_ILED

AUG2O 201R
t OFFICEOFTHECLERK

No. 03-1407

SUPREME

RICHARD

IN THE
OF THE UNITED

COURT

GERALD

ROUSEY

STATES

and BETTY

JO ROUSEY,
Petitioners,

V.

JILL R. JACOWAY,
Respondent.

On a Writ

of Certiorari

Court

of Appeals

for the Eighth

BRIEF

OF AARP

AS AMICUS

IN SUPPORT

PATRICIA
BRADY

to the United

J. KAEDING*
GODFREY

ELIZABETH

(608)

WI

CURIAE

WARREN

LEO GOTTLIEB
_ KAHN

PROFESSOR

1563 MASSACHUSETTS

ONE EAST MAIN ST., SUITE 500

MADISON,

Circuit

OF THE PETITIONERS

C. WILLIAMSON

LAFOLLETTE

States

CAMBRIDGE,

MA

02138

53703

257-3911
JEAN CONSTANTINE-DAVIS
NINA F. S_dON
AARP

FOUNDATION

MICHAEL

LITIGATION

R. SCHUSTER

AARP
*Counsel

of Record

601

E Street,

Washington,

N.W.
D.C.

20049

OF LAW

AVENUE

QUESTIONS

the

PRESENTED

1. Whether
a debtor's
right to receive
debtor's
own
Individual
Retirement

complying
qualifies

with the Internal

Revenue
Code
as
"exempt
property"
under

522(d)(10)(E)

of the Bankruptcy

2. Whether
the
522(d)(10)(E)
includes
payments

from

receiving
accordance

IRA

(I.R.C.) 408,
11 U.S.C.

Code.

exemption
a debtor's

a qualified

payments
from
Account
(IRA),

under
right

where

the

nor is yet eligible

to receive
with the Internal Revenue
Code.

11
U.S.C.

to receive
future
debtor
-

is neither

payments

in

TABLE

OF CONTENTS

ease
INTEREST

OF AMICUS

STATUTE

SUMMARY

OF THE CASE

.....................................

.......................................................................

A DEBTOR'S
PAYMENT
THE

1
5
6
9
10

RIGHT TO RECEIVE
FROM

AN IRA THAT

INTERNAL

SHOULD
"EXEMPT
A.

..............................................

OF THE ARGUMENT

ARGUMENT

WITH

.......................................

AT ISSSUE ..........................................................

STATEMENT

I.

CURIAE

COMPLIES

REVENUE

CODE

AUTOMATICALLY
QUALIFY
AS
PROPERTY.".
.............................................

13

The Plain Language

Of 522(d)(10)(E)(iii)
Should Leave No Doubt That IRAs, As
"Similar

Plans

The Exemption

Or Contracts,"

Qualify

For

........................................................

14

B. IRAs Are Sufficiently

Similar To The Four
Types Of Plans Or Contracts
Listed In
522(d)(10)(E)

to Qualify

as Exempt

........................

16

C. The Exemption
In 522(d)(10)(E)
Is Not
Limited To Plans Or Contracts
That Permit
Payments
Death,

Only Based

Age, Or Length

On Illness,
Of Service

ii

Disability,
..........................

20

Do

The IRA Exemption

Is Indispensable
For
Older Americans
With Less Time To ReEstablish

Self-Sufficiency

II. THE EXEMPTION

IRAs INCLUDES
RECEIVE
QUALIFIED
CONCLUSION

FUTURE

After

Bankruptcy

..........

25

IN 522(d)(10)(E)
FOR
A DEBTOR'S
RIGHT TO
PAYMENTS

FROM

IRA ...........................................................
....................................................................

iii

28
30

TABLE OF AUTHORITIES

Pa e
Cases

Bank

of America

P'ship,

Nat'I

Trust

&Sav.

526 U.S. 434 (1999)

BFP v. Resolution

Trust Corp.,

Chickasaw

v. United

Nation

States,

534 U.S. 84

v. Lundy,

Dunn

519 U.S. 465 (1997)

Grogan

v. Garner,

In re Brucher,

516 U.S. 235 (1996)

.........

...................

.............................

100 F.3d 375 (5 th Cir.

1996) ...........

In re Cilek,

115 B.R. 974 (Bankr.

In re Clark,

711 F.2d 21 (3 rd Cir. 1983) ....................

In re Dubroff,
In re Fulton,

W.D.

Wis.

119 F.3d 75 (2 na Cir. 1997)

240 B.R. 854 (Bankr.

W.D.

10
8

7, 8, 20

1990) ...........

..................

15
15

243 F.3d 242 (6t_ Cir. 2001) ...........................

In re Carmichael,

10

(2001) .... 16

...................................

498 U.S. 279 (I991)

St.
10

511 U.S. 531 (1994)

Commissioner
v. CFTC,

Ass 'n v. 203 LaSalle

............................................

23

8, 28, 29
7, 8, 23

Pa. 1999) ...........

29

In re Huebner,

986 F.2d

1222 (8 th Cir.

1983)

.......................

In re McKown,

203 F.3d

1188 (9 th Cir. 2000)

.......................

iv

In re Meehan,
In re Velis,

v. Putman,

Sorenson

Trustee

United

States

(1989)

...............................

1997)

124 S. Ct. 1023

866 S.W.2d
of Treasury,

Corp.,

124 S. Ct. 1951 (2004)

Industrial

(2004)

11, 15
10, 22

1993) ....... 22

475 U.S. 851 (1986)

v. Ron Pair Enterprises,

v. Security

7, 22

...................

827, 254 (Ark.

Inc.,

Bank,

.... 14

............

1, 11

489 U.S. 235

6, 14, 23
459 U.S. 70

..........................................................................
Federal

7
29

.......................

....................................................................

States

(1982)

1997) ........................

504 U.S. 753 (1992)

v. Secretary

Till v. SCS Credit

United

States

v. Shumate

Sanders

(1 lth Cir.

104 F.3d 612 (3 ra Cir.

v. United

Patterson

1209

949 F.2d 78 (3 rd Cir. 1991)

In re Yuhas,
Lamie

102 F.3d

6, 10

Statutes

11 U.S.C.

522(d) ........................................................

passim

11 U.S.C.

522(d)(10)

passim

11 u.s.c.

522(d)(5) ............................................................

11 U.S.C.

541 .............................................................

.................................................

I.R.C.

408 ..................................................................

I.R.C.

72 ...............................................................

22, 23
passim
14, 21, 24

Other

Authorities

2003 HHS Poverty Guidelines,

68 Fed. Reg.
2003) ......................................................................
Ark.

Code

28-69-501

Ke Bin Wu, lncome

Chartbook

(Aug.

(2003)

of Older
2003)

Gaberlavage

(Feb. 7,
.......... 26

............................................
Americans

in 2001:

22

...................................................

COLLIER ON BANKRUPTCY (15 th ed. rev. 2004)

George

6456

et al., Beyond

50.04:

...........

26

A Report

6, 7, 22

Nation on Consumers
in the Marketplace
- Report
2004) ................................................................................

to the

Paul J. Graney,

Individual

Retirement

Accounts:

(May
27

A Fact

Sheet, CRS Report for Congress,

Code 94-83 EPW
5, 2003) ............................................................................

(Dec.
18

H. Conf. Rep. No. 93-1280 (1974), reprinted

in 1974
U.S.C.C.A.N.
5038 .........................................................

17

H. Rep. No. 93-807 (1974), reprinted

in 1974 U.S.C.C.A.N.
4670 .................................................................................

17

H. Rep.

No. 95-595

(1978),

reprinted

in 1978 U.S.C.C.A.N.

5963 ............................................................................

6, I6

Suein Hwang, New Group Swells Bankruptcy

Court: The
Middle-Aged,
Wall Street Journal, at 1A, Aug. 6,
2004 ................................................................................

25

Investment
Company
Institute,
IRA Ownership
in 2003,
Fundamentals,
Sept. 2003 ..............................................

19

vi

Melissa
Medical

Jacoby, Teresa Sullivan

Problems
& Bankruptcy

Advisor,
Sophie

and Elizabeth
Warren,
Filings, Norton Bankr.

L.

1, May 2000 ...........................................................

