Opinion ID: 1458141
Heading Depth: 2
Heading Rank: 2

Heading: The Impact of Rousey

Text: Several of our sister courts of appeals have decided the exemption issue contrary to Clark. [6] However, we lack authority to overrule it on that basis. Nor can we overrule it because we are no longer persuaded by its reasoning. The basis that permits us to do so is the Supreme Court's 2005 decision in Rousey, in which the Court held that the right to receive IRA payments can be exempted from the bankruptcy estate pursuant to § 522(d)(10)(E). 544 U.S. at 326, 125 S.Ct. 1561. In Rousey, petitioners Richard and Betty Jo Rousey sought to exempt their two IRAs, one in each of their names, from the bankruptcy estate pursuant to that provision. The Rousey bankruptcy court and bankruptcy appellate panel denied the Rouseys' exemption claim. The Court of Appeals for the Eighth Circuit affirmed, relying on its prior holding that IRAs do not satisfy either of the first two requirements of § 522(d)(10)(E), i.e., that they must be similar plans or contracts to those enumerated and that the right to receive payment must be on account of age. See id. at 324, 125 S.Ct. 1561. In reversing the Eighth Circuit, the Supreme Court held that the Rouseys' IRAs satisfied both statutory requirements. Id. at 334-35, 125 S.Ct. 1561. The IRAs at issue here and in Rousey (both of which fall undisputedly within the meaning of section 408 of the Internal Revenue Code, 26 U.S.C. § 408) share many of the characteristics of the Keogh plan at issue in Clark. First, IRAs provide for tax-deductible contributions. 26 U.S.C. §§ 219(a) & 408(e)(1). Taxation is deferred until amounts are withdrawn. Rousey, 544 U.S. at 323, 331-32, 125 S.Ct. 1561. Withdrawals made before the accountholder turns 59 ½ are generally subject to a 10% tax penalty. See 26 U.S.C. § 72(t). The Supreme Court concluded that these features show that IRA income substitutes for wages lost upon retirement and distinguish IRAs from typical savings accounts. 544 U.S. at 332, 125 S.Ct. 1561. Although the precise holding in Rousey covers only the first and second requirements of § 522(d)(10)(E), the facts in Rousey cast doubt on Clark 's interpretation of the third requirement. That interpretation, i.e., the per se rule we established, is wrong because the Rouseys had not yet reached 59 ½ years of age when they filed their bankruptcy petition, so they were not yet receiving payments (without penalty) from the IRA they sought to exempt. The pertinent part of the Rouseys' merits brief before the Supreme Court states: When they filed for bankruptcy, Richard Rousey was fifty-seven years old and petitioner Betty Jo Rousey was fifty-three. Their ability to replace those funds, a substantial part of which had been accumulated through their employer-sponsored pension plan, and through the compounding of funds held for many years, is non-existent. Nothing in the language, structure, or purpose of Section 522(d)(10)(E) suggests any reason why the fortuity that they filed for bankruptcy in 2001 rather than the year in which they would be 59 ½ years old should determine the eligibility of their IRAs for exemption. Brief for Petitioners, Rousey, 2004 WL 1900505, at -36; see also In re Rousey, 275 B.R. 307, 309, 311 (Bankr.W.D.Ark. 2002) (stating that the Rouseys would face a 10% tax penalty if they withdrew from their IRAs at that time). Moreover, it is the Rouseys' age at time of petition filing that matters because the bankruptcy estate is created at the commencement of the bankruptcy case. See 11 U.S.C. §§ 301 & 541(a). The Supreme Court's holding that IRAs may be exempted under § 522(d)(10)(E) therefore applies squarely to those debtors who have not yet reached 59 ½ years of age. Our contrary interpretation of the third requirement of § 522(d)(10)(E) in Clark thus ends up appending a sort of fourth requirement that finds no support in the statutory text and that Rousey forecloses by its facts. Although the district and bankruptcy courts in our Circuit have split with respect to Rousey 's effect on Clark, we are persuaded by the reasoning of those courts that have decided the question the way we do today. For example, the United States District Court for the Middle District of Pennsylvania correctly identified the polar opposite approaches to statutory interpretation in Rousey and Clark. See In re Wiggins, 341 B.R. 506, 512 (M.D.Pa.2006). Whereas Clark narrowed allowable exemptions based on what the majority perceived as the Bankruptcy Code's limited purpose of maintaining the debtor's immediate financial security, Rousey focused only on the Code's plain language, which asks whether an item sought to be exempted is similar to a stock bonus, pension, profitsharing, [or] annuity, that is, whether the item provides income that substitutes for wages. Id. Other than the three requirements imposed by the plain language, [n]o other limitation is imposed, and no higher purpose of the Bankruptcy Code is invoked. Id. The Supreme Court did not treat as dispositive the factor essential to our per se rule: whether the plan or contract provides for immediate payments or deferred payments. We agree with Wiggins that Rousey 's approach to construing § 522(d)(10)(E) diverges significantly from our approach in Clark, which further undermines Clark 's per se rule. Finally, we are unable to determine whether Krebs' right to receive payment from the IRA in fact meets the third requirement of § 522(d)(10)(E) without the now-overruled Clark gloss, as neither the District Court nor the Bankruptcy Court engaged in the factual inquiry necessary to determine whether an IRA is reasonably necessary to support a debtor and her dependents. See, e.g., In re Booth, 331 B.R. 233, 236-37 (Bankr.W.D.Pa.2005) (enumerating eleven factors to consider for the factual inquiry); In re Bogart, 157 B.R. 345, 347 (Bankr.N.D.Ohio 1993). Nor does the record indicate whether the entire amount of $43,571.96 may be reasonably necessary, or only a portion thereof. Because the to the extent language in the third requirement of § 522(d)(10)(E) may limit the amount actually exempted in any particular case, it is possible that only some portion of the IRA should be exempted. See, e.g., In re Fulton, 240 B.R. 854, 870, 876-77 (Bankr.W.D.Pa.1999). Accordingly, we will remand.