United States District Court, D. Colorado
In Re MICHAEL GORDON and REBECCA GORDON, Debtors.
DAVID V. WADSWORTH, CHAPTER 7 TRUSTEE, Appellee. MICHAEL GORDON and REBECCA GORDON, Appellants,
R. BROOKE JACKSON, District Judge.
Debtors Michael and Rebecca Gordon appeal from an order of the United States Bankruptcy Court denying their claim of exemption on funds withdrawn from a retirement account and from the denial of their motion to reconsider. This Court exercises jurisdiction over the appeal pursuant to 28 U.S.C. § 1334(a) and 28 U.S.C. § 158(a). For the reasons set forth below, the Court affirms both orders.
On April 16, 2013 Appellants Michael and Rebecca Gordon filed a voluntary Chapter 7 Bankruptcy Petition. After filing, the Gordons amended their Schedule C to include $2, 051 held in a money market savings account as an exempt asset. Chapter 7 Trustee David V. Wadsworth objected to the claim of exemption. On October 24, 2013 Chief Judge Howard R. Tallman issued an Order granting the Trustee's objection. The Gordons filed a motion to reconsider, which was also denied. On November 20, 2013 the Gordons filed a Notice of Appeal of these two orders. [ECF No. 2]. They contemporaneously filed a Notice of Election to Submit Appeal to United States District Court [ECF No. 3], a Motion to Proceed in Forma Pauperis [ECF No. 4], and a Motion for Stay Pending Appeal [ECF No. 5]. Judge Tallman denied the Motion to Proceed in Forma Pauperis [ECF No. 8] and partially granted the Motion for Stay Pending Appeal [ECF No. 9], thereby authorizing the Trustee to distribute the non-exempt funds as necessary and directing that the disputed funds be set aside and distributed upon resolution of the appeal. The present case was opened on November 20, 2013 [ECF No. 7]. The Gordons claim that the $2, 051 held in their savings account is an exempt asset because the funds were disbursed from a retirement account, and funds held in or payable from retirement accounts are exempt under COLO. REV. STAT. § 13-54-102(1)(s).
The Gordons, represented by counsel, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on April 16, 2013. [ECF No. 12-1 at 3-42]. At the time of filing, they owed $74, 525.63 to the Bellco Credit Union. Id. at 23. Their combined monthly average income was $3, 475.46. Id. at 26.
The Gordons listed their principal assets as a vacant, undeveloped lot in Park County, Colorado valued at $20, 000; an RV valued at $20, 000; and a 401(k) retirement account with $16, 700 in holdings. Id. at 16-18. They valued their other personal property, including household effects, bank accounts, and two cars, at $12, 152, for a grand total of $68, 842 in assets. Id. at 14, 17-19. One of the listed bank accounts was the savings account worth $2, 051. Id. at 17. It is this account that is in dispute in this appeal. The funds in this savings account are the remainder of a previous lump-sum disbursement from Mr. Gordon's retirement account. They were held in a money market account and were not commingled with any other funds. The Gordons apparently used the funds in this account for occasional living expenses.
A "bankruptcy court's denial of an exemption is reviewed for abuse of discretion." In re Ford, 492 F.3d 1148, 1153 (10th Cir. 2007) (citation omitted). "A court abuses its discretion where it commits a legal error or relies on clearly erroneous factual findings, or where there is no rational basis in the evidence for its ruling." Id. (alteration, internal quotation marks, and citation omitted). This abuse of discretion standard "incorporates an inquiry into whether the Bankruptcy Court committed an error of law, an issue which we traditionally review de novo. " In re Sw. Food Distributors, LLC, 561 F.3d 1106, 1111 n.3 (10th Cir. 2009).
The only issue on appeal is whether the Bankruptcy Court erred in determining that the exemption set forth in C.R.S. § 13-54-102(1)(s) does not protect funds that have been withdrawn from a retirement account. Previous Colorado Bankruptcy Court cases have found that once funds are withdrawn from an exempt retirement plan, the funds lose their status as exempt. See e.g., In re Bridges, No. 11-28930-MER, 2013 WL 1344572, at *2-3 (Bankr. D. Colo. April 2, 2013) (citing In re Pascuale, No. 09-216400-HRT (Bankr. D. Colo. filed Dec. 8, 2009)). It does not appear that those rulings were appealed. The Court reviews this legal question de novo.
The statute provides:
(1) The following property is exempt from levy and sale under writ of attachment ...