M. Korczyk,

Jules H. Lichtenstein
Pension

How Americans

Save

and Satyendra

Verma,

Plan and IRA Coverage

Jules H. Lichtenstein

and Satyendra

(July

Verma,

1998).25,

Older

(Oct. 2003)

27
26

Workers'

................

Older

19

Workers'

Pension Plan and IRA Coverage Retirement

Plan
Coverage
of Baby Boomers
& Retired Workers: Analysis
of 1998
Bruce

SIPP Data

H. Mann,

of American

(July 2003) ........................................

Republic

of Debtors:

Independence

Bankruptcy

(2002)

19

in the Age

..................................

12

Sara E. Rix, Aging and Work--A

View From the United
States (Feb. 2004) ...........................................................

28

Sara E. Rix, Update 2003, at 3; U.S. Equal Opportunity

Commission,
Age Discrimination
in Employment
Act
(ADEA)

Charges,

FY 1992-2003

.....................................

Sara E. Rix, Update on the Older Worker: 2003

...................................................................................
Peter

J. Sailer

Distribution
(Spring

and Sarah

E. Nutter,

of Individual

Accumulation

Retirement

28

(June 2004)
27, 28
and

Arrangements,

2000

2004) ...................................................................

S. Rep. No. 93-383 (1978), reprinted

in 1974 U.S.C.C.A.N.
4890 ................................................................................

vii

19

17

S. Rep. No. 95-989 (1978), reprinted

in 1978 U.S.C.C.A.N.
5787 ...................................................................................

S. Rep. No. 97-144 (1981), reprinted

in 1981 U.S.C.C.A.N.
105 ..................................................................................

17

Norman

J. Singer,

Statutes

and Statutory

Construction

(6 th

ed. 2000) ..........................................................................

Social

Security

Social
Social

Security

Social
Teresa

Administration,

Security

(June

Fast Facts

A. Sullivan,

Legislative

Information
Deborah

Young,

Old, and In Between:

Bankr.

L. Advisor,

(Dec.

Thome

Norton

SuP. CT. R. 14.1(a)

& Figures

About

2003) .............................................

Administration,

Security/SSI

15

26

Fact Sheet:
31, 2003)

& Elizabeth

2004

............
Warren,

Who Files for Bankruptcy?

1, Sept.

2001

........................

................................................................

Verma

and Jules

H. Lichtenstein,

The Declining

Personal
Savings Rate: Is There Cause for Alarm
2000) ................................................................................

Vlll

25
8

SuP. Ca'. R. 37.6 .....................................................................

Satyendra

26

? (March
25

INTEREST
In the last year,
the

difficult

OF AMICUS
more

and

than

painful

CURIAE

1.6 million

decision

Americans

to

file

bankruptcy.
Americans
age 65 and older
growing
group in bankruptcy.
AARP

is

nonpartisan,

of older

has provided
members.

Americans.

brief

(2004),
interest

a decision
on secured

in Till

Almost

half

v. SCS

Credit

that established
debt in Chapter
of

AARP's

to a variety

of retirement

Retirement

Accounts

obtain

often
unable

it periodically

economy.
bankruptcy
relief

the
13.

124 S. Ct.

appropriate

work,

savings

(IRAs).

plans,

1951

rate

and

of

many

including

Increasingly,

older

with decades
of work experience,
find
to avoid financial
devastation
from job

catastrophic

limited

Corp.,

members

Individual

the nation's
turn to the

membership

people age 50 or older,

to addressing
the needs

As amicus,

contribute

layoffs,

personal

the Supreme
Court with the perspective
of its
Last year, for example,
AARP
submitted
an

amicus

Americans,
themselves

for

made

are now the fastest

nonprofit

organization
of more than 35 million
working and retired, that is dedicated
and interests

illness,

loss of a spouse,

or downtums

in

After exhausting
other options, many
system to try to save their homes, to
from

creditors,

and to protect

retirement

: Each party's written consent for the submission of AARP's brief

amicus curiae is on file with the Clerk of the Court. Pursuant to SuP. CT.
R. 37.6, AARP states that no counsel for any party authored this brief in
whole or in part and that no party or entity other than AARP, its
affiliates, or counsel made a monetary contribution to the preparation or
submission of this brief.

savings

they

well-being

have

spent

of older

years

Americans,

accumulating.
secure

The

their retirement
savings
are protected
becomes
inescapable,
is of substantial
and its members.

the meaning
of a single
law. But the significance

particularly

Americans,

for

older

lies

not

construction
but with the desire
and
protect
the
retirement

Americans.

Are

IRAs

especially

in retirement,

protected

by

to facilitate

that

even if bankruptcy
importance
to AARP

This case is about

the federal bankruptcy
statutory
encourage

financial

in the knowledge

provision
of
of this case,

in the

rules

of

of Congress
savings
of
statute,

a debtor's

to
all

available,
self-support

and keep the promise

of 100 years of bankruptcy
law?
Or
are they indistinguishable
from fine jewelry
or ordinary
bank
accounts
that can be used to satisfy creditors?
Like

the U.S.

whether
IRAs
522(d)(10)(E).
different

Courts

about

result, this is also

in 522(d)(10)(E)

Richard
2001.

what

Congress

a case about the purposes

and the complementary
and

and

the parties

disagree

on

qualify
for the exemption
in I1 U.S.C.

The U.S. Courts

of Appeal
have reached

judgments

in encouraging
the tax code.

of Appeal,

facilitating

Betty

Jill Jacoway,

Chapter

filed

savings

for

through

bankruptcy

in

trustee

for

7 bankruptcy

their case, objected

to the Rouseys'
The Rouseys
established
two IRAs

As

of the exemption
goal of Congress

retirement

Jo Rousey
the

intended.

claimed
exemptions.
with retirement
funds

"rolled over" from pension plans with their former employer.

In deciding
their case, this Court will consider
whether
the
Rouseys'
ability, consistent
with the Internal
Revenue
Code,
to withdraw

money

from

these

IRAs

upon

payment

of a ten

percentpenaltymakestheir IRAs - andthe IRAs of millions

of other Americans - ineligible for the exemption. If the
Court concludesthat some or all IRAs are subjectto the
claimsof creditorsas if they wereordinarybank accounts,it
will considerthe related questionof whetherthe exemption
in 522(d)(10)(E) is available only to those presently
withdrawing- or with the presentright to withdraw - funds
from theirIRAs without penalty.
Section 522(d)(10)(E) exempts from the reach of
creditorsa debtor's "right to receive"any paymentsunder a
"stockbonus,pension,profitsharing,annuity,or similar plan
or contract.., to the extent reasonablynecessaryfor the
supportof the debtorand any dependentof the debtor." In
short,it exemptsincomeearnedandsavedbut not yet paid.
IRAs are a critical sourceof retirementsavingsfor the
self-employed, workers without employer-sponsored
retirement plans, and those who have rolled over
distributions of plan benefits from former employers.
Although IRA savingsaremodestfor most Americans- the
median IRA in 2003 held $30,000 for householdswith
traditionalIRAs only - they representparticularlyimportant
safeguardsfor individualswith no otherretirementsavings.
Underthe decisionof the U.S. Court of Appealsfor the
Eighth Circuit, all of these savings would be lost in
bankruptcy. Under the interpretationmandatedin the U.S.
Courtof Appealsfor the Third Circuit, anyoneunderthe age
of 59V2would losethesesavings.Neither is correct.
OlderAmericanswho losetheir IRAs in bankruptcywill
havea sharplyreducedability to supportthemselvesin their
retirement years. Rebuilding retirement savings is a

daunting

task

for anyone,

older Americans
Americans
have
to work.

Those

retraining

to

and

it is particularly

difficult

for

emerging
from bankruptcy.
Many older
health issues that severely limit their ability
able

to work

re-enter

the

often

find

workforce

after

retirement.
Finding
a job as an older
difficult
and disheartening
undertaking.

that

they

years

of

need
initial

American
can be a
Even with statutory

protection,
age discrimination
continues
to be an obstacle.
Older workers,
even those with years of white-collar
work
experience,

are

significant
their modest
Social
three

likely

reductions
wages,
Security

older

to

leaving

and

little,

Americans

income

has

modest
Under
who

low

living

wage

been

jobs

expenses

if anything,

Yet these
increasing

related
expenses,
even
difference
in retirement.
older

only

Basic

is the major

Americans

millions
out of poverty.
older
Americans
facing

case,

find

in pay.

source

with

consume

for savings.
for two out of

instrumental

in lifting

benefits
are limited.
For
medical
and housing-

savings
make a substantial
the decisions
at issue in this

have

counted

on IRAs

for their

retirement
and who need to file for bankruptcy
this modest measure
of security.

will lose even

Congress
has made a deliberate
decision
ability
of Americans
to support
themselves

to protect the
even after a

severe

personal

economic

reversal.

