Donald Stephen Bonuchi and Cindy Rebecca Bonuchi

IN THE UNITED STATES BANKRUPTCY COURT FOR THE
WESTERN DISTRICT OF MISSOURI
IN RE: 	)
)
DONALD BONUCHI and, 	) 	Case No. 04-21387-drd-7
CINDY BONUCHI, 	)
Debtors. 	) 	Adv. No. 04-2044-drd
)
______________________________________ )
)
JANICE A. HARDER, Trustee, 	)
)
Plaintiff, 	)
v. 	)
)
HARTFORD LIFE INSURANCE COMPANY, )
)
Defendant. 	)
MEMORANDUM OPINION
The Chapter 7 Trustee (“Trustee”) filed a Complaint for Turnover Order and an Objection
to Debtors’ Claimed Exemption relating to an annuity. The case was submitted on a Stipulation of
Facts. Debtor Donald Bonuchi (“Debtor”) claimed payments from an annuity as exempt and Trustee
objected to the claimed exemption and filed a complaint against the issuer of the annuity for
turnover of the funds when due. These are core proceedings under 28 U.S.C. § 157(b)(2)(B) and
(E) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1).
The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52
of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the
Federal Rules of Bankruptcy Procedure. For the reasons set forth below, I find that Debtor’s annuity
is not exempt except to the extent reasonably necessary for the support of Debtor and any dependent
of Debtor. See Mo. Rev. Stat. § 513.430(10)(e). The amount reasonably necessary for the support
of Debtor and any dependent of Debtor will be determined after an evidentiary hearing.
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1Stipulation of Facts (“Stipulation”), ¶ 4.
2Stipulation, ¶ 5.
3Stipulation, ¶ 5.
4Stipulation, ¶ 7.
5Stipulation, ¶ 8.
6Stipulation, ¶ 1.
2
I. FACTUAL BACKGROUND
Debtor sustained an injury while in the course and scope of employment at Premium
Standard Foods on February 14, 1995. 1 Debtor filed a workers’ compensation claim with
Premium and a civil action against Premium’s insurance carrier, Hartford Fire Insurance
Company, alleging various tort claims related to the injury and the settlement of the workers’
compensation claim.2 The workers’ compensation claim and the tort action were resolved by a
compromise settlement approved by the Missouri Department of Labor and Industrial Relations
on March 26, 1998 (“Settlement Agreement”). 3
Pursuant to the Settlement Agreement, Hartford Fire purchased an annuity from Hartford
Life. Hartford Fire is the owner of the annuity, Hartford Life is the issuer and Debtor is the
designated payee.4 The Settlement Agreement provided for a lump sum of $200,000 payable on
March 26, 1998; a monthly annuity of $2,144.93 payable for the life of Debtor commencing on
May 13, 1998; four annual payments of $10,000 beginning on July 13, 2005; and four annual
payments of $10,000 beginning on July 13, 2006. 5
On June 4, 2004, Debtors filed a bankruptcy petition pursuant to Chapter 7 of the
Bankruptcy Code.6 In their Amended Schedule C, Debtors have claimed the entire value of the
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7Stipulation, ¶ 2.
8Stipulation, ¶ 3.
3
annuity exempt pursuant to Mo. Rev. Stat. §§ 407.1062, 513.427 and 287.260.7 Trustee filed an
objection to the claimed exemption for the annuity as well as an adversary proceeding against
Hartford Life (“Defendant”) for turnover of the annuity funds as they come due.8
II. DISCUSSION
Section 522 of the Bankruptcy Code provides for exemptions which a debtor may claim
from property of the estate, but provides a state with the opportunity to “opt out” of the federal
exemption scheme and provide for its own exemptions. See 11 U.S.C. § 522. Missouri has
“opted out” of the federal scheme, thus requiring a debtor to clam only those exemptions allowed
under state law or federal non-bankruptcy law. See Mo. Rev. Stat. § 513.427. Missouri courts
have held that any property exempt from attachment or execution is exempt in bankruptcy
proceedings. See, e.g., In re Mitchell, 73 B.R. 93 (Bankr. E.D. Mo. 1987). Missouri Revised
Statutes § 287.260 states that “compensation payable under [the Workers Compensation Law],
whether or not it has been awarded or is due, shall not be assignable, shall be exempt from
attachment, garnishment and execution, shall not be subject to set-off or counterclaim, or in any
way liable for any debt. . . .”
The exemption laws are enacted to provide relief to the debtor and are liberally construed in
favor of the debtor. In re Schissler, 250 B.R. 697, 700 (Bankr. W.D. Mo. 2000); In re Turner, 44
B.R. 118, 119 (Bankr. W.D. Mo. 1984). As the party objecting to the exemption, the Trustee has
the burden of proof that the exemption should not be allowed. Fed. R. Bankr. Proc. 4003(c).
