In re: Brian Kosakowski

Filing 10

RULING re 1 Bankruptcy Appeal, filed by Anthony S. Novak Signed by Judge Robert N. Chatigny on 12/26/13.(Glynn, T.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ANTHONY S. NOVAK,
CHAPTER 7 TRUSTEE,

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Trustee/appellant,
V.
BRIAN KOSAKOWSKI,
Debtor/appellee.

Case No. 3:11-CV-1549 (RNC)

This is an appeal from an order of the Bankruptcy Court
(Albert S. Dabrowski, Chief Judge) overruling the trustee's
objection to an exemption.

In filing for relief under Chapter 7

of the Bankruptcy Code on January 18, 2011 ("petition date"), the
debtor claimed an exemption of $21,625.00 under §522(d)(11)(D)
for “a payment . . . on account of personal bodily injury,” plus
$8,778.58 under the “wild card” exemption provision in
§522(d)(5), for a total exemption of $30,403.58.

The debtor

sought to exempt from the bankruptcy estate the proceeds of a
personal injury settlement annuity with a maturity date of April
23, 2015, and asked the Bankruptcy Court to determine the fair
market value of the annuity on the petition date.

The trustee

argued that he was entitled to keep the bankruptcy estate open
until the maturity date to receive the full value of the annuity,
$39,686.62, at which time he would pay the debtor his exemption
of $30,403.58, and distribute the balance to creditors.

In its

order overruling the trustee’s objection, the Bankruptcy Court

determined that the debtor was entitled to exempt the fair market
value of the annuity on the petition date, which the Court
determined to be $26,000 after an evidentiary hearing.

The

finding that the annuity had a fair market value of $26,000 on
the petition date served to remove the annuity from the
bankruptcy estate as the value fell within the debtor's claimed
exemption.

The trustee appeals arguing principally that the

Bankruptcy Court’s decision is contrary to the terms of an antialienation provision in the annuity agreement preventing the
debtor from selling or otherwise transferring his interest as the
payee.1
Section 541(a)(1) of the Bankruptcy Code provides for
inclusion in the bankruptcy estate of “all legal or equitable
interests of the debtor in property as of the commencement of the
case.”

11 U.S.C. § 541(a)(1) (emphasis added).

Under § 522 of

the Code, the value of exempt property such as a "stock bonus,
pension, profitsharing, annuity, or similar plan or contract"
should be determined by the "fair market value as of the date of
the filing of the petition."

11 U.S.C. § 522.

“Thus, when

exemptions are claimed, the fact that the value of the property
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The Trustee relies on the following language:
Payment nor any rights thereto or interest therein can be:
(i) accelerated, deferred, increased or decreased by such
Plaintiff or any other Payee; or
(ii) sold, assigned, pledged, hypothecated or otherwise
transferred or encumbered, either directly or indirectly, by such
Plaintiff or any other Payee.
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that the debtor seeks to exempt has changed since the filing of
the petition will not affect the amount of property that the
debtor may exempt.”

Collier on Bankruptcy, ¶522.03 (Alan N.

Resnick & Henry J. Sommer, eds., 16th ed.).

See Polis v.

Getaways, Inc. (In re Polis), 217 F.3d 899, 902 (7th Cir. 2000)
(“[T]he date of valuation of an asset for purposes of determining
whether it can be exempted is the date on which the petition for
bankruptcy is filed; it is not a later date on which the asset
may be worth a lot more.”);

In re Bell, 179 B.R. 129, 130

(Bankr. E.D. Wisc. 1995) (“It makes no difference if an asset has
increased in value. The value of a particular asset is measured
as of the date of the bankruptcy petition, not thereafter.”).
The trustee argues that the Bankruptcy Court erred in trying
to estimate the fair market value of the annuity as of the
petition date because the anti-alienation provision prevents the
annuity from having any value prior to the maturity date.
This argument gives controlling weight to the terms of the antialienation provision and, in doing so, runs counter to the
Bankruptcy Code, which empowers the Bankruptcy Court to deal with
a debtor’s interest in property, and determine the value of the
debtor’s interest, notwithstanding anti-assignment provisions.
See 11 U.S.C. § 541(c)(1)("an interest of the debtor in property
becomes property of the estate . . . notwithstanding any
provision in an agreement . . . that restricts or conditions

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transfer of such interest."); In re Jackus, 442 B.R. 365, 369
(Bankr. D.N.J. 2011) (beneficial interest that debtor possessed
in annuity at time of her Chapter 7 filing became property of the
estate despite contractual anti-assignment provision); Polis, 217
F.3d at 902 (bankruptcy court is empowered to value legal claim
for purposes of an exemption even though the claim is
unassignable).
The trustee’s argument is also contrary to the Bankruptcy
Court’s determination after the evidentiary hearing that the
annuity actually had a fair market value on the petition date of
$26,000.

At the hearing, the debtor presented evidence that he

sought offers for the annuity from three settlement purchasing
companies and received an offer of slightly less than $26,000.
The trustee presented no evidence of the fair market value of the
annuity on the petition date, but instead argued that the annuity
had to be valued as of the maturity date.

The Bankruptcy Court

found the debtor's evidence to be credible, and determined that
the fair market value of the annuity was $26,000 as of the
petition date.
The trustee argues that the Bankruptcy Court erred in using
liquidation value to determine fair market value.

Courts

considering the appropriate valuation standard under § 522 have
concluded that ordinarily "value should be measured by the
traditional concept of fair market value, the amount the debtor

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would receive from a voluntary and willing buyer if the debtor
were not under a compulsion to sell, rather than a hypothetical
liquidation."
Tenn. 1996).

In re Sumerell, 194 B.R. 818, 825 (Bankr. E.D.
See also Matter of Nellis, 12 B.R. 770, 772 (Bankr.

D. Conn. 1981) ("Fair valuation is what can be realized out of
the assets within a reasonable time either through collection or
sale at the regular market value . . . .") (internal quotations
omitted).

In this case, however, involving an unmatured annuity,

the Bankruptcy Court had to rely on an alternate method of
valuation to achieve "the primary purpose of the valuation . . .
to determine that the values do not exceed the monetary limits
placed on the exemptions by Congress . . . ."

In re Sumerell,

194 B.R. at 826.
Finally, the trustee argues that the Bankruptcy Court
usurped the trustee's power to administer the estate.

The

trustee cites no legal authority other than general propositions
affirming the discretion of a trustee to manage the assets of the
estate.

Under the relevant provisions of the Code, the

Bankruptcy Court’s decision to hold a hearing to determine the
fair market value of the annuity as of the petition date was
proper and its finding as a result of the hearing concerning the
valuer of the annuity is adequately supported by the record.
Because the undisputed claimed exemptions exceed the fair market
value of the annuity as properly determined by the Bankruptcy

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Court, the annuity is a fully exempt asset and thus not available
for the trustee’s administration.

See Owen v. Owen, 500 U.S.

305, 308 (1991) (“An exemption is an interest withdrawn from the
estate (and hence from the creditors) for the benefit of the
debtor.”).
Accordingly, the judgment of the Bankruptcy Court is hereby
affirmed.
So ordered this 26th day of December, 2013.

/s/RNC
Robert N. Chatigny
United Stated District Judge

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