It also

has

decided

to

encourage
self-support
to retirement
savings

in retirement
by providing
protection
through
both the tax code and the

bankruptcy
for older

protection
It is not

question.
financial

law. This
Americans.
For thousands
survival.

of older

has heightened
importance
an academic
or theoretical
Americans,

it is a matter

of

STATUTE

AT ISSUE

11 U.S.C.

522

(d) The
subsection

following
property
(b)(1) of this section:

(10) The debtor's

may

be

exempted

right to receive--

(A)
a
social
security
benefit,
compensation,
or a local public assistance
(B) a veterans'
benefit;
(C) a disability,
illness,
(D) alimony,
support,
extent reasonably
and any dependent
(E)

under

unemployment
benefit;

or unemployment
benefit;
or separate
maintenance,

necessary
for the support
of the debtor;

payment

under

stock

to the

of the debtor

bonus,

pension,

profitsharing,
annuity,
or similar
plan or contract
account
of illness,
disability,
death, age, or length
service,
support
unless--

to

the

extent

of the debtor

(i) such plan

reasonably
and

or contract

any
was

necessary

dependent
established

for

on
of
the

of the debtor,
by or under

the auspices
of an insider that employed
the debtor
the time the debtor's
rights
under
such
plan
contract arose;

at
or

(ii) such payment

service; and

of

is on account

of age or length

(iii) such plan or contract

does not qualify under
section 401(a), 403(a), 403(b),
or 408 of the Internal
Revenue
Code of 1986.

STATEMENT

OF THE

CASE

The Bankruptcy
Reform
Act of 1978 modernized
federal
bankruptcy
law. See S. Rep. No. 95-989 (1978), reprinted
in
1978
work,

U.S.C.C.A.N.

5787.

the Act changed

The

both

result

of nearly

the substantive

a decade

of

and procedural

law of bankruptcy.
United States v. Ron Pair Enterprises,
Inc., 489 U.S. 235, 240 (1989).
The law in 522 established
a set of federal

exemptions

that "permit

an individual

debtor

to take out of the estate property

that is necessary
for a fresh
start and for the support of himself and his dependents."
H.
Rep.
No.
U.S.C.C.A.N.
Industrial
dissenting).

95-595,
5963,
Bank,
This

at 176
(1978),
reprinted
6136;
see United
States

459

U.S.

70,

case

involves

83

(1982)

the scope

in 1978
v. Security

(Blackmun,
of one

J.,

portion

of

one exemption,
11 U.S.C.
522(d)(10)(E),
"the debtor's
right
to receive"
payments
from
individual
retirement
accounts.
Richard
bankruptcy

and

Betty

petition

Jo Rousey

under

Chapter

voluntarily
7 in April

Rouseys'
assets included
two IRAs valued
$12,118.16
in deposit
accounts
holding
from their
two years
exemptions

previous
earlier.

filed
2001.

at $42,915.32
funds rolled

a joint
The
and
over

employer's
pension plans approximately
The Rouseys
elected
to use the federal

in 11 U.S.C.

522. 2 They

claimed

exemptions

2 In states like Arkansas, where the Rouseys live, that have not opted out
of the federal
exemption
system,
debtors
can choose
either the
exemptions
in 522(d) or the exemptions
available
under applicable
state and nonbankruptcy
federal law.
Approximately
34 states have
opted out the federal exemption
system.
4 COLLIER ON BANKRUPTCY _[
522.01, at 522-11 (15 thed. rev. 2004). Some of the states that have opted
out of the federal exemption plan use language that parallels 522(d) in
their state exemption
law. See id.; see, e.g., In re Huebner,
986 E.2d

for their

IRAs

respectively,

in the amount

of $10,681

for the two IRAs)

pursuant

at issue here, and exemptions

of $44,352.48
($37,882.32
pursuant

to

The principal
right

to receive

(d)(10)(E)

question
payment

The

in this case

but

that

I.R.C. 408 qualifies

as "exempt
property"
522(d)(10)(E)
of the Bankruptcy
Code.
court
found
that the IRAs
were
not
522(d)(10)(E),

and the bankruptcy

appellate

The Eighth Circuit ultimately affirmed

as well, although on narrower
grounds
had used.

trustee

not to the

is: Whether

an IRA

not

IRA amount
respectively)

bankruptcy

exemptions

from

and $5,648,

to 522(d)(5),

for the remaining

and $6,470.16,

522(d)(10)(E).

objected
to the
exemptions.
3

($5,033

(d)(5)

a debtor's

qualifies

under

under 11 U.S.C.
The bankruptcy
exempt
under

panel

affirmed.

the trustee's
objection
than the lower courts

A second question
in this case arises only if the Court
rules against the Rouseys on the first question:
Whether
the
exemption
available

for IRAs
only where

under
11 U.S.C.
522(d)(10)(E)
a debtor is receiving
- or is eligible

is
to

1222, 1224 (8th Cir. 1993) (Iowa statute); In re Dubroff, 119 F.3d 75, 78
(2ndCir. 1997) (New York statute); In re McKown, 203 F.3d 1188, 1189
(9th Cir. 2000) (California law). Others expressly exempt IRAs. See 4
COLLIER ON BANKRUPTCY_ 522.09[10][b], at 522-64; see, e.g., In re
Yuhas, 104 F.3d 612, 613 (3ra Cir. 1997) (New Jersey law); In re
Meehan, 102 F.3d 1209, 1211 (11 thCir. 1997)(Georgia law).
3 Section 522(d)(5) allows a debtor to exempt his "aggregate interest in
any property, not to exceed in value $925 plus up to $8,725 of any
unused amount of the exemption" under subsection (d)(1) for the
debtor's residence or burial plot.
7

receive- paymentsin accordancewith the Internal Revenue

Code.4 Courts in the U.S. Court of Appeals for the Third
Circuit allow IRAs the exemptiononly where the debtoris at
leastage591,'iand,accordingly,statutorilyeligible to receive
paymentsfrom the IRA without penalty. This interpretation
is basedon a 1983 appellatedecisionin which the court
foundno basisin 522(d) for Congressionalconcernfor the
debtor's long-term security. See In re Clark, 711 F.2d 21
(3 rd Cir.

1983).

Four

other

Courts

of Appeal

have

considered

whether

IRAs similar to the Rouseys'

IRAs qualify for the exemption
either under 522(d)(10)
or parallel state statutes.
See In re
Carmichael,
100 F.3d 375 (5 th Cir. 1996); In re Dubroff,
119
F.3d 75 (2 nd Cir. I997); In re McKown,
203 F.3d 1188
Cir. 2000); In re Brucher,
243 F.3d 242 (6 th Cir. 2001).

(9 th
All

four concluded

See

also
One

that IRAs

Pet. at 8 n.6 (listing

appellate
court also

limited to present
concluding
that
receive
payments

future
exists.

are eligible

for the exemption.

bankruptcy
courts in agreement).
asked whether
522(d)(10)(E)
is

payments
and present rights
the provision
also protects

payments

even

See Carmichael,

where

no

100 F.3d

to payments,
the right to

right

to

present

at 379.

