Ronald A Schena and Rachael Schena

1Debtors amended their schedules twice (docs 16 and 91);
neither amendments are relevant to this dispute.
2Debtors later conceded that 38 U.S.C. § 1970(g) addresses
insurance benefits and is not relevant in this case. 	Doc 89, p.
4.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
RONALD A. SCHENA and
RACHAEL SCHENA,
Debtors. 	No. 11-09-13165 SA
MEMORANDUM OPINION IN SUPPORT OF ORDER SUSTAINING
HIGH DESERT STATE BANK’S OBJECTION TO DEBTORS’ EXEMPTION
Before the Court is the objection of High Desert State Bank
(“Creditor”) (doc 48) to Debtors’ claimed exemption of a checking
account holding military retirement funds. 	This is a core
proceeding dealing with the exemptions of a debtor. 	28 U.S.C. §
157(b)(2)(B). 	The parties agreed that the Court would decide the
issue based upon pleadings and memoranda (doc 85). 	For the
reasons set forth below, the Court sustains the Creditor’s
objection to the Debtors’ claimed exemption.
BACKGROUND
On July 21, 2009, Ronald A. Schena and Rachael Schena
(“Debtors”) filed a Chapter 11 bankruptcy petition (doc 1). 	On
August 5, 2009, Debtors filed Schedules A – J (doc 14). 	The
Debtors elected to use the “federal exemptions” under 11 U.S.C. §
522(b)(2) 1. 	In Schedule C the Debtors claimed an exemption under
11 U.S.C. § 522(d)(10)(E), 38 U.S.C. §§ 1970(g) 2 and 5301 et seq.
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for the “checking account located at: Charter Bank (Military
Retirement)” containing the sum of $10,800 (“Account”). 	The
Account consists solely the proceeds of military retirement
checks received pre-petition by Ronald Schena, a retired United
States Air Force officer. 	Creditor objects that the Account may
not be exempted under the federal exemptions.
Therefore, there are two issues for the Court. 	First,
whether a debtor is precluded from invoking 38 U.S.C. § 5301, a
federal non-bankruptcy exemption, where a debtor has elected the
“federal bankruptcy exemptions” under 11 U.S.C. § 522(b)(2).
Second, whether uncommingled pension proceeds, deposited in a
bank account are exempt under either 11 U.S.C. §522(d)(10)(E) or
38 U.S.C. § 5301(a)(1).
DISCUSSION
The filing of a bankruptcy petition creates a bankruptcy
estate. 	The estate includes all “legal or equitable interests of
the debtor in property as of the commencement of the case.” 	11
U.S.C. § 541(a)(1); see also Rousey v. Jacoway, 544 U.S. 320, 325
(2005). 	In an individual’s Chapter 11 case, “property of the
estate includes earnings performed by the debtor after the
commencement of the case, but before the case is closed,
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3In Chapter 7 cases, however, military retirement pay
received after the filing of the bankruptcy petition is excluded
from the debtor’s estate under § 541(a)(6). 	In re Haynes, 679
F.2d 718, 719 (7th Cir.), cert denied, 459 U.S. 970 (1982). 	In
that case, the trustee sought to include the debtor’s retirement
pay in the estate, claiming the pay was nonexempt property of the
estate under §522 and § 541(a). 	However, the court found that
retired service members were still required to report for a
physical examination once every four years, were subject to
recall to active duty, remained subject to the Uniform Code of
Military Justice and could be tried by a military court-martial.
Id. 	Therefore, the obligations imposed upon a military retiree
in order to receive retirement pay made the nature of the pay
“reduced compensation for reduced current services.” 	Id.
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dismissed, or converted to a case under Chapter 7, 12, or 13,
whichever occurs first.” 	11 U.S.C. § 1115(a)(2) 3.
The Supreme Court originally held that despite retirement
from active service, members of the armed services were still “in
the military service of the government,” United States v. Tyler,
105 U.S. 244, 246 (1881). 	However, the Court has recently
modified its position on military retirement pay from “reduced
compensation for reduced current services” to “deferred pay for
past services”. 	Dorfman v. Moorhous (In re Moorhous), 180 B.R.
