however, fails to develop a preemption argument to any meaningful extent. Thus, we will not consider it here. See United States v. Woods, 684 F.3d 1045, 1064 n.23 (11th Cir. 2012) (“[A]n issue [is] abandoned when a defendant merely makes a passing reference to an alleged error in his brief.” (citing United States v. Jernigan, 341 F.3d 1273, 1283 n.8 (11th Cir. 2003))). 17 Case: 14-14514 Date Filed: 06/22/2015 Page: 18 of 25 Wood), 866 F.2d 1367, 1370 (11th Cir. 1989) (“Under the ‘rational relationship’ test, a court reviewing the constitutionality of a classification only may strike down the classification if the classification is without any reasonable justification.” (emphasis in original)). Ordinarily, we assume that “Legislatures . . . have acted constitutionally.” Melton v. Gunter, 773 F.2d 1548, 1551 (11th Cir. 1985) (quoting Clements v. Fashing, 457 U.S. 957, 963, 102 S.Ct. 2836, 2843 (1982)). Although Georgia treats bankruptcy debtors differently than other debtors, this distinction does not violate Georgia’s Equal Protection Clause because it is rational and relates directly to the purpose of bankruptcy legislation. After all, one of the primary functions of bankruptcy is to “give the debtor a fresh start,” Menchise v. Akerman Senterfitt, 532 F.3d 1146, 1151 (11th Cir. 2008), and doing so quite obviously requires a different legal scheme than that which applies to nonbankruptcy debtors. See In re Shumaker, 124 B.R. 820, 827 (Bankr. D. Mont. 1991) (“[T]he Ohio Legislature treated bankrupt and non-bankrupt debtors differently. The [permissible] rationale for the distinction is to provide the former with the requisite ‘fresh start’. Being fully aware of the unique problems confronting the bankrupt debtors’ quest for financial rehabilitation, the Legislature employed reasonable classification of persons to accomplish this end.” (quoting Matter of Bloom, 5 B.R. 451, 453 (Bankr. N.D. Ohio 1980))). Thus, broadly speaking, state statutes do not violate equal protection when they deal with bankruptcy debtors differently than non-bankruptcy debtors. 18 Case: 14-14514 Date Filed: 06/22/2015 Page: 19 of 25 In our present scenario, however, Georgia has imposed a greater burden on bankruptcy debtors than non-bankruptcy debtors by restricting them to $2,000. This twist makes our case somewhat unique in the annals of case law, but it does not mean Georgia acted irrationally. This is because giving debtors a “fresh start”—while important—is not the sole purpose of bankruptcy law. Rather, bankruptcy law is also designed “to collect all of the assets and liabilities of an entity [and] to pay the creditors of the bankrupt to the fullest extent possible.” Menchise, 532 F.3d at 1151. In other words, states must balance the interests of both debtors and creditors when creating bankruptcy exemptions. This is no easy task. And because bankruptcy allows debtors to wipe their financial slate entirely clean, it is plausible that Georgia requires bankruptcy debtors to sacrifice more of their penumbral property (e.g., a life insurance policy) in order to obtain greater relief on property more central to a “fresh start” (e.g., a homestead exemption). Compare Ga. Code Ann. § 44-13-1 (Debtor, married or not, allowed residential exemption of $21,500), with Ga. Code Ann. § 44-13-100(a)(1) (Married bankruptcy debtor allowed residential exemption of $43,000). 11 Cf. Taylor v. Age Fed. Credit Union (In re Taylor), 3 F.3d 1512, 1516 (11th Cir. 1993) (“Allowing a 11 This contrast was even starker when McFarland filed for bankruptcy in 2011. Prior to 2012, Georgia allowed a regular debtor a $5,000 residential exemption, whereas a bankruptcy debtor could exempt $10,000 and a married bankruptcy debtor could exempt $20,000. 19 Case: 14-14514 Date Filed: 06/22/2015 Page: 20 of 25 [bankruptcy] debtor to retain property without reaffirming or redeeming gives the debtor not a ‘fresh start’ but a ‘head start’ . . . .”). To hold otherwise, on the scant evidence presented here, would essentially mean banning opt-out states from treating bankruptcy debtors worse than regular debtors on any specific issue. This, ironically, would be irrational on our part, as it would unduly interfere with a state’s prerogative to create its own bankruptcy exemptions. In the end, because Georgia has at least rationally balanced the needs of creditors and bankruptcy debtors, it has not transgressed equal protection by treating bankruptcy debtors differently from non-bankruptcy debtors. 