4 This Court granted certiorari on the following question: "Should this

Court grant certiorari to resolve the three way circuit conflict over
whether and to what extent Individual Retirement Accounts (IRAs) are
exempt from a bankruptcy estate under 11 U.S.C. 522(d)(10)(E)."
Therefore, this second question was in effect included in the petition, and
it should be considered by the Court. See SuP. CT. R. 14. l(a).
8

SUMMARY
The

economic

OF THE ARGUMENT

vulnerability

of

older

Americans

is

growing
national
tragedy.
The rate of bankruptcy
filings,
which remains
at record levels, is rising faster among those
55

and

older

increase
The
be

than

the

general

in filings

is greatest

practical

consequences

significant

as

file for bankruptcy.

retirement

qualify

For

for the

savings

of

numbers

decision
of

will

Americans

for the first time, with

them little choice but to

self-employed

and

millions

of

plans.
Circuit's

exemption

decision,

are those

the

that

only IRAs

limit

that

withdrawals

to circumstances
of illness,
disability,
death,
or length of service.
Yet the record contains
no

evidence
of IRAs
those circumstances.
imposed

the

rate

65 and older.

of the Court's

are faced,
that leave

the Eighth

exclusively
fixed age,

those

The

employer-sponsored
retirement
plans,
often
employees,
IRAs are one of the few available

savings

Under

among

increasing

approaching
retirement
economic
circumstances
others without
small business

population.

that

do not permit
withdrawals
Because
no IRAs meet the

by

the

Eighth

are

lost

in bankruptcy.

Circuit,

even
For

modest

only in
standard
retirement

individuals

in,

or

approaching,
retirement
- relying on IRAs as their principal
or only source of retirement
savings - the consequences
of
such

a loss will be severe,

work opportunities
The
Circuit
IRAs.

or health

interpretation

particularly

for those

with limited

used

in the Third

constraints.

of 522(d)(10)(E)

also has devastating

consequences
for debtors
with
Under that rule, only individuals
entitled to "present

payments"

from

IRAs

- that

is, persons
9

who

already

have

reachedthe age of 59 and areentitled by statuteto funds

from their IRAs - may exemptIRA funds. Debtors59 or
youngerlosetheir IRAs in bankruptcy.
Both

of these

into 522(d)(10)(E)
statute.
Nowhere
contracts

or plans

account

of illness,

nothing

in the

judicial

them

payments

disability,

age, or length

exemption's

read

"only"

of service.

requires

the

on
And

present

To the contrary,
Congress
has
for the "right to receive"
payments,

available

the statutory

are made

language

for

individuals

support themselves
after bankruptcy.
the Eighth
and Third Circuits
collide
text,

erroneously

for which

receipt
of payments.
authorized
exemptions
leaving

interpretations

limitations
not present in the text of the
does the statute
limit the exemption
to

framework

and

families

to

The interpretations
of
with the provision's

and Congressional

intent.

ARGUMENT
Since Congress
1978,
this
Court

enacted the modem

has
decided
a

construction
cases, culminating
last term. 5 In bankruptcy,
like

Bankruptcy
litany
of

Code in
statutory

in two decisions
in just the
all cases involving
statutory

See, e.g., Security Industrial

Bank, 459 U.S. 70 (the effect of 11
U.S.C. 522(f)(2) on certain types of property liens); Ron Pair, 489 U.S.
235 (whether
11 U.S.C. 506(b) entitles some creditors
to receive
postpetition
interest);
Grogan
v. Garner,
498 U.S. 279
(1991)
(evidentiary
standard for exceptions in 11 U.S.C. 523(a)); Patterson v.
Shumate, 504 U.S. 753 (1992) (meaning of "nonbankruptcy
law" in 11
U.S.C. 541 (c)(2)); BFP v. Resolution Trust Corp., 511 U.S. 531 (1994)
(meaning
of "reasonably
equivalent
value" in 11 U.S.C. 548(a)(2));
Bank of America Nat'l Trust &Sav. Ass'n v. 203 LaSalle St. P' ship, 526
U.S. 434 (1999) (effect of 11 U.S.C. 1129(b)(2)(B)(ii)
on participation
by old equity holders in "new value" transactions);
Lamie v. United

10

interpretation, "[t]he starting point in discerning

congressionalintent is the existing statutorytext." Lamie v.
United

States

Trustee,

124

"'[W]hen

the statute's

the courts

- at least where

S.

language

Ct.

1023,

is plain,

the disposition

1030

(2004).

the sole

function

of

required

by the text

is not absurd - is to enforce it according

to its terms.'"
Id.
(quoting
Hartford
Underwriters
Ins. Co. v. Union Planters
Bank,

N.A.,

The
Although

530 U.S.

1, 6 (2000)

(internal

citations

text of the statute

here is plain and
the
terms
"IRA"
or
"Individual

omitted)).
dispositive.
Retirement

Account"
do not appear
in 522(d)(10)(E),
an IRA is a
"plan or contract"
providing
for payments
"on account of...
age"
named

that is "similar"
in the provision.

to the plans
Subsection

and

contracts

(iii) includes

specifically
a reference

to I.R.C. 408, the section

that sets forth requirements
IRAs to qualify for certain tax benefits,
and it reinforces
plain language.
Subsection
(iii) denies the exemption
"plan or contract"
that "does not qualify"
under I.R.C.
See 11 U.S.C.
522(d)(10)(E)(i)-(iii).
There would

for
that
to any
408.
be no

need for this important

reference
to 408 if IRAs were not
covered
by the exemption
in the first place.
IRAs in general
and the Rouseys'

IRAs

specifically

qualify

under

The context
of 522 is equally compelling.
"exempt[s]"
from property
of the estate a limited
cash,
hands

other assets, rights and

of the debtor to begin

interests,
leaving
a post-bankruptcy

408.
The statute
amount of
them in the
economic

States Trustee, 124 S. Ct. 1023 (2004) (whether

11 U.S.C. 330(a)(1)
authorizes
compensation
to debtors'
attorneys from estate funds); Till,
124 S. Ct. 1951 (appropriate
rate of interest
under 11 U.S.C.

1325(a)(5)(B)(ii)
due certain creditors).

11

life. Some exemptions,like "professionalbooks" and the

"tools of the [debtor's] trade," are specifically intended to
preservethe debtor'sability to earnor receiveincome in the
future. So are the specificexemptionsfor Social Security,
unemployment, disability, and other benefits in
522(d)(10)(A)-(D).
Congresswas acutely awarethat a bankruptcylaw that
left a debtorstrippedbare,unableto earna living, would not
advanceone of the principal goalsof the Code: to ensure
that debtors could quickly become not only technically
solventbut self-supporting.
6 Without that, individuals and
families emerging from bankruptcy would be forced to
depend on charity or the government. By protecting
retirementaccounts,no lessthantools of the tradeandSocial
Security payments,Congresshas advancedthat samegoal:
making it easierfor older Americansto supportthemselves
whentheir primeearningyearshavepassed.
Congresshasclearly expressedits intent to facilitate, to
encourageand to protect retirementsavings,whether they
are in IRAs or anotherrecognizedplan. It hasdone that by
providing favorable tax treatment for retirement savings.
When the languageof the Bankruptcy Code is so clear,
especiallywith its explicit referenceto the InternalRevenue
Code,no court shouldbe temptedto take awaythe benefits

6 The importance
of exemptions
in personal bankruptcy
is a concept at
least as old as the United States itself: "Only non-exempt
property could
be taken in execution, which in most colonies and states meant that some,
usually small, portion of clothing, bedding, necessary household
items,
farm implements,
and tools of a trade were shielded
from seizure."
Bruce H. Mann, Republic of Debtors: Bankruptcy
in the Age of American
Independence
30 (2002).

12

that Congresshas provided, especiallyfor individuals and

families trying to supportthemselvesafterbankruptcy.
A DEBTOR'S
RIGHT TO RECEIVE
PAYMENT
FROM AN IRA THAT COMPLIES
WITH THE

Io

INTERNAL

REVENUE

CODE

AUTOMATICALLY
PROPERTY."
Section
from

QUALIFY

522(d)(10)(E)

the bankruptcy

SHOULD
AS "EXEMPT

authorizes

estate

the debtor's

debtor

"fight

to exempt

to receive...

a payment
under
a stock
bonus,
pension,
profitshafing,
annuity,
or similar
plan or contract
on account
of illness,
disability,
death, age, or length of service ....
,,7 11 U.S.C.

522(d)(10)(E).

exemption

The

same

a plan or contract

section

which:

excludes

"(i)...

by or under
the auspices
of an insider
that
debtor
at the time the debtor's
fights under
contract

arose;

(ii)

such

payment

is on

from

the

was established
employed
the
such plan or

account

of age

or

length of service;
and (iii) such plan or contract
does not
qualify
under section 401(a), 403(a), 403(b),
or 408 of the
Internal Revenue
Code of 1986."
11 U.S.C. 522(d)(10)(E)
(emphasis

added).