138, 148 (Bankr. E.D. Va. 1995), aff’d, 108 F.3d 51 (4th Cir.
1997)(citing McCarty v. McCarty, 453 U.S. 210, 221-22 (1981) and
Barker v. Kansas, 503 U.S. 594, 605 (1992)). 	Under the former
standard, wages would be included in the estate by § 1115(a)(2);
under the current standard, a pension is included by § 541(a).
Therefore, military retirement pay is included in the estate and
must meet criteria under § 522 to be exempt.
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411 U.S.C. § 522(b)(1) provides:
Notwithstanding section 541 	of this title, an
individual debtor may exempt from property of the
estate the property listed in either paragraph (2) or,
in the alternative, paragraph (3) of this subsection.
In joint cases filed under section 302 of this title
and individual cases filed under section 301 or 303 of
this title by or against debtors who are husband and
wife, and whose estates are ordered to be jointly
administered under Rule 1015(b) of the Federal Rules of
Bankruptcy Procedure, one debtor may not elect to
exempt property listed in paragraph (2) and the other
debtor elect to exempt property listed in paragraph (3)
of this subsection. If the parties cannot agree on the
alternative to be elected, they shall be deemed to
elect paragraph (2), where such election is permitted
under the law of the jurisdiction where the case is
filed.
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I. 	A Debtor using § 522(d) may not use 38 U.S.C. § 5301.
Exemptions from the property of the estate are governed in
the Bankruptcy Code by § 522. 	Under § 522(b)(1) debtors may
choose the “federal bankruptcy exemptions” in § 522(b)(2) or
where applicable, the “state and federal non-bankruptcy
exemptions” in § 522(b)(3) 4. 	When a debtor elects the federal
bankruptcy exemptions in § 522(b)(2), the debtor applies the
exclusive list of exemptions set out in §522(d). 	Carpenter v.
Ries (In re Carpenter), 408 B.R. 244, 246 (8th Cir. BAP 2009),
aff’d, 614 F.3d 930 (8th Cir. 2010). Therefore, the Court must
determine whether a debtor is precluded from invoking federal
non-bankruptcy exemptions not listed in § 522(d) when they elect
to utilize the federal exemption scheme through § 522(b)(2).
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When a debtor chooses to use § 522(b)(2), he or she is
limited to the “exclusive list of federal exemptions outlined in
the Bankruptcy Code.” 	In re Kochell, 732 F.2d 564, 566 (7th Cir.
1984). 	On the other hand, the federal non-bankruptcy exemptions
are available only where the debtor has chosen to utilize the
state exemption scheme prescribed in § 522(b)(3). 	Id. 	The plain
language of the statute “that the debtor must choose between the
two exemption systems, rather than enjoy the benefits of both, is
perfectly clear.” 	Walker v. Treadwell (In re Treadwell), 699
F.2d 1050, 1052 (11th Cir. 1983). 	Additionally, Congress’
intention to limit exemptions is apparent in the House Report,
which concisely states: “the debtor may choose the federal
exemptions prescribed in subsection (d), or he may choose the
exemptions to which he is entitled under other federal law and
the law of the State of his domicile.” H. Rep. No. 95-595, 95th
Cong., 1st Sess., 126 (1977). 	See also S. Rep. No. 95-989, 95th
Cong, 2nd Sess., 73 (1978).
The court in Treadwell considered this issue with respect to
social security payments under 42 U.S.C. § 407. 	Treadwell, 699
F.2d at 1052. 	In that case, the debtor elected the federal
exemptions and also invoked the Social Security Act (42 U.S.C. §
407) in order to exempt these funds as well. 	Id. at 1050. 	The
court found that when a debtor chooses the federal exemptions he
or she forfeits the protection afforded by 42 U.S.C. § 407 with
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respect to the accumulated social security benefits. 	Id. at
1052. 	The court stated:
Thus, the Debtor in this case could have obtained the
exemption of section 407, but only by forsaking the
exemptions specified in the Bankruptcy Code, 11
U.S.C.A. § 522(d), and electing the state and non-
bankruptcy federal exemptions. 11 U.S.C.A. § 522(b).
Nothing in the language of section 407 permits a social
security recipient to claim all bankruptcy exemptions
in addition to the social security exemption.