2. Section 44-13-100(a)(9) does not violate the Bankruptcy Clause The United States Constitution vests Congress with the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. Const. Art. I, § 8, cl. 4. This Bankruptcy Clause is “the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. Art. VI , cl. 2. McFarland argues that restricting bankruptcy debtors to § 44-13-100(a)(9) creates a non-uniform application of bankruptcy law in violation of the Constitution. So, whereas for equal protection McFarland argued Georgia’s scheme was irrational, here he contends Georgia’s scheme was not authorized— under the Bankruptcy Clause or, by extension, 11 U.S.C. § 522. 20 Case: 14-14514 Date Filed: 06/22/2015 Page: 21 of 25 This issue is one of first impression in this circuit. And it intrigues us, in no small part because the other circuits addressing the subject appear to have done so in the inverse context, where a trustee was claiming that a state could not constitutionally distinguish between a bankruptcy debtor and a non-bankruptcy debtor. See, e.g., Richardson v. Schafer (In re Schafer), 689 F.3d 601 (6th Cir. 2012); Sheehan, 574 F.3d 248; Kulp v. Zeman (In re Kulp), 949 F.2d 1106, 1109 n.3 (10th Cir. 1991); see also Sticka v. Applebaum (In re Applebaum), 422 B.R. 684 (9th Cir. BAP 2009). Though the posture is reversed here, we nevertheless reach the same result as our sister circuits. We believe states are authorized by statute and permitted by the Constitution to distinguish between bankruptcy and non-bankruptcy debtors in crafting bankruptcy exemptions. First, with 11 U.S.C. § 522 Congress has permitted states to create, define, and implement bankruptcy exemptions and to restrict bankruptcy debtors to those exemptions. Section 522(b)(3)(A), for instance, says bankruptcy debtors in opt-out states are restricted to “any property that is exempt . . . under State or local law that is applicable.” (emphasis added). Absent specific federal guidance to the contrary, states are obviously the sole authorities in determining whether state law is “applicable” to a class of debtors. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918 (1979) (“Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is 21 Case: 14-14514 Date Filed: 06/22/2015 Page: 22 of 25 involved in a bankruptcy proceeding.”). And § 522 contains no explicit restrictions indicating states must treat all debtors alike. The Fourth Circuit has summarized this well, holding that § 522 affords the states the authority to restrict their respective residents to exemptions promulgated by the state legislatures, if they so choose. This statutory provision is an express delegation to the states of the power to create state exemptions in lieu of the federal bankruptcy exemption scheme. Congress has not seen fit to restrict the authority delegated to the states by requiring that state exemptions apply equally to bankruptcy and non-bankruptcy cases . . . . Sheehan, 574 F.3d at 252 (emphasis added) (internal citation omitted); see also In re Schafer, 689 F.3d at 607 (“The plain language of § 522(b) demonstrates [Sheehan’s above proposition] unambiguously . . . .” (emphasis added)); In re Kulp, 949 F.2d at 1109 n.3 (“[Eleven] U.S.C. § 522 expressly delegates to states the power to create bankruptcy exemptions.”). And this statutory scheme is constitutionally valid. Like our sister circuits, we do not believe the Constitution’s call for bankruptcy uniformity somehow requires states to treat bankruptcy and non-bankruptcy debtors exactly alike. See In re Schafer, 689 F.3d at 607 (“[A]n interpretation of § 522 that permits states to enact bankruptcy-specific exemptions schemes does not run afoul of either the Bankruptcy or Supremacy Clauses . . . .”); Sheehan, 574 F.3d at 252 (“[W]e are without authority to impose such a [uniformity] requirement.”); In re Kulp, 949 F.2d at 1109 n.3 (“Defendants argue in the alternative that Colo. Rev. Stat. § 13– 54–104 violates the constitution’s uniformity requirement for bankruptcy laws 22 Case: 14-14514 Date Filed: 06/22/2015 Page: 23 of 25 because it creates a bankruptcy exemption which is not available to other Colorado debtors. This argument is meritless.” (internal citations omitted)). 