IRAs

that meet the requirements

of I.R.C.

7 This exemption
is limited to amounts "reasonably
necessary for the
support of the debtor and any dependent of the debtor .... " The Eighth
Circuit did not address this provision,
and it is not at issue here.
However,
the
"reasonably
necessary"
requirement
reinforces
the
exemption's
compatibility
with the purposes of the consumer bankruptcy
statute.
The limitation prevents the use of an IRA "or similar plan or
contract"
as a shelter to defraud creditors.
Yet, limited to the funds
reasonably
necessary for a family's support, the exemption
makes selfsufficiency
and economic recovery possible.

13

 408 qualify for the exemption. The Rouseys'IRAs meet

thoserequirements.Most IRAs do.
The

A.

Plain

Should

Language

Leave

"Similar

Plans

Of

522(d)(10)(E)(iii)

No

Doubt

That

Or

Contracts,"

IRAs,
Qualify

As
For

The Exemption.
The

application

where
statute

all such
itself."

Timber

Co.

v. Landreth,

522(d)(10)(E)(iii)

the

exemption

U.S.

681,

685

should

end.

Id.

reference

to

is dispositive.

I.R.C.
An

the Internal Revenue

Code
Accordingly,
a qualifying
as long

pension,
profitsharing,
meets Internal Revenue
provisions
disability,

471

the inquiry

explicit

qualify under
the exemption.

properly

"begins

inquires
must begin: with the language
of the
Ron Pair, 489 U.S. at 241 (citing Landreth

this is also where

The

of 522(d)(10)(E)(iii)

as it is "similar"

IRA

(1985)).

And

408

that

does

in
not

does not qualify for

IRA should trigger
to a "stock

bonus,

[or] annuity"
plan.
An IRA that
Code requirements
- which include

for penalty-free
payments
based on age, death, or
see I.R.C. 408(d), 72(t) - falls squarely
within

the exemption's
scope.
Far from excluding
IRAs from
exemption,
Congress
at the very least made them eligible

the
for

the exemption.
Congress
used the term
exemption
and in its limiting
only logical
that qualifies

reading
of section 522(d)(10)(E)
is that an IRA
by reference
under I.R.C. 408 is a "similar

plan or contract"
under the
Secretary
of Treasury,
475
normal

rule

"plan or contract"
in both the
provision,
subsection
(iii). The

of statutory

exemption.
U.S. 851,

construction
t4

See Sorenson
v.
860 (1986)
("The

assumes

that

'identical

words

used

in different

parts

have the same meaning'")

Enskilda
Bank, 293 U.S.
omitted).
There

8 Section

would

of the

same

522(d)(10)(E)(iii)

be no need

limits

for the reference

compliance
to qualify for the exemption,
been excluded
from the provision
and
covered

act are intended

by the exemption

to

(quoting Helvering
v. Stockholms
84, 87 (1934))
(internal
citations
the

exemption.

to 408,

requiring

if IRAs had already

were, therefore,
not

in the first place.

Each word in a statute

519 U.S. 465, 472 (1997)

has meaning.
("Our reading

therefore
also consonant
enactments
should
not

with
be

See Dunn v. CFTC,

of the exemption
is

the doctrine
that legislative
construed
to render
their

provisions
mere surplusage");
see also 2A Norman
J. Singer,
Statutes and Statutory
Construction
46:06 (6 th ed. 2000).
By

contrast,

meaningless

be

the

Eighth

the reference

Circuit's

If IRAs can never be exempted

no qualified
and, therefore,

contracts

to distinguish

decision

to 408 in subparagi:aph

from

renders
(iii).

under 522, there would

exempt
408
plans
or

non-qualified

and,

therefore,

non-exempt
plans.
The reference
to 408 in subparagraph
(iii) would
be "mere surplusage."
Unlike
the provision
at
issue in Lamie,
124 S. Ct. at 1031, treating the reference
to
408 as surplusage
ambiguity.

Nor

here
is there

would

create

any evidence

- rather

than

resolve

that the reference

to

s See also Commissioner v. Lundy, 516 U.S. 235,249-250 (1996) ("[W]e

have been given no reason to believe that Congress meant the term
'claim' to mean one thing in [ 11 U.S.C.] 6511 but to mean something
else altogether in the very next section of the statute"); Bank of America,
526 U.S. at 451 ("[A] given phrase is meant to carry a given concept in a
single statute").
15

408

is a drafting

States,

534

error.

U.S.

Cf

84, 89

Chickasaw

(2001).

Nation

v. United

Accordingly,

basis to depart
from the well-established
statute should
not be construed
to render

there

is no

principle
that a
any of its words

surplusage.
IRAs

Bo

Are

Sufficiently

Similar

To

The

Four

Types
Of Plans
Or Contracts
Listed
522(d)(10)(E)
To Qualify As Exempt.
Congress

enacted

522

to take out of the estate

fresh
start
and
for
dependents."
U.S.C.C.A.N.
"exempt[]

"to permit

that property
the
support

an individual

In

debtor

which is necessary
for a
of
himself
and
his

H. Rep. No. 95-595, at 176, reprinted

in 1978
at 6136.
The provisions
of 522(d)(10)
certain

the debtor."

benefits

H. Rep.

that are akin to future

No.

95-595,

at 362,

earnings

reprinted

of

in 1978

U.S.C.C.A.N.
at 6318.
The four types of contracts
or plans
expressly
named
in subparagraph
(d)(10)(E)
as per se
exempt
are substitutes
for future earnings.
IRAs serve the
same purpose.
Even

were

ambiguous

the

on the scope

IRA - and IRAs

to stock
contracts
illness,

bonus,
from

IRAs,

of

522(d)(10)(D)

of the IRA exemption,

generally

- are plans

pension,
profitsharing,
which
payments
are

disability,

death,

522 obviously
does
retirement
account,"
contract"
of both

text

age,

or length

the Rouseys'

or contracts

"similar"

and annuity plans

made
on account
of service.

or
of

While

not use the term "IRA"

or "individual
it uses
the phrase
"similar
plan or

to expand the reach of the exemption.

522 and I.R.C.
408, the provision
demonstrates

otherwise

that

IRAs

16

are

"similar"

The purpose
authorizing
plans

or

contracts. The Eighth Circuit appearsto concedeas much.

See Pet. App.
Congress

at 5a.
first authorized

extended

some

to those

whose

IRAs

of the tax benefits

employers

did

in 1974.

These

of employer
not

have

first IRAs

pension

plans

plans.

The

such

statute authorized
a deduction
income, not to exceed $1,500,

for up to 20 percent
of earned
"for retirement
savings."
H.

Conf.
Rep.
U.S.C.C.A.N.

No.
93-1280
5038,
5115;

(1974),
see
id.,

U.S.C.C.A.N.

at 5122

retirement
credit").
IRAs

of IRAs

"are

in
in

1974
1974

to constitute

income
for purposes
of the retirement
income
The statute
also authorized
tax-free
rollovers
into

to facilitate

reprinted

(proceeds

reprinted
reprinted

pension

portability

in 1974 U.S.C.C.A.N.

Rep. No. 93-807

(1974),
4670, 4671; S. Rep. No.
U.S.C.C.A.N.
4890, 4898.
Congress

made

IRAs

and transfers.

at 5121-22;

See

id.,

see generally

H.

reprinted
in 1974 U.S.C.C.A.N.
93-383
(1974),
reprinted
in 1974

universally

general
incentive
to save for
contribution
amounts
eligible

available

retirement
for a tax

in 1981

as a

and increased
the
deduction.
See S.

Rep.
No.
97-144,
at
112
(1981),
reprinted
in
1981
U.S.C.C.A.N.
105, 214 ("The Committee
is concerned
that
the resources
available
to individuals
who retire are often not
adequate
living

to avoid
standards

....

a substantial

decrease

[R]etirement

from

savings

preretirement
by individuals

can make an important

contribution
. . . [and] the present
level of individual
savings
is too often inadequate
for this
purpose");
id. at 215 (The
greater retirement
security").
Congress
for simplified

bill

"is

designed

to

promote

also has made the IRA the investment

vehicle
employee
pensions,
see I.R.C. 408(k),
and
17

for simpleretirementaccounts,see
retirement

plans

of small
to those

employers
available

2001,

specifically

Congress

qualified
a further

authorized

and encourage
provisions
incentives

The

incentives

taxpayers

have

transfers

of funds

from

retirement

savings.

have

worked.