Id. 	Since Treadwell, Congress added that “none of the moneys
paid or payable or rights existing under this subchapter shall be
subject ... to the operation of any bankruptcy or insolvency law”
to 42 U.S.C. § 407, which specifically excludes social security
proceeds in the bankruptcy context. 	Carpenter 408 B.R. at 248.
Nevertheless, Treadwell still stands for the proposition that
debtors are not allowed to invoke non-Title 11 exemptions where
they have elected to use § 522(d) exemptions.
After the amendment to the Social Security Act, the
Carpenter court found that a debtor could invoke 48 U.S.C. § 407
even where he or she chose the federal exemption scheme under §
522(b)(2). 	Carpenter, 408 B.R. at 249. 	However, the court’s
limited holding resulted from the added language in the Social
Security Act. 	Id. at 248. 	As such, the Carpenter holding is
that where federal non-bankruptcy law specifically provides a
protection in bankruptcy, such provision governs unless some
provision of the code explicitly provides otherwise. 	Id. 	Later
courts have applied Carpenter in its limited context; that is,
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where the federal non-bankruptcy provisions specifically protects
property in bankruptcy. 	In re Anderson, 410 B.R. 289, 294
(Bankr. W.D. Mo. 2009). 	The court in Anderson found that because
the Civil Service Retirement Act (5 U.S.C. § 8346(a)) did not
contain the “limiting language” as in 48 U.S.C. § 407, the
“exemption would apply only to those debtors who choose, or are
required to claim ... exemptions under state law and federal law
other than § 522(d). 	Id.
Therefore, this Court finds that where debtors have elected
to use the exemptions specified in § 522(d) they are precluded
from invoking federal non-bankruptcy exemptions, except where
non-Title 11 law explicitly provides for protection of debtors in
bankruptcy.
Here, the Creditor has met its burden of proof that the
exemptions were not properly claimed. 	Fed. R. Bankr. P. 4003(c).
Therefore, the Debtors, having elected the federal exemptions,
may not claim exemptions for the Charter Bank military retirement
account under § 522(d)(10)(E) and 38 U.S.C. § 5301.
II. 	Uncommingled pension proceeds are not exempt under either §
522(d)(10)(E) or 38 U.S.C. § 5301(a)(1).
Where a debtor has chosen (or been forced to claim) federal
exemptions, § 522(d)(10)(E) provides that the debtor may exempt
the following property:
(10) The debtor's right to receive—
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5In Porter, the issue before the Court was whether the
exemption continues under 38 U.S.C. § 3101(a) for benefits paid
by the United States Veterans’ Administration after being
deposited into a deposit account. 	The Supreme Court protected
veterans’ retirement, finding: “The Congress, we believe,
intended that veterans in the safekeeping of their benefits
should be able to utilize those normal modes adopted by the
community for that purpose—provided the benefit funds, regardless
of the technicalities of title and other formalities, are readily
available as needed for support and maintenance, actually retain
the qualities of moneys, and have not been converted into
permanent investments.” Id. at 162. (Decided under former law.)
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(E) 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.
11 U.S.C. § 522(d)(10)(E)(emphasis added).
When interpreting a federal statute, courts first examine
the plain language of the statute. 	Consumer Product Safety
Commission v. GTE Sylvania, 447 U.S. 102, 108 (1980). 	See also
Dalton v. Internal Revenue Service, 77 F.3d 1297, 1299 (10th Cir.
1996). 	The plain meaning of the legislation will be dispositive
except where it is contrary to the clear intention of the
drafters. 	United States v. Ron Pair Enters., Inc., 489 U.S. 235,
242 (1989).
Exemption legislation should be construed liberally in
order to give effect to the purpose of Congress, that is, to
protect funds for the maintenance and support of beneficiaries.
Porter v. Aetna Casualty & Sur. Co., 370 U.S. 159, 162 (1962) 5.
The language of section 522(d)(10)(E) is plain and leaves little
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6The Court in In re Panza, 219 B.R. 95 (Bankr. W.D. Pa.
