Opinion
No. 76-1124-BK-NCR-B
February 8, 1977
Trustee — Exemptions — Late Filing
Where trustee's report on a bankrupt's exemptions is filed late, but no substantial prejudice to bankrupt occurs as a result of the delay, such delay or failure to act does not constitute an automatic allowance of the exemption under Rule 403 of the Bankruptcy Act. Rather, the remedy in such instance can be an order directing compliance with the Rule or the removal of the trustee pursuant to Rule 221. See Rule 221 at ¶ 20,171 and Rule 403 at ¶ 20,223.
Bankrupt — Exemptions — Retirement Plan
Keogh Retirement Plans owned by a bankrupt are not exempt under Florida law because they are income deferring plans and not insurance contracts, and because the spendthrift provisions they contain are void as the trusts are voluntary and the bankrupt is the settlor.
Bankrupt owned three Keogh Retirement Plans and based his claim that the funds in them were exempt on two different theories. First, bankrupt argued that because the plans allow for premature disbursement in the event of disability, they constitute disability insurance contracts under Section 222.18 Florida Statutes.
The court rejected this argument and held that an annuity contract is not an insurance contract under the Florida exemption statute and, therefore, is not exempt in bankruptcy under Section 70a. Rather, the Keogh Plans are tax shelters for selfemployed persons which merely defer income to a later date. Thus, the plans are annuities with the incidental right to premature withdrawal in the event of disability and are not exempt on that basis.
Bankrupt's second contention was that the Keogh enabling statute, 29 U.S.C.A. Section 1056(d)(1) creates a federal exemption by requiring that every plan contain a spendthrift provision.
The court concluded that, under Florida law, although the benefits of Keogh Plans payable to employees may well be exempt from the claims of the employees' creditors, neither the funds nor the benefits are exempt in this instance from the claims of the bankrupt's creditors. The bankrupt was the employer who established these plans such that they were voluntary trusts with the bankrupt as settlor. The plans were established solely for the benefit of the bankrupt. A spendthrift clause inserted in a trust created for the settlor's own benefit is void such that there remains nothing in the Keogh Plans that shield the funds from the creditors of the bankrupt. Therefore, the court held that the funds in the Keogh Plans were not exempt property. See Sec. 70a [§ 541(a)] at ¶ 9501.