More

According

Through
has

than

to a recent

to

45

these
created

million

Congressional

Report,
IRA savings
have grown steadily
in 1983 to $2.5 trillion at the end of 2001.

See Paul J. Graney,

CRS Report

Individual
for

Retirement

Congress,

Code

New contributions,
however,
of this growth.
While new

accounted

IRAs

408(d)(3),
to facilitate

of 408,
Congress
for the use of IRAs.

IRAs.

Research
Service
from $85 billion

for 81 percent

- that is,
employees

plans, such as 401(k) plans, see I.R.C.

example
of the Congressional
efforts

and other
substantial

2003).
source

408(p)

to provide

access to retirement
alternatives
similar
to employees
of larger employers.
In

portability

Sheet,

I.R.C.

designed

of the

for only

growth

about

Accounts:
94-83

EPW

(Dec.

5,

have not been the main

contributions
accounted

in IRA

assets

percent

of growth

two

A Fact

in

1984,
in the

they
late

1990s. A key reason for this shift has been the steady stream
of asset rollovers
from employer
pension plans to IRAs. Id.
The Rouseys
established
their IRAs the
older workers
did; they used funds rolled
Northrop
employer.

Grumman
Pet. App.

plans
maintained
at 2a, 8a. 9 Indeed,

same
over

by
older

way many
from their

their
former
workers have

9 As one of the judges on the Bankruptcy

Appellate Panel that heard the
Rouseys' appeal acknowledged,
their "pensions would have been exempt
had they filed their bankruptcy
petition
while employed
by Northrop
Grumman."
Pet. App. at 18a.

18

more IRA plansthan anyotheragegroupbecausethebulk of

IRA assetsarerolled over from previouspensions.See Jules
H.

Lichtenstein

Pension

Plan

and
and

Satyendra
IRA

Verma,

Coverage,

http://research.aarp.org/econ/dd9

http://research.aarp.org/econ/2003

the

the Rouseys

IRA

became

(Oct.

l_retire.pdf,

Plan
Coverage
of Baby
Boomers
Analysis
of 1998 SIPP
Data,
at

For

Older

at

Workers'
2003),

at

and Retirement

& Retired
13-14
(July

Workers:
2003),
at

10 98sipp.pdf.

and

millions

an

indispensable

planning.
More than four
that is, almost 25 percent

of other

million
of that

older

part
Americans
age group

Americans,

of

retirement

aged 53-64 - maintain

an

IRA at least partially

funded from an employer
pension plan.
Lichtenstein
and Verma,
1998 SIPP Data, at 14. IRAs are
also

a key

than

two million

a pension

component
plan.

of retirement

Americans

aged

planning

53-64

who

for the
have never

more
had

See id.

An IRS study of tax year 2000 returns emphasizes

the
importance
of IRAs
in the retirement
planning
of older
Americans.
It found that 39 percent of taxpayers
aged 50-60
have
IRAs,
and the average
value
of these
IRAs
was
$64,701.
Peter J. Sailer and Sarah E. Nutter, Accumulation
and

Distribution

of

Individual

Retirement

Arrangements,

2000, at 126, 134 (Spring

2004), at http://www.irs.gov/pub/
irs-soi/00retire.pdf.
More
recent
data
reinforce
importance
of IRAs, particularly
median age of heads of households
52.

See

Investment

Company

for older Americans.

with traditional
IRAs
Institute,

IRA

Ownership

the
The
was
in

2003, Fundamentals,
Sept. 2003, at http://www.ici.org/stats/
res/fm-vl2n3.pdf.
The median
assets held in IRAs totaled
$30,000
for households
with traditional
IRAs and $20,000
for households

with any type of IRA.

19

Id.

IRA paymentsthat meet the requirementsof 408 are

functionally the same as a stock bonus, pension,
profitsharing, and annuity plan or contract. They are the
functional equivalent as well of the Social Security,
unemployment,and disability paymentsexemptedunder the
statute. Congressrepeatedlyhas expressedits concernfor
the retirementsecurity of Americans.
To that end, it has
created

specific

employed

benefits

individuals,

pension
plans, and
with 408, rolled
funds into IRAs
ended.
Congress

those
funds

when

has

and

savings

individuals

incentives

without

for

self-

employer-based

like the Rouseys

who, consistent
from pension
and other exempt

those

utilized

plans

the

terminated

IRA

"to

or employment

serve

as a sort

of

universal
conductor
through
which
transfers
must pass if
they are to avoid the rocks and shoals of inadvertent
taxable
events."
Carmichael,
100 F.3d at 378.
Section
522 cannot
be read,
under

literally

408.

or logically,

IRAs

should

vehicle for retirement

who utilize
408
transfers

to exclude

remain

IRAs

a recognized

that

qualify

and valuable

savings, not a trap for honest taxpayers

for pension
rollovers
and other
fund

intended

for

retirement

only

to lose

them

in

bankruptcy.
C.

The Exemption
In 522(d)(10)(E)
Limited
To Plans Or Contracts
That
Payments
Death,

Both

the

Only

Based

Age, Or Length
text

and

On

Illness,

Is Not
Permit

Disability,

Of Service.

purpose

of

522(d)(10)(E)

demonstrate
that IRAs that qualify under
408 also should
qualify
for the exemption.
Yet, under the Eighth Circuit's
interpretation,

the

Rouseys'

IRAs
20

do

not

qualify

because

they permit withdrawalsprior to age 591/2if a ten percent

penaltyis paid. This conclusioncategoricallyexcludesIRAs
from the exemptionalong with a number of stock bonus,
pension, profitsharing, and annuity plans and contracts
becauseat least somepermit withdrawalsprior to age59
with a ten percentpenalty. See I.R.C. 72. Whether this
limitation

applies

contracts,
of 522.

the result

IRA holders
penalty.
That
the bankruptcy

only

to IRAs,

is contrary

may make

or to all "similar"
to both

early

plans

or

the text and purpose

withdrawals

subject

is not, however,
a statutory
basis
exemption's
protection
to IRAs.

to a tax

for denying
By tax law,

"the right to receive payments"

from an IRA without penalty
can be triggered
by four events:
reaching
age 59, death,
disability

or medical

care.

four events mirror the first

in the bankruptcy
exemption

See I.R.C.

account

of illness,

service.
The statute
tests be the strict

72(t).

These

four of the five triggering

events
(excluding
"length of service").

To qualify for the exemption,

plan or contract give the debtor
on

408,

the statute requires that the

a right to receive payments

disability,

death,

age,

or length

of

does not require that any - or all - of the

or exclusive
method
of triggering
a

repayment,
only that repayment
one of these events.
The only

can be triggered
by at least
limitations
imposed
by the

Bankruptcy

that are not qualified

Code

apply

to plans

under

the enumerated
IRA provision.
The Rouseys'
IRAs qualify
under
408 and thus meet the standard
set forth in the
Bankruptcy

Code.

In concluding
otherwise,
the Eighth
plain language
of the bankruptcy
statute.
impermissibly

read

into

the

statute
21

Circuit ignored
the
The appellate
court

a requirement

that

the

right

to receive

payment

events

listed

appear

in the text.

The
any,
n.5.

bankruptcy

court

its

solely

- a limitation

below

acknowledged

IRAs could meet this requirement.

The lower
court's
suggestion

"could"
including
of

be conditioned

in 522(d)(10)(E)

that

on one of the
that does

that

not

few,

if

See Pet. App. 33a

IRAs somehow

comply
with
the Eighth
Circuit's
standard
by
a spendthrift
provision 1 illustrates
the flawed logic
interpretation.