1998) did not find the general rule argument persuasive. 	The
Court emphasized that the “so-called ‘general rule’ is not
universally embraced.” 	Id. at 97 n. 1. 	Nonetheless, the court
held that a debtor may not utilize § 522(d)(10) to exempt
traceable funds in a savings account from disability benefits.
Id. at 99.
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or no room for a liberal construction. 	Section 522(d)(10)
specifically exempts a debtor’s right to receive a payment under
a particular plan.
Interpreting the statute with respect to its plain
language, those funds due to a debtor under § 522(d)(10)(E) plans
lose their exempt character once the debtor receives payment. 	In
re Cesare, 170 B.R. 37, 39 (Bankr. D. Conn. 1994) (citing 2
Norton Bankruptcy Law and Practice 2d § 46:17, at 46-36 (William
L. Norton ed., 1994)(“[Section] 522(d)(10) exempt[s] ‘[t]he
debtor’s right to receive’ the benefits and not benefits that
have already been paid over to the debtor.”)). 	Therefore, given
the plain meaning, courts have found that the general rule 6 is
that “once money from an exempt fund is paid out and placed in a
bank account, such money typically loses its exempt status.”
Anderson, 410 B.R. at 291. 	Nevertheless, such money retains its
exempt status where Congress enacts an explicit statute, such as
42 U.S.C. § 407, to protect certain types of funds even where
payment was made pre-petition. 	Id. 	Moreover, this plain
language interpretation is consistent with construing exemption
statutes liberally because it allows debtors to retain the exempt
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character of exempt property where Congress has provided for such
protection in legislation through either federal bankruptcy or
non-bankruptcy law. 	The majority of courts have followed this
plain language interpretation of the general rule with respect to
“right to receive”. 	In re McCollum, 287 B.R. 750, 753 (Bankr.
E.D. Mo. 2002)(“The ‘right to receive’ a benefit has been deemed
to have been extinguished when payments or benefits have already
been received by a debtor before the bankruptcy case was
commenced.”); In re Michael, 262 B.R. 296, 298 (Bankr. M.D. Pa.
2001)(“All five subsections of § 522(d)(10) exempt ‘[t]he
debtor's right to receive’ the benefits and not the benefits that
have already been paid over to the debtor.”)(Citation omitted.);
In re Panza, 219 B.R. at 97 (Same.); In re Moore, 214 B.R. 628,
631 Bankr. D. Kan. 1997)(The “language suggests that the
exemption only applies to the right to receive future
payments.”); 	In re Williams, 181 B.R. 298, 301 (Bankr. W.D.
Mich. 1995)(Section 522(d)(10) does not contemplate exemption of
traceable assets.); In re Cesare 170 B.R. at 39 (“Under the plain
language of [section 522(d)(10)], then, any funds due a debtor
under such a plan or contract lose their exempt character once
the debtor receives the funds.”); but see In re Caslavka, 179
B.R. 141, 147 (Bankr. N.D. Iowa 1995)(interpreting the “right to
receive” in a state statute as applying to lump sum payment from
a profit sharing plan after rollover into annuities).
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711 U.S.C. § 522(d)(11) exempts:
The debtor's right to receive, or property that is
traceable to--
(A) an award under a crime victim's reparation law;
(B) a payment on account of the wrongful death of
an individual of whom the debtor was a dependent, to
the extent reasonably necessary for the support of the
debtor and any dependent of the debtor;
(C) a payment under a life insurance contract
that insured the life of an individual of whom the
debtor was a dependent on the date of such individual's
death, to the extent reasonably necessary for the
support of the debtor and any dependent of the
debtor;
(D) a payment, not to exceed $ 21,625, on account
of personal bodily injury, not including pain
and suffering or compensation for actual pecuniary
loss, of the debtor or an individual of whom the debtor
is a dependent; or
(E) a payment in compensation of loss of future
earnings of the debtor or an individual of whom the
debtor is or was a dependent, to the extent reasonably
necessary for the support of the debtor and any
dependent of the debtor.
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Limiting § 522(d)(10) exemptions to only payments due is
supported by comparing § 522(d)(10) with the later added §
522(d)(11)[providing an exemption for the right to receive and
traceable proceeds of particular property] 7 . 	The language of §
522(d)(11) plainly exempts both the debtor’s right to receive
payment as well as “property that is traceable to” such property.
