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In re Jacob

October 16, 2009


The opinion of the court was delivered by: David N. Hurd United States District Judge



Debtor-appellants James R. Jacob, Jr. and Kimberly A. Jacob appeal from Orders of Hon. Stephen D. Gerling, then-Chief United States Bankruptcy Court Judge for the Northern District of New York, denying their confirmation plan on May 10, 2007, then dismissing the case for failure to confirm a plan on September 16, 2008. The debtors and the appellee Chapter 13 Trustee Mark W. Swimelar have both filed their briefs on appeal. The appeal was taken on submission without oral argument.


Debtor James R. Jacob, Jr. ("Jacob") suffered a catastrophic injury in a workplace accident in 1998. As a settlement in his personal injury action, he released all claims to recover damages related to the accident in exchange for an annuity to be established for his benefit. Under the terms of the annuity, Jacob received $1,000 per month beginning on December 15, 2003, and continuing for 360 months, followed by a lump sum payment of $382,872.46 on December 15, 2033. There is no dispute that the owner of the annuity is an insurance company.

Debtors filed a Chapter 13 petition and proposed confirmation plan on March 15, 2007. Debtors claimed a 100% exemption of the annuity in their proposed plan. The Trustee objected to the plan because "[t]he debtors have claimed a 100% exemption on a MetLife Annuity. The annuity is owned by a 3rd party, not the debtors," such that the exemption had no basis in federal or state law. (R. on Appeal Doc. No. 2-8.) Thereafter the Trustee filed an amended objection arguing that because the annuity was not exempt, debtors' proposed plan failed the liquidation test set forth in 11 U.S.C. § 1325(a)(4).*fn1 This appeal followed.

III. Standard of Review

In reviewing a bankruptcy court's decision, a district court applies the clearly erroneous standard to conclusions of fact and de novo review to conclusions of law. In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000); In re Petition of Bd. of Directors of Hopewell Int'l Ins. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); Fed. R. Bankr. P. 8013.

Although the parties do not address the point, no facts were in dispute, no conclusions of fact were made by the Bankruptcy Court, and the Orders of the Bankruptcy Court consisted of conclusions of law. Accordingly, the decisions are subject to de novo review.


The Bankruptcy Court denied confirmation of the proposed plan because debtors failed to satisfy the liquidation test. (May 10, 2007, Order Doc. No. 2-6). The Bankruptcy Court relied upon In re Constantino, 274 B.R. 580 (Bankr. N.D.N.Y. Jan. 14, 2002) (Gerling, C.J.), as proposed by the Trustee. Id. While the May 10, 2007, Order does not explicitly state that the annuity was not exempt, such a finding necessarily was made as a precursor to the determination that under debtors' proposed plan they failed the liquidation test. Further, the Bankruptcy Court rejected debtors' reliance on In re Terrance*fn2 and In re Tappan, 277 B.R. 491 (W.D.N.Y. 2002), thus necessarily rejecting the argument that the annuity payments were exempt.

Thus, the issue of law for determination is whether the annuity payments made to Jacob are exempt from the estate. The burden of establishing that claimed exempt property is not exempt is on the party who objects--in this case the Trustee. In re Baker, No. 07-32440, 2009 WL 2872830, at *2 (Bankr. N.D.N.Y. Mar. 30, 2009) (Cangilos-Ruiz, B.J.) (citing Fed. R. Bankr. P. 2003(c)).

"[A]ll legal or equitable interests of the debtor in property as of the commencement of the case" constitutes property of the estate. 11 U.S.C. § 541(a)(1). In addition to the property set forth in § 541, a Chapter 13 estate includes property acquired "after the commencement of the case but before the case is closed, dismissed, or converted." Id. § 1306(a)(1).

A debtor is permitted to "exempt from the property of the estate," inter alia, "insurance policies and annuity contracts and the proceeds and avails thereof as provided in" Insurance Law § 3212. N.Y. Debt. & Cred. Law § 282(ii) (McKinney 2001). Section 3212 of New York's Insurance Law provides that "benefits, rights, privileges and options which, under any annuity contract are due or prospectively due the annuitant, who paid the ...

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