In the Matter of: GREGORY D. HAWK; MARCIE H. HAWK, Debtors.
EVA S. ENGELHART, Chapter 7 Trustee, Appellee. GREGORY D. HAWK, Appellant,
from the United States District Court for the Southern
District of Texas
STEWART, Chief Judge, and WIENER and PRADO, Circuit Judges.
C. PRADO, Circuit Judge.
filing for Chapter 7 bankruptcy, Gregory and Marcie Hawk
claimed an exemption for funds held in an individual
retirement account ("IRA"). The Hawks sought to
exempt the funds from the bankruptcy estate because
tax-exempt or tax-deferred assets held in a qualifying
retirement account are generally exempt from creditors'
claims under Texas law. However, the Hawks subsequently
withdrew the funds from the IRA and did not roll them over
into another IRA. Because Texas law provides that funds
withdrawn from a retirement account remain exempt only if
rolled over into another retirement account within sixty
days, the bankruptcy court held that the funds had lost their
exempt status and ordered that the Hawks turn over the funds
to the Trustee, Eva Engelhart. The district court upheld the
bankruptcy court's decision on appeal. We AFFIRM.
December 15, 2013, the Hawks filed a voluntary bankruptcy
petition under Chapter 7 of the Bankruptcy Code.
Approximately one month later, the Hawks filed their
schedules of assets, which claimed an exemption for funds
held in an IRA managed by NFP Securities, Inc. The Hawks
claimed that the IRA funds were exempt from creditors'
claims under Texas Property Code § 42.0021 and were
therefore excluded from the property of the bankruptcy estate
under 11 U.S.C. § 522(b). The meeting of creditors was
held on March 28, 2014, giving the parties in interest until
April 28, 2014, to object to the Hawks' claimed
exemptions. See Fed. R. Bankr. P. 4003(b)(1). No
party in interest objected to the IRA exemption during that
time. On April 3, 2014, the Trustee filed a report declaring
that the estate had no assets available for distribution to
the Hawks' creditors and proposing to abandon all
nonexempt assets. In May 2014, however, one of the Hawks'
creditors, Res-TX One, timely filed an adversary proceeding
objecting to the Hawks' discharge.
between December 11, 2013, and July 14, 2014, the Hawks
withdrew all of the funds from the IRA and used most of those
funds to pay for living and other expenses. The funds were
never rolled over into another retirement account. When
Res-TX One deposed Mr. Hawk in November 2014, Mr. Hawk stated
that approximately $30, 000 of the liquidated IRA funds
remained in his possession and that the funds were being held
"in a shoebox." The Trustee first learned about the
liquidated IRA funds from Mr. Hawk's deposition and
subsequently demanded that the Hawks give the funds to the
estate. After the Hawks refused to do so, the Trustee filed a
motion with the bankruptcy court seeking to compel the Hawks
to turn over the funds.
bankruptcy court held an evidentiary hearing and then ordered
the Hawks to turn over the funds that were withdrawn from the
IRA ($133, 434.64 in total). The bankruptcy court concluded
that the funds "lost their exempt status" under
Texas law because the Hawks "did not roll them over to
another individual retirement account within 60 days."
The Hawks appealed to the district court, which affirmed the
bankruptcy court's decision. This appeal followed.
STANDARD OF REVIEW
"second review court, " "[o]ur review is
properly focused on the actions of the bankruptcy
court." In re Age Ref., Inc., 801 F.3d 530, 538
(5th Cir. 2015) (quoting In re T-H New Orleans Ltd.
P'ship, 116 F.3d 790, 796 (5th Cir. 1997)). "We
apply the same standard of review to the bankruptcy
court's findings of fact and conclusions of law as
applied by the district court." In re Pratt,
524 F.3d 580, 584 (5th Cir. 2008). "Determination
whether an exemption from the bankruptcy estate exists is a
question of law, which we review de novo."
In re Zibman, 268 F.3d 298, 301 (5th Cir. 2001).
"Although we may 'benefit from the district
court's analysis of the issues presented, the amount of
persuasive weight, if any, to be accorded the district
court's conclusions is entirely subject to our
discretion.'" In re Age Ref., 801 F.3d at
538 (quoting In re CPDC, Inc., 337 F.3d 436, 441
(5th Cir. 2003)).
11 U.S.C. § 541(a), the commencement of a bankruptcy
case- whether under Chapter 7 or Chapter 13 of the Bankruptcy
Code-creates a bankruptcy estate comprising, among other
things, "all legal or equitable interests of the debtor
in property as of the commencement of the case." The
debtor may then remove certain types of property from the
estate by electing to take advantage of either the exemptions
described in federal law or those described in state law. 11
U.S.C. § 522(b). To claim these exemptions, the debtor
must file a list of property claimed as exempt on the
schedule of assets. 11 U.S.C. § 522(l);
Fed.R.Bankr.P. 4003(a). A party in interest may then
"file an objection to the list of property claimed as
exempt within 30 days after the meeting of creditors . . . or
within 30 days after any amendment to the list or
supplemental schedules is filed, whichever is later."
Fed.R.Bankr.P. 4003(b)(1). "Unless a party in interest
objects, the property claimed as exempt on such list is
exempt." 11 U.S.C. § 522(l).
"Anything properly exempted passes through bankruptcy;
the rest goes to the creditors." Payne v. Wood,
775 F.2d 202, 204 (7th Cir. 1985).
Court has not previously addressed whether a Texas debtor is
entitled to an exemption when he or she withdraws funds from
a retirement account and does not deposit the funds into
another retirement account within sixty days. However, the
parties agree that this Court's case law regarding Texas
homesteads is instructive. Indeed, there are clear parallels
between the Texas statutes governing retirement accounts and
those governing homesteads. Texas Property Code §
42.0021(a) states that "a person's right to the
assets held in . . . an individual retirement account . . .
is exempt from attachment, execution, and seizure for the
satisfaction of debts to the extent the . . . account is
exempt from federal income tax, or to the extent federal
income tax on the person's interest is deferred until
actual payment of benefits to the person." Section
42.0021(c) then provides that amounts distributed from an
exempt retirement account "are not subject to seizure
for a creditor's claim for 60 days after the date of
distribution if the amounts qualify as a nontaxable rollover
contribution." Similarly, Texas Property Code §
41.001(a) indicates that a homestead is "exempt from
seizure for the claims of creditors except for encumbrances
properly fixed on homestead property." Section 41.001(c)
goes on to explain that the "proceeds of a sale of a
homestead are not subject to seizure for a creditor's
claim for six months after the date of sale."
Hawks make two primary arguments on appeal. First, they
contend that the lower courts improperly applied the
so-called "snapshot rule, " which dictates that
exemptions must be determined based on the state law in
effect when the petition is filed. Second, the Hawks seek to
distinguish our previous decision in In re Frost,
744 F.3d 384, 387 (5th Cir. 2014), which held that the
proceeds of a homestead sale were not exempt where a debtor
sold his homestead after filing for bankruptcy and did not
reinvest the proceeds in another homestead within six ...