If

an

IRA

had

a valid

spendthrift

provision,
the IRA would
be excluded
from
the estate
entirely
under
11 U.S.C.
541(c)(2).
See 4 COLLIER ON
BANKRUPTCY q[ 522.09[ 10][b], at 522-62; see also Patterson,
504
U.S.
at 762
(" 522(d)(10)(E)
exempts
from
the
bankruptcy
estate a much broader
category of interests than
541(c)(2)
excludes").
11 Under the Eighth Circuit's
reading,

10 "Spendthrift trusts" are authorized in most states. In Arkansas, for

example, they include "[a]ny retirement
plan which meets the
requirements of 401 or 403 of the Internal Revenue Code of 1986, as
amended, which contains a prohibition against alienation[,] and a
prohibition against attachment shall be conclusively presumed for the
purposes of Arkansas law to be a spendthrift trust." Ark. Code 28-69501 (2003). A spendthrift trust can only be created in Arkansas by an
express restraint on alienation. See Sanders v. Putman, 866 S.W.2d 827,
254 (Ark. 1993).
n Section 541 of the Bankruptcy Code creates the bankruptcy estate,
which consists of all the property that will be subject to the jurisdiction
of the bankruptcy court. See 5 COLLIER ON BANKRUPTCY_ 541.01, at
541-7. Section 541(c)(2) excludes from the bankruptcy estate property
of the debtor that is subject to a restriction transfer enforceable under
"applicable non-bankruptcy law."
See Patterson, 504 U.S. at 755.
Although some courts have held that IRAs that meet the requirements of
541(c)(2) are completely excluded from the estate, that issue is not
before the Court. See 4 COLLIER ON BANKRUPTCYq[ 522.09[10][b], at
522-64; see, e.g., Yuhas, 104 F.3d at 614.
22

the only IRAs

that would

qualify

are IRAs that would not be part

all.
See
11 U.S.C.
541.
522(d)(10)(E)(iii)
the exemption.
contrary

for the exemption

leaves no doubt that

12 The Eighth
Circuit's

to the text, but illogical.

241; see also Dubroff,

IRAs are subject to

approach
is not just

See Ron

119 F.3d

to them

were

Pair,

limited

by

more

suggestion
that
for the exemption
than

"modest

withdrawal
tax penalties,"
Pet. App. at 6a, lacks
in fact and in law. Contrary
to the lower courts'
a 10 percent
withdrawal.
dollars

had

penalty
is an effective
In 1987, for example,
been

deposited

in IRAs

unions.
Yet, that year, only
withdrawn
early enough
to
percent
(Bankr.
to

489 U.S. at

at 76.

In
addition,
the
Eighth
Circuit's
retirement
contracts
or plans might qualify
if access

in 522

of the bankruptcy
estate at
The plain
language
of

early

support both
assumption,

deterrent
to early
nearly
$6.5 million
in the

nation's

credit

1.2 percent
of that total
trigger
a penalty,
only

was
1.27

in 1988.
See In re Cilek,
115 B.R. 974, 988 n.15
W.D. Wis. 1990). Even if some basis existed in fact

distinguish

between

the

deterrent

value

of

different

penalty
levels, the text of the statute does not support
distinctions.
If an IRA complies
with the requirements
408

and

provides

triggered
by
522(d)(10)(E),

that

"the

right

to receive

one
or
more
of
the
events
it qualifies
for the exemption.

The decision
on appeal has consequences
application
to IRAs.
The ability to withdraw
reaching

59V2

years

of

lz The amount
of the exemption
"reasonably
necessary" standard.

age

is

remains

23

payments"

is

listed

in

far beyond its

funds prior to

characteristic

limited,

such
of

of

of course,

IRAs

by the

generally,

but

four
types
(d)(10)(E).

it is commonly

found

of plans
specifically
See I.R.C. 401,403,

in at least

some

of the

listed
in subsection
72(q), (0.13 Section 522

authorizes
an exemption
for "[t]he debtor's
right to receive"
"a payment
under
a stock bonus,
pension,
profitsharing,
annuity,

or similar

plan

or contract

on

account

of illness,

disability,
death, age, or length of service .... " 11 U.S.C.
522(d)(10)(E)
(emphasis
added).
The qualifying
phrase "on
account
of" means
that the debtor's
right
to receive
a
payment
from one of the five sources must be attributable
to
illness, disability,
death, age, or length of service.
See Bank
of America,

526

U.S.

at

450

understanding
of "on account
other provisions
in the code
grammatical
applicable
payments,

structure

of the

equally
to each
not only to IRAs

(noting

that

the

common

of" in 522(d)(10)(E)
means
"because
of").
sentence

makes

the

qualifier

of the five possible

sources
and "similar"
plans. Limiting

exemption
to plans or contracts
that permit
payments
only on the listed triggering
events would drastically
the scope

of the exemption

522(d)(10)(E):

protecting

and
The

and destroy
"benefits

based
curtail

the core purpose

akin to future

of
the

of

earnings."

13 Those plans or contracts that do permit withdrawals prior to age 591/2

generally include vesting requirements that impose additional penalties
for premature withdrawals.
After an individual's interest has vested,
however, withdrawals are subject only to the same 10 percent early
withdrawal penalty that affects IRAs.
24

The
IRA
Exemption
Is Indispensable
Older
Americans
With
Less
Time

Do

Establish
The

number

Self-Sufficiency

of Americans

filing for bankruptcy

in filings is greatest
generally

Teresa

Warren,

Young,

After

age

50

For
Re-

To

Bankruptcy.

and

older

who

are

is growing rapidly.
The rate of increase
among Americans
age 65 and older. See
A. Sullivan,
Old,

Bankruptcy?
Norton
Suein Hwang,
New

Deborah

and

In

Bankr.
Group

Thome

Between:

& Elizabeth

Who

Files

for

L. Advisor,
1, 8, Sept. 2001; see
Swells Bankruptcy
Court:
The

Middle-Aged,
Wall Street Journal,
Aug. 6, 2004, at 1A. By
contrast,
younger bankruptcy
fliers tend to have accumulated
too much debt while starting jobs
without
enough
savings
to carry
Older

Americans

straggling
planning.

generally

file

between

relying

on Social

having
some modest
additional
with the many financial
pressures

catastrophic

illness

precipitate

bankruptcy

the
personal
Americans
in
"financial

or

transitions"

after

1998),

alone
them

Americans.

all

Because

for
older
continued

Americans,
to decline,

far-reaching

enough

be

and
cope

a family
layoff
or
such
as

disabilities

by older

rate
has
can

Security

assistance
to
for one, a job
related
crises

work-related

filings

savings
general,

lives of those experiencing

Sophie M. Korczyk,
How
also

bankruptcy

means to help
of aging.

A need
to provide
financial
member
or to stay home to care
forced
retirement,
or a health

see

for

with one or more crises that upset their financial

For them, the modest savings in an IRA can mean

the difference

(July

and families,
leaving them
them through
lean times.

like
these
that

the

them may never be the same.

Americans
Save, at 1, 28-32,
39

at http://research.aarp.org/econ/9806_save.html;

Verma

and

Lichtenstein,
25

The Declining

Personal

Savings

Rate:

Is There

Cause for Alarm?,

at 7 (March

at http://research.aarp.org/econ/ib42_alarm.pdf.
person
crises

is able to avoid
is a harbinger

Korczyk

and older,

their

if a

bankruptcy,
experiencing
one of these
for vulnerability
in retirement.
See

at 32.

Consequently,
stresses
of aging
at least
65 and

2000),

Even

medical
often leave

with no choice

problems
Americans,

Figures

Social

About

financial
those 65

but to file for bankruptcy.

20 percent
of all Social
older) relied on Social

income.

and
the
especially

Security

Administration,

&
at

over

65

A Chartbook,

at 27 (Aug.

econ/ip_cb2001.pdf.
benefit for a single
of the
monthly

Administration,

of their income
from Social
of Older Americans
in 2001:

2003),

at http://research.aarp.org/

The average monthly

Social
retired worker in 2003 was $922

federal
benefit

aged spouse
was
widow
or widower

Facts
2003),

90 percent
or more
Ke Bin Wu, Income

at

Fast
(June

percent
average

Security,

In 2001,

beneficiaries
(aged
for 100 percent
of

http://www.ssa.gov/policy/docs/chartbooks/fast_facts/2OO3/f
f2003.pdf.
Nearly
38 percent
of beneficiaries
received
Security.

Social

Security
Security

poverty
in 2003

guidelines.
for a retired

$1,523,
the average
in 2003 was $888.
Legislative

Fact

Poverty

Guidelines,

68 Fed.

Sheet:

Reg.