Mo. Rev. Stat. § 287.260
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9Section 287.260.1 reads: The compensation payable under this chapter, whether or not it has been awarded
or is due, shall not be assignable, shall be exempt from attachment, garnishment, and execution, shall not be subject
to setoff or counterclaim, or be in any way liable for any debt and in case of insolvency of an employer or insurer, or
the levy of an attachment or an execution against an employer or insurer shall be entitled to the same preference and
priority as claims for wages, without limit as to time or amount, except that if written notice is given to the division
or the commission of the nature and extent thereof, the division or the commission may allow as lien on the
compensation, reasonable attorney’s fees for services in connection with the proceedings for compensation if the
services are found to be necessary and may order the amount thereof paid to the attorney in a lump sum or in
installments. . . .
4
Debtor and Defendant assert that the workers’ compensation portion of Debtor’s
Settlement Agreement is exempt from attachment, garnishment and execution under Missouri
law and thus exempt in Debtor’s bankruptcy proceeding pursuant to Mo. Rev. Stat. § 287.260.9
Trustee argues that Debtor’s workers’ compensation award is not payable because it was
liquidated when it was paid into the annuity with Debtor as the named beneficiary. Thus,
Trustee argues that because the award is no longer “payable”, it is not exempt under Mo. Rev.
Stat. § 287.260. Trustee asserts that the annuity payments are governed by Mo. Rev. Stat. §
513.430(10)(e) which provides that a debtor may exempt the debtor’s right to an “annuity or
similar plan or contract on account of illness, disability, debt, age or length of service, to the
extent reasonably necessary for the support of such person and any dependent of such person. . .
.” Further, Trustee asserts that Debtor has not shown that the lump sum payments are reasonably
necessary for the support of Debtor or his dependents.
The issue here is whether the workers’ compensation portion of the annuity payments is
exempt pursuant to Mo. Rev. Stat. § 287.260. The Court agrees with Trustee that SSM Health
Care System v. Bartel, 914 S.W.2d 8 (Mo. Ct. App. 1995) is on point. In SSM, the debtor and
her employer reached a settlement agreement concerning a work-related injury suffered by
debtor. The settlement required a $40,000 lump sum payment for compensation, with
$17,025.20 paid directly to the debtor’s attorney and the remaining $22,974.80 to be placed in an
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irrevocable trust with the debtor named as beneficiary. The Division of Workers’ Compensation
approved the settlement. Subsequently, SSM filed a complaint and asserted that the transaction
was fraudulent because it failed to comply with the relevant statutes. The debtor and a co-trustee
of the trust agreement asserted that the funds were exempt pursuant to § 287.260. The court of
appeals held that the exemption does not protect Missouri workers’ compensation benefits once
paid to the claimant pursuant to the plain language of § 287.260, which protects only the
compensation payable under the workers’ compensation law, whether or not it has been awarded
or is due. See SSM, 914 S.W.2d at 10; cf. also, Duzan v. Cantley, 55 S.W.2d 711 (Mo. Ct. App.
1932); cf. also, Federal Social Security Law, 42 U.S.C. § 407 (exempting social security benefits
“paid or payable”). Presumably, because the funds were paid into a trust, the SSM court
determined that the benefits paid into the trust with the debtor named as the beneficiary were
paid to the debtor and thus no longer “payable” under the statutory language.
Similarly, in this case, Debtor and his employer reached a settlement agreement
concerning a work-related injury to Debtor and the lump sum compensation was to be placed in
an annuity with Debtor named as beneficiary. Once the lump sum compensation was placed in
the annuity it was liquidated and no longer “payable” to Debtor, and Debtor was free to assign or
transfer his interest in the payments. Thus, the amount placed in the annuity was no longer
exempt pursuant to § 287.260. See SSM, 914 S.W.2d at 10. Defendant argues that SSM is
distinguishable from this case because in SSM, the funds were paid directly to the debtor.
However, that assertion is incorrect. The funds in SSM were placed in a trust with the debtor
named as the beneficiary. This seems to the Court to be indistinguishable from the situation here
in which the funds were used to purchase an annuity with Debtor named as payee. See id. at 9.
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10 Defendant’s Brief in Opposition to Trustee’s Complaint for Turnover, p. 4.
6
Defendant cites In re Jackson, 173 B.R. 168 (Bankr. E.D. Mo. 1994) for the proposition that
workers’ compensation payments are exempt from attachment and execution and thus exempt in
bankruptcy. However, the claim at issue in that case was unliquidated at the time the bankruptcy
was filed and still payable to the debtor. As already discussed, the claim at issue here was
liquidated when paid into the annuity with Debtor as payee and thus, no longer “payable.”
Defendant also argues that Trustee’s turnover request would subvert the purpose of the
workers’ compensation statute which is to compensate workers for job-related injuries. See
Elrod v. Treasurer of Missouri as Custodian of the Second Injury Fund, 138 S.W.3d 714, 716
(Mo. 2004). However, as Defendant concedes in its brief10
, the workers’ compensation
exemption protects Missouri workers’ compensation benefits only until paid to the claimant. As
discussed above, the funds at issue were liquidated and paid to Debtor when they were paid into
an annuity with Debtor named as the payee. See SSM, 914 S.W.2d at 10-11. In SSM, the court
recognized the policy in Missouri that workers’ compensation is intended to supply an injured
employee with sufficient funds to function, as well as the statutorily imposed policies that the
provisions of the Missouri Workers’ Compensation Law be liberally construed with a view to
public welfare, but determined that these policies cannot defeat the clear and unambiguous
meaning of the statute. Id. at 11. Accordingly, pursuant to the plain language of § 287.260, the
funds were no loner payable to Debtor once they were liquidated and paid into an annuity with
Debtor named as payee.