Additionally, Congress provided specific language in non-
bankruptcy statutes exempting certain government benefits, such
as crime victim’s reparations and qualified retirement funds.
The language regarding these exemptions is substantially
different than the language of § 522(d)(10). 	Cesare, 170 B.R. at
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8Debtors did not claim the IRA as independently exempt under
the § 522(d)(10)(E). 	In re Cesare, 170 B.R. at 38. 	However, a
retirement account or an ERISA-qualified pension plan may be
excluded from the property of the bankruptcy estate under § 541
regardless of the debtor’s election of the state or Federal
exemption scheme. 	Patterson v. Shumate, 504 U.S. 753, 760
(1992).
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39 n.1. These examples show that Congress knows the difference
and how to write statutes to reflect that different treatment. As
such, “courts must presume that a legislature says in a statute
what it means and means in a statute what it says there.”
Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54
(1992)(Citations omitted.). 	Congress therefore did not intend to
allow debtors an exemption under § 522(d)(10) for pre-petition
proceeds received from a qualified retirement fund. 	In re
McCollum, 287 B.R. at 753-54; In re Michael, 262 B.R. at 298-99;
In re Panza, 219 B.R. at 97; In re Moore, 214 B.R. at 631; In re
Cesare, 170 B.R. at 39.
The right to receive with respect to § 522(d)(10)(E) was
considered at length in Cesare by the Bankruptcy Court for the
District of Connecticut. 	Cesare, 170 B.R. at 39. 	In that case,
the Chapter 7 debtors attempted to exempt their individual
retirement account 8, which was funded solely by lump-sum proceeds
of an exempt employee benefit plan. 	Id. at 38. 	The debtors
supported their argument with In re Woods, 59 B.R. 221, 225
(Bankr. W.D. Wis. 1986)(finding lump-sum proceeds in a retirement
plan were exempt was consistent with liberal construction purpose
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of the state exemption statute); however, the Cesare court
distinguished Woods because it was based on a state exemption
statute which was significantly broader than § 522(d)(10).
Cesare, 170 B.R. at 40. 	In addition, the court emphasized the
plain language and ability of Congress to use specific language
in concluding that once retirement funds are received pre-
petition, the right to receive is extinguished. 	Id.
There is authority to the contrary. 	In re Donaghy, 11 B.R.
677, 680 (Bankr. S.D. N.Y. 1981) and In re Johnson, 36 B.R. 54,
56 (Bankr. D. N.M. 1984). 	The Donaghy court used equitable
considerations to allow a debtor to exempt proceeds of a
retirement plan under special circumstances. 	Donaghy, 11 B.R. at
680. 	The debtors invoked § 522(d)(10)(E) to exempt pension
benefits received pre-petition. 	Id. 	As this express exemption
was a “new feature” of the 1978 Bankruptcy Code, the court looked
to the underlying rationale of the law. 	Id. at 679. 	The court
found pension benefits were a “tangible reflection of” wages,
emphasizing the need for the funds in providing for a “fresh
start”. 	Id. 	The court also construed the “reasonably necessary”
language of § 522(d)(10) as applying to proceeds because of the
debtors’ apparent need. 	Id. 	In particular, the proceeds were
necessary because the debtors were aging, no longer able to work,
and suffering from mounting medical problems. 	Id.
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Following the Donaghy court’s use of equity, the Johnson
court adopted the special circumstances analysis in finding a
stock plan exempt. 	Johnson, 36 B.R. at 56. 	The court found that
a 47 year old debtor who was unemployed in a field where finding
local reemployment would be difficult was entitled to exempt a
pre-petition lump-sum pension payment. 	Id. 	Also, despite the
debtor living rent-free, his alimony obligations coupled with
basic expenses for living and searching for employment allowed
the court to find the value of the stock plan “reasonably
necessary.” 	Id.
Nevertheless, cases which allowed proceeds of a retirement
plan as a substitute for wages where “reasonably necessary” have
been severely limited and have generally been subsequently
treated as anomalies. 	McCollum, 287 B.R. at 754. 	In particular,
the Supreme Court ruled in Norwest Bank Worthington v. Ahlers,
485 U.S. 197, 207 (1988) that § 105 could not be used to override
a specific Code provision. 	“Whatever equitable powers remain in
the Bankruptcy Courts must and can only be exercised within the
confines of the Bankruptcy Code.” 	Ahlers, 485 U.S. at 207.