12 See also In re Applebaum, 422 B.R. at 686 (“California’s bankruptcy-only exemption statute . . . does not violate the Uniformity Clause.”). Binding precedent counsels in this direction, as well. The most striking language is contained in In re Wood, 866 F.2d 1367. There, quoting the Supreme Court, we emphasized that the Bankruptcy Clause “is not a straightjacket that forbids Congress to distinguish among classes of debtors.” Id. at 1372 (quoting Ry. Labor Execs.’ Ass’n v. Gibbons, 455 U.S. 457, 469, 102 S.Ct. 1169, 1176 (1982)). Instead, we wrote, the Clause “only requires that bankruptcy laws apply uniformly among classes of debtors.” Id. The Supreme Court has charted a similar path to ours. Gibbons, after all, was the first (ever!) opinion enforcing bankruptcy uniformity against Congress, yet the Supreme Court still deployed the “not a straightjacket” language we quoted in Wood. See Gibbons, 455 U.S. at 469, 102 S.Ct. at 1176. Nearly a decade later, the Court added that the “Bankruptcy Code allows the States to define what property a debtor may exempt from the bankruptcy estate . . . . Nothing in [11 U.S.C. § 522(b)] (or elsewhere in the Code) limits a State’s power to restrict the scope of its exemptions; indeed, it could 12 The Tenth Circuit recently reaffirmed the viability of In re Kulp in a thorough (albeit unpublished) decision. See Williamson v. Murray (In re Murray), 586 F. App’x 477, 481 (10th Cir. 2014) (observing that there is now a “consensus that bankruptcy-specific exemptions are constitutional”). 23 Case: 14-14514 Date Filed: 06/22/2015 Page: 24 of 25 theoretically accord no exemptions at all.” Owen v. Owen, 500 U.S. 305, 306, 308, 111 S.Ct. 1833, 1834–35 (1991) (emphases added). This language strongly suggests and supports the decision we reach today. 13 McFarland fails to interact with this case law or the compelling arguments contained therein. Instead, he cites (without much explanation) a smattering of bankruptcy court decisions, along with several older appellate decisions, that supposedly favor his position. See, e.g., In re Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008); In re Cross, 255 B.R. 25 (Bankr. N.D. Ind. 2000); Matter of Reynolds, 24 B.R. 344 (Bankr. S.D. Ohio 1982); Kanter v. Moneymaker (In re Kanter), 505 F.2d 228 (9th Cir. 1974); Hanover Nat’l Bank v. Moyses, 186 U.S. 181, 22 S.Ct. 857 (1902). In recent years, none of our sister circuits have found these cases compelling. See, e.g., Williamson v. Murray (In re Murray), 586 F. App’x. 477, 481 (10th Cir. 2014) (unpublished) (“Rather than directing us to intervening countervailing authority, Williamson’s briefing offers this court a dog’s breakfast of inapposite cases [and] overruled district court cases . . . .”). Neither do we. The 13 True, the Owen Court indicated that a state’s exemption power under “the opt-out policy [is not] absolute.” 500 U.S. at 313, 111 S.Ct. at 1838. The Court, however, said this power could be limited by “whatever other competing or limiting policies the statute [i.e., § 522] contains.” Id. (emphasis added). In other words, the state’s power will be limited if § 522 can be shown to require this outcome in a specific area. Here, no such demonstration has been made. 24 Case: 14-14514 Date Filed: 06/22/2015 Page: 25 of 25 clear weight of authority supports our position, and McFarland has not persuaded us otherwise.14 In summary, Georgia has not violated the Bankruptcy Clause. A plain reading of § 522 does not, as McFarland alleges, allow a bankruptcy debtor to use a state exemption statute where the state itself has rendered the statute inapplicable. Rather, very near the opposite is true; states have been authorized to define and restrict the applicability of their bankruptcy exemptions. And this authorization does not “fail to provide a uniform application of the Bankruptcy Code in violation of the Bankruptcy Clause,” as McFarland asserts. Although the authorization is not absolute, its boundaries have not been overstepped here.