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In re Morra

September 10, 2007

IN RE: SELENA J. MORRA DEBTOR.


The opinion of the court was delivered by: Seybert, District Judge

E.D. Bankr. Case No. 04-81042(SB)

MEMORANDUM AND ORDER

INTRODUCTION

Pending before the Court is Chapter 7 Trustee Robert L. Pryor, Esq. (the "Trustee" or "Appellant") appeal from an October 20, 2006 Order ("October Order") of United States Bankruptcy Judge Stan Bernstein denying the Trustee's objection to an exemption claimed by Selena J. Morra (the "Debtor" or "Morra"), the Debtor/Appellee. For the reasons explained below, the matter is REMANDED to the United States Bankruptcy Court for the Eastern District of New York for further proceedings consistent with this Order.

BACKGROUND

Morra voluntarily filed a Chapter 7 petition for bankruptcy on February 23, 2004 (the "Petition"). In the schedules to the petition, Morra indicated that she had $33,196.00 in unsecured debt and owned a pension having a value of $3,000.00.

Morra claimed that the $3,000.00 in her pension was exempt from her bankruptcy estate.

At the first meeting of creditors on March 24, 2004, Morra indicated that there was an error in the schedules and that the asset referred to as a pension was the Verizon Savings and Security Plan for New York and New England formed under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)"). Morra further testified that there was approximately $23,000.00 in the 401(k) as a result of monthly contributions of $446.00 made by Morra over approximately four years. The 401(k) represents the bulk of Morra's assets.

On June 7, 2006, the Trustee moved the Bankruptcy Court to disallow Morra from claiming an exemption for the funds held in the 401(k). The Trustee's main argument was that the exemption on which Morra relied, New York Debtor & Creditor Law § 282(iii)(2)(e), only exempts payment from certain plans and not the assets held in the plan and that since Morra had no right to payments under the 401(k) on account of "illness, disability, death, age, or length of service" as of the filing of her Petition, § 282 did not apply. In the alternative, the Trustee argued that, in the event the Bankruptcy Court deemed N.Y. C.P.L.R. § 5205(c) ("Section 5202(c)") applicable, the exemption should be denied because all the contributions Morra made to the 401(k) constituted fraudulent conveyances under Article 10 of New York Debtor and Creditor Law.

The Bankruptcy Court's Order & The Trustee's Appeal

On September 20, 2006, the parties appeared before Judge Bernstein to argue the Trustee's objections to the exemption. Both parties were present. Judge Bernstein addressed the Trustee's arguments regarding New York Debtor and Creditor Law § 282 ("§ 282") and verbally told the parties that he would be denying the Trustee's motion and allowing Morra to claim the exemption. Subsequently, on October 20, 2006, Judge Bernstein issued a written order denying the Trustee's motion. At no point during the September 20 hearing did Judge Bernstein or the Trustee raise the argument that the funds Morra contributed to her 401(k) constituted fraudulent conveyances and, therefore, the exemption should be denied. Moreover, the October Order does not contain any mention of a fraudulent conveyance.

The Trustee now appeals the October Order. The Appeal relies, in its entirety, on the argument that the contributions to the 401(k) constitute fraudulent conveyances. While the Trustee cites three "issues presented" in this Appeal, there is really only one for this Court to address. Whether the Bankruptcy Court erred by finding that Morra was entitled to an exemption for money held in her 401(k). This Court is unable to determine whether Morra is entitled to the exemption because no determination was ever made as to whether the funds in the 401(k) were fraudulent conveyances.

DISCUSSION

I. Standard Of ...


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