Bryan v. Stanton Compares Annuities and Life Insurance Policies for Use as Exemptions in Los Angeles Bankruptcy Cases

March 26, 2012

When filing for bankruptcy in Los Angeles, there are so many laws and regulations controlling what must be provided, what is considered an asset, and what is exempt from a bankruptcy proceeding.

Our Los Angeles bankruptcy attorneys understand this complex area of law and we can help you make informed decisions in your bankruptcy case.
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Bryan v. Stanton is a Missouri case that illustrates the complex issues surrounding exemptions in a chapter 7 bankruptcy. This case arose because of the bankruptcy filing of the Bryan's ("Debtor's"). Upon this filing of a chapter 7 bankruptcy, debtors listed an annuity as exempt assets. Plaintiff purchased this non-qualified deferred variable annuity ("Annuity") in 1993 when she contributed $30,000. The bankruptcy trustee disagreed with this exemption and filed this cause of action.

The main issue then became whether an annuity can be listed as exempt in a bankruptcy proceeding.

Annuities are usually governed by state law. Basically it is a contract for the guarantee distribution of income over time until the specific terms of the contract dictate. The insured party makes payments into a company and the money pooled there, will be distributed incrementally at a later time.

Bankruptcy law is governed by the federal bankruptcy code which is uniformly applied to every state. The central rule states that when a bankruptcy case begins, most assets become property of the estate. The only exceptions to this rule are found in Bankruptcy Code ยง522(d) and through state law. The federal bankruptcy code provides each state with the option of whether to follow the federal bankruptcy law exemptions, and Missouri has chosen to opt out of the federal exception scheme.

The burden of proof is important in a bankruptcy case. When a trustee disagrees with a claimed exemption, they have the burden of producing evidence to support their objection. Once this is provided, the burden shifts to the debtor to show that the claim of exemption is proper.

Because Missouri opted out of the federal exemption scheme, the debtor used three state statutes to support the contention that the annuity was exempt. This court held that because all three of the statutes debtors relied on in their argument applied an exemption to insurance, they were inapplicable to the case. An annuity is not considered insurance under the applicable state statute, thus the exemption could not be applied.

Considering the significant disagreement of the parties regarding the nature of this annuity, the court points to several facts that distinguish annuities from life insurance policies. Although annuities are often regulated by laws surrounding life insurance policies, they are very distinct. Life insurance is usually paid in continual and regular increments, where the annuity in this case was created with a lump sum and never paid again. Additionally, the annuity can be paid at the pre-determined contract date, whereas life insurance is paid upon death. The court then clarifies that just because an annuity was purchased from a life insurance company does not mean it is a life insurance policy. Lastly, the court goes to prior case law which rejected arguments where annuities were classified as insurance.

For all of the forgoing reasons, it would be inequitable for the court to hold that this annuity should be protected as a life insurance policy in the pending bankruptcy.

If you are considering filing for bankruptcy, contact California bankruptcy attorneys at the Nader Law Firm to schedule your free consultation. Call 1-800-568-0707.

Additional Resources:
Bryan v. Stanton, No. 11-6068 (8th Cir. Mar 2012).