This finding does not rule out the possibility that some or all of the amount in the annuity
may be exempt under § 513.430(10)(e). Debtor may exempt his right to an “annuity or similar
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11 Debtors’ Brief Concerning Exemptions, p. 3
7
plan or contract on account of illness, disability, debt, age or length of service, to the extent
reasonably necessary for the support of such person and any dependent of such person. . . .”
Because this is an annuity on account of disability, the Court must determine to what extent, if
any, the annuity payments are reasonably necessary for the support of Debtor and any such
dependent of Debtor. In order to make that determination, the Court will hold an evidentiary
hearing on the issue.
Mo. Rev. Stat. §§ 513.427 and 407.1062
Debtor asserts that because the annuity payments are in the form of structured settlement
payments pursuant to Mo. Rev. Stat. § 407.1060(9) of Missouri’s Structured Settlement Act they
are exempt. The statute, however, does not say so. Debtor asks the Court to reach this
conclusion based on a multi-tiered argument, observing first that Mo. Rev. Stat. § 513.427
allows debtors to claim exemptions created by either statutory or common law. Debtor next
points out that courts have held that property in Missouri is exempt if it is not subject to
attachment or execution by creditors and that property which is not assignable is not subject to
attachment or execution, and is therefore exempt. 11 Finally, Debtor argues that because the
annuity payments are in the form of structured settlement payments and that Mo. Rev. Stat. §
407.1062, which governs such payments, restricts the assignability of structured settlement
payments, such payments are not subject to attachment or execution and thus, are exempt in
bankruptcy.
This Court is willing to assume for this purpose that the annuity payments at issue are in
the form of structured settlement payments. The Court agrees that Mo. Rev. Stat. § 513.427
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allows debtors to claim exemptions created by either statutory or common law. The Court also
agrees with Debtor’s assertion that Missouri courts have held that property in Missouri is exempt
if it is not subject to attachment or execution by creditors and that property which is not
assignable is not subject to attachment or execution, and is therefore exempt in bankruptcy. See,
e.g., In re Arnold, 193 B.R. 897 (Bankr. W.D. Mo. 1996); In re Searcy, 193 B.R. 895 (Bankr.
W.D. Mo. 1996); Scarlett v. Barnes, 121 B.R. 578 (Bankr. W.D. Mo. 1990). However, the Court
does not agree that the restrictions on the assignability of structured settlement payments under
the Missouri Structured Settlement Act cause the payments to be exempt. Although the
assignability of structured settlement payments is contingent upon court approval and must meet
certain criteria, structured settlement payments are clearly assignable under Mo. Rev. Stat. §
407.1062. The Missouri legislature could have made clear that such payments are not subject to
attachment or execution or prohibited their assignment altogether. It has done neither. On the
other hand, the legislature has determined that payments under an annuity on account of
disability are not exempt in their entirety but only to the extent necessary for the support of the
debtor or his dependents. Debtor has not provided any legal support for the argument that
restrictions on the assignability of structured settlement payments cause such payments to
become exempt from attachment or execution and therefore, exempt in bankruptcy.
Mo. Rev. Stat. § 287.128
Finally, Defendant argues that it would be subject to penalties under Mo. Rev. Stat. §
287.128 if it does not promptly and properly make the workers’ compensation payments to
Debtor. That statute provides that it is unlawful to “intentionally refuse to comply with known
and legally indisputable compensation obligations.” Clearly, this Court’s decision and order on
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the workers’ compensation issue becomes the legal obligation of the parties, and, by complying
with this Court’s order, Defendant would not be guilty of failing to comply with “legally
indisputable” compensation obligations. The annuity payments became property of the estate
upon the filing of the petition subject to turnover to the trustee who is the representative of the
estate, subject only to a claim of exemption, a claim which this Court has now rejected, except to
the extent it may find the payments, or some portion of them, to be necessary for the support of
Debtor or his dependents.
For all of the above reasons, I find that Debtor’s annuity payments are not exempt
pursuant to Mo. Rev. Stat. §§ 287.260, 407.1062 or 513.427. The annuity payments may be
exempt under Mo. Rev. Stat. § 513.430(10)(e) to the extent reasonably necessary for the support
of Debtor and any dependent of Debtor, and that issue will be determined after an evidentiary
hearing.
A separate Order will be entered in accordance with Bankruptcy Rule 9021.
Dated: March 22, 2005 	/s/ Dennis R. Dow
THE HONORABLE DENNIS R. DOW
UNITED STATES BANKRUPTCY JUDGE
Copies to:
Dianna C. Carter
Janice A. Harder
J. Brian Baehr
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