Thus, the McCollum court, relying on Ahlers, found that the plain
language of § 522(d)(10) “precludes the [c]ourt from using its
equitable powers to construe the phrase [“right to receive”] to
encompass funds already received pre-petition.” 	McCollum, 287
B.R. at 755.
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9The court also found that should Congress amend a Federal
law, § 522(d)(10)(C) in particular, that traceable pre-petition
payments may be exempt. 	In re Panza, 219 B.R. at 98-99.
10 Although Kansas has opted out of the Federal exemptions
under § 522(b)(3), the state law still allows debtors to claim
exemptions under § 522(d)(10). 	In re Moore, 214 B.R. at 629.
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Panza also addressed the limits of the court’s equitable
power with respect to § 522(d)(10)(E). 	Panza, 219 B.R. at 97.
The debtors in Panza filed a Chapter 7 petition and sought to
exempt traceable federal employee disability payments received
pre-petition deposited in a savings account. 	Id. at 95. 	Despite
the disability payments being the sole source of income for the
debtor, the court found that the funds were not exempt. 	Id. at
98-99. 	The court distinguished In re Frazier, 116 B.R. 675
(Bankr. N.D. Wis. 1990), which held disability benefit proceeds
were exempt. 	The Frazier court ruled that 42 U.S.C. § 407 (the
Social Security Act) provided explicit reference to bankruptcy
and therefore the court found it must “harmonize” the intention
of Congress with the Bankruptcy Code. 	Panza, 219 B.R. at 98.
The statute at issue in Panza did not contain such language 9 and
therefore the court could not permit an exclusion or exemption of
traceable pre-petition federal employee disability payments. 	Id.
Finally, the Bankruptcy Court for the District of Kansas
reached a similar conclusion in finding an exemption for social
security proceeds, but not for retirement plan proceeds. 10 In re
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11 Porter v. Aetna Cas. & Surety Co., 370 U.S. 159, 162
(finding that benefits paid by the United States Veterans’
Administration retain their exempt status under 38 U.S.C. §
3101(a)(1) even when deposited into an account in a federal
savings and loan association) and United States v. Griffith, 584
F.3d 1004, 1020-21 (10th Cir. 2009)(holding in a criminal case
that exempt Veterans’ Administration funds, once deposited into
the beneficiary’s account and remained readily available,
retained their identity as “public money” under 38 U.S.C. § 641
until converted into permanent investments or property).
12 Waldman v. Nolen (In re Nolen), 65 B.R. 1014, 1018 (Bankr.
D. N.M. 1986) (holding that uncommingled proceeds of a workmen’s
compensation settlement is exempt from claims of creditors under
N.M. Stat. Ann. § 52-1-52 (1978)).
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Moore, 214 B.R. at 628. The court held that the statutory
language of the Social Security Act was explicit in providing an
exemption for commingled pre-petition social security payments,
in contrast to the language of § 522(d)(10)(E) which did not
provide similar language for retirement plans the “funds which
were already paid out.” 	Id. at 631.
The Debtors cite a multitude of cases which provide that
proceeds of veteran’s benefits 11 and workmen’s compensation
settlements 12 continue to retain their exempt character (doc 89).
These cases are not applicable to the Debtors here because they
reference statutes outside the scope of § 522(d). The Debtors
also emphasize that the uncommingled nature of the proceeds
renders the deposits exempt; however, the mere fact that the
proceeds in the Debtors’ account were uncommingled does not
render them exempt. 	In re Carbaugh, 278 B.R. 512, 521 (10th Cir.
BAP 2002). 	Finally, the Debtors’ choice of federal exemptions is
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dispositive because Congress has not explicitly provided a
bankruptcy exemption for military retirement pay in 38 U.S.C. §
5301. 	Therefore the Debtors cannot exempt traceable pre-petition
military retirement pay under § 522(d)(10)(E).