Although
the
worker with an

benefit
for a aged
See Social Security

Security/SSI
Information,
(Dec. 31, 2003),
socialsecurity.gov/legislation/2004_factsheet.doc;
HHS

Security
- or 123

6456,

2004

Social

at http://www.
see 2003
6456-58

(Feb.

7, 2003).
Even
Security

when
benefits,

an older

American

the pressures

increasing

housing-related

In a 2000

study,

almost

costs

has income
of deteriorating
can become

50 percent
26

of debtors

beyond

Social

health

and

overwhelming.
65 and

older

listed a medicalreasonfor the filing, comparedwith just 7.5

percentof debtors25 andolder. See Melissa Jacoby, Teresa
Sullivan

and

Bankruptcy
The

Elizabeth

Warren,

Medical

Norton

Bankr.

L. Advisor,

medical

costs

Filings,

pressures

of

on

older

Problems

&

1, May 2000.
consumers

are

undeniable.
In 2001, health
expenditures
were the only
category where the average expenditure
for older consumers
exceeded
that of all consumers.
George
Gaberlavage
Beyond
50.04: A Report to the Nation on Consumers
Marketplace,

at 69 (May

consume/beyond

50

2004),

at

cons.html.

consumers
on health care
$10 spent by all consumers

http://research.aarp.org/
Expenditures

accounted
for health

et al.,
in the

by

older

for almost $7 of every

care in 2001. Id.

The daily cost of living increases

sharply
when
people
are faced with rising costs in other areas.
consumers,

because

their homes

tend to be older,

than average on housing maintenance,

costs.
Id. at 66-68. They also spend
for utilities and property
taxes.
costs can force them to borrow
no choice

spend

more

repairs, and insurance

more than the average

Id.
Sudden or major repair
- and, eventually,
leave them

but to file for bankruptcy.

For
the
typical
older
bankruptcy,
trying to rebuild

American
emerging
savings
in their 50s,

beyond will be difficult at best. Whether they

bankruptcy
or not, older workers
face special
obtaining

retired
Older

employment.

it typically
takes them
Update
on the Older

When

older

workers

from
60s, or

have filed
challenges
look

for
in

for a job,

longer to find one.

See Sara E. Rix,
Worker." 2003, at 2 (June 2004),
at

http://research.aarp.org/econ/dd97_worker.pdf.

Many

older

Americans
become
"discouraged
workers"
- not actively
seeking
a job because they do not believe work is available,
think

they

lack

the necessary

background,
27

fear

employers

will think them too old, or anticipate some other form of

discrimination. Id. at 2-3. And discrimination
against older
Americans
in fact continues
to be a problem.
Rix, Aging and
Work
A View From the United States, at 14-16 (Feb. 2004),
at
http://research.aarp.org/econ/2004
Update
2003,
at 3; U.S. Equal
Commission,

Age

02 work.pdf;
Rix,
Employment
Opportunity

Discrimination

(ADEA)
Charges,
stats/adea.html.

FY

in

1992-2003,

Employment

Act

at http://www.eeoc.gov/

If an older American,
particularly
a displaced
worker,
is
able to obtain a job, it is likely to be a lower paying one at a
significant

wage

loss.

See Rix,

Update

2003,

at 2-3;

Aging
and Work,
at 10, 17-18.
Moreover,
expenses
often consume
their wages,
leaving
anything

for savings.

For those

older

Rix,

basic
living
very little, if

Americans

unable

to

work because
of failing health, caretaker
responsibilities
or
other limitations,
the future is likely to be particularly
bleak.
For

them,

additional
of aging.
II.

an

exempt

means

IRA

to cope

will

with

allow

the

them

many

some

financial

modest
pressures

THE EXEMPTION
IN 522(d)(10)(E)
FOR IRAs
INCLUDES
A DEBTOR'S
RIGHT
TO RECEIVE
FUTURE
IRA.
In the Third

exemption
receive,

PAYMENTS

Circuit,

in 522(d)
payments
in

FROM

courts

limit

to debtors
accordance

disability,
or death provisions
other
words,
a debtor
with

the

QUALIFIED

availability

of the

receiving,
or eligible
to
with
the age, illness,

of I.R.C. 408, 72(t).

In
an IRA in the Third
Circuit

qualifies
for the exemption
only if he or she has reached
age of 591/2. See In re Clark, 711 F.2d 21 (3 rd Cir. 1983);
28

the
see

also In re Velis,
payments
Although
to IRAs,
take

949 F.2d

1991).

Clark

type of retirement

that the exemption

is available

Keoghs.

14

only to IRA

who have reached

the age of 59.
See,
240 B.R. 854 (Bankr. W.D. Pa. 1999).

The

Third

Circuit's

statutory

inconsistent
522(d)(10)(E).

with
both
Yet, if this

IRAs

for 522's

qualify

the Third
Once

Circuit's
again,

to persons

e.g.,

exemption,

In re

interpretation

the
text
and
purpose
Court does not conclude
it should

is
of
that

at least

all

affirm

approach.
the language

the age-based
distinction
Nothing in 522(d)(10)(E)
who have

of the statute

reached

the age of 59.

language
IRA
at

bankruptcy
payments.

petition
or even present
The statute uses the term

payment,"

phrase

that

present and future rights.

Congress
suggests
that
By contrast,

not support

does
not
the time

rights
"right

necessarily

To qualify

the application
payments
in enacting

for

require
of the

to receive
to receive..,

encompasses

Nothing
in the language
this right
is limited

both
present
and
future
Congress'
express
purpose
permit an individual
necessary
to sustain

does

imposed
by the Third
Circuit.
limits the scope of the exemption

the exemption,
the statute's
ongoing
payments
from
the

payments.

involved

plan,

Velis did not directly rule on whether Clark applies

bankruptcy
courts in the Third Circuit continue
to

the position

holders
Fulton,

78 (3 rd Cir.

from a different

such
a
both

chosen by
to present

of 522(d)(10)(E)

to

is consistent
with
the exemption:
to

debtor to take out of the estate property

herself, including
"certain
benefits
that

14 The Fifth Circuit has characterized

Carmichael, 100 F.3d at 380.
29

the Clark decision as "obsolete."

are akin to future earnings

of the debtor."
595, at 362, reprinted
in 1978 U.S.C.C.A.N.
IRAs

are an important

part - for some,

of preparation
for retirement.
Americans
in a bankruptcy

The challenges
proceeding

Depriving

age of 59

persons

under

the

H. Rep. No. 95at 6318.

an essential

part -

faced by older
are substantial.
of their

IRAs

is

simply
not consistent
with
Congress'
concem
for the
retirement
needs
of self-employed
individuals,
individuals
without
employer-based
who have rolled pension
year

old

person

is not

retirement
plans,
and individuals
or other plans into an IRA.
A 58significantly

better

able

to recover

from the loss of an IRA than a 59Y2-year old with a present

right to payment under an IRA. 15 Both the plain language
of
the statute

and Congress'

clearly

expressed

intent

dictate

that

both present
and future
rights to payment
under
an IRA
should be eligible for the exemption
in 522(d)(10)(E).
CONCLUSION
For the foregoing
reasons,
AARP joins the Rouseys
asking this Court to reverse the decision of the U.S. Court

in
of

Appeals
do that,

for the Eighth Circuit

affirm the interpretation

to
of

Appeals

for the Third

and, if the Court is unable

in use in the U.S. Court

Circuit.
Respectfully

15

submitted,

Of course, If the circumstances

of an individual debtor - whether
the debtor is 58 or 65 - indicate that the IRA is not needed for future
support,
522(d)(10)(E)
authorizes the trustee to limit the exemption
only to amounts "reasonably
necessary" for the future support of the
debtor and any dependents.

30

PatriciaJ. Kaeding
BradyC. Williamson
LaFolletteGodfrey& Kahn
OneEastMain Street,Suite500
P.O.Box 2719
Madison,WI 53701-2719
ElizabethWarren
LeoGottliebProfessorof Law
1563Massachusetts
Avenue
Cambridge,MA 02138
JeanConstantine-Davis
Nina F. Simon
AARP FOUNDATIONLITIGATION
MichaelR. Schuster
AARP
601E Street,N.W.
Washington,D.C. 20049
Dated:August 20, 2004.