Even if this Court did conclude its equitable powers
sufficient enough to overcome the Norwest limitation and find
that a debtor could exempt traceable pre-petition military
retirement pay, the debtor must have a reasonable need for the
funds. 	The leading case for a “reasonably necessary” analysis is
In re Taff, 10 B.R. 101 (Bankr. D. Conn. 1981). The court held
that the reasonably necessary analysis is as follows:
[T]he reasonably necessary standard requires that the
court take into account other income and exempt
property of the debtor, present and anticipated ... and
... the appropriate amount to be set aside for the
debtor ought to be sufficient to sustain basic needs,
not related to his former status in society or the
lifestyle to which he is accustomed but taking into
account the special needs that a retired elderly debtor
may claim.
Id. at 107. 	The Taff analysis as applied in New Mexico is a high
standard, examining whether the debtor presently has or will
likely have basic funds on which to sustain his or herself. 	In
re Johnson, 36 B.R. at 56.
Although neither party has provided evidence regarding
whether the funds are reasonably necessary, such conclusion is
apparent from the Debtors’ filings. The Debtors in this case have
necessary funds available both currently and in the future to
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13 Monthly gross wages for Mr. Schena is in the amount of
$9,821.07, but deduction for payroll taxes and Social Security of
$1,973.27, Simple IRA $1,098.50 and deductions from military
retirement for $1,724.67 leave net monthly take home pay of
$5,024.63. 	Also, Mr. Schena receives $3,647.00 for military
retirement pay. 	(docs 14 and 25).
14 Debtors did not file “Page 2” of their monthly operating
report for October 2009, leaving the Court without evidence of
the Debtors’ cash status for the month. 	However, assuming no
other income besides those provided in the Wells Fargo and
Compass Bank accounts, the Debtors would have experienced a net
gain of $940.92 based on the beginning and ending balances of the
two accounts. 	With the October 2009 estimate based on account
balances, the Debtors would have gained $1107.59 from July 21,
2009 until June 30, 2010.
15 Debtors monthly net gains and losses are as follows: July
21-30, 2009 ($115.03), August 2009 (-$655.34), September 2009
($1669.56) [this number was also not provided, but is based on
given income and expenses], October 2009 (omitted), November 2009
($380.27), December (-$1,236.91), January 2010 ($2783.30),
February 2010 (-$2009.82), March 2010 (-$2015.47), April 2010
($1505.48), May 2010 ($243.45), and June 2010 (-$613.38).
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support their basic needs. Debtors list current monthly income as
$8,671.63 13 on Schedule I and do not expect any change in income
for the following year (ending August 5, 2010)(doc 14). The
Debtors list current expenses on Schedule J at $13,399.74;
leaving net income of negative $4,728.11. However, in available
monthly operating reports from July 21, 2009 until June 30,
2010 14 , the Debtors report a total gain of $166.67. 15 The Debtors
therefore have sufficient income currently to provide for their
basic needs.
In the future, a significant portion of the Debtors’
expenses are for $4,000 in “legal, accounting, and litigation,”
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which will not likely continue once the current bankruptcy and
state court issues are resolved. 	The Debtors also list medical
expenses of $2,165.20; however, those expenses include $2,000 for
medically-necessary dentistry work which is spread out over a two
year period and will not continue after that time. 	Without these
two noteworthy expenses, the Debtors will see a significant
monthly surplus in the future.
Finally, the Debtors situation here is distinguishable from
those in Johnson because the Debtors will likely continue to have
significant stable income from Mr. Schena’s current salary and
military retirement as well as from numerous other retirement
plans listed in Schedule C. 	Accordingly, the $10,800 military
retirement proceeds are not reasonably necessary to meet the
basic needs of the Debtors and should not be allowed as an
exemption under § 522(d)(10)(E).
CONCLUSION
For the reasons set forth above, the Creditor’s Objection to
the Debtors’ Exemption is SUSTAINED. 	The Court will enter a
separate Order denying the exemption in the account.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	October 14, 2010
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Copies to:
Louis Puccini, Jr
Puccini Law, P.A.
PO Box 50700
Albuquerque, NM 87181-0700
Christopher M Gatton
Law Office of George Dave Giddens, PC
10400 Academy Rd., #350
Albuquerque, NM 87111
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