In The Matter of Roger Burnett Treadwell, Debtor. James D. Walker, JR., Trustee v. Roger Burnett Treadwell, and Regina Taylor, 699 F.2d 1050, 11th Cir. (1983)
In The Matter of Roger Burnett Treadwell, Debtor. James D. Walker, JR., Trustee v. Roger Burnett Treadwell, and Regina Taylor, 699 F.2d 1050, 11th Cir. (1983)
In The Matter of Roger Burnett Treadwell, Debtor. James D. Walker, JR., Trustee v. Roger Burnett Treadwell, and Regina Taylor, 699 F.2d 1050, 11th Cir. (1983)
2d 1050
8 Collier Bankr.Cas.2d 99, 10 Bankr.Ct.Dec. 466,
Bankr. L. Rep. P 69,127, 1 Soc.Sec.Rep.Ser. 187
James D. Walker, pro se and Surrett, Choate & Walker, Mary G. Colley,
Augusta, Ga., for plaintiff-appellant.
T.J. Foss, Augusta, Ga., for defendants-appellees.
Appeal from the United States Bankruptcy Court for the Southern District
of Georgia.
Before RONEY and CLARK, Circuit Judges, and TUTTLE, Senior Judge.
RONEY, Circuit Judge:
The facts are not in dispute. Less than one year before filing for voluntary
bankruptcy, the Debtor transferred $1,000 to one daughter, Regina Taylor, and
$3,000 to another daughter, Kathy Treadwell. The $4,000 came from a bank
account which consisted exclusively of accumulated social security benefits.
The Debtor did not receive any consideration for the money other than familial
love and affection. At the time of the gift, the Debtor was insolvent within the
meaning of the Bankruptcy Code, 11 U.S.C.A. Sec. 101(26).
3
In his bankruptcy petition, the Debtor disclosed the existence of the gifts. The
Trustee in Bankruptcy then filed suit, seeking a declaration that the transfers
were null and void as fraudulent conveyances. 11 U.S.C.A. Sec. 548. The
bankruptcy court held for the Debtor, reasoning that section 207 of the Social
Security Act, 42 U.S.C.A. Sec. 407, exempted the funds from the reach of
creditors acting under the Bankruptcy Code. Pursuant to an agreement of the
parties, the Trustee has appealed directly to this Court. Bankruptcy Reform Act
of 1978, Pub.L. No. 95-598, Sec. 405(c)(1)(B), 92 Stat. 2549, 2685 (1978).
There is little doubt that if the Social Security Act does not protect the money
from creditors, the transfers were fraudulent conveyances, within the meaning
of the Bankruptcy Code, which the Trustee could avoid. A bankruptcy trustee
may bring back into the estate for the benefit of the bankrupt's creditors any
property transferred for less than equivalent value within a year of bankruptcy,
if the debtor was insolvent at the time. 11 U.S.C.A. Sec. 548.1 The parties have
stipulated that the Debtor transferred the money to his daughters within one
year of filing his bankruptcy petition and that at the time he was insolvent.
The only consideration that Debtor claims to be the reasonable equivalent value
of the money transferred is the "love and affection" of his daughters. As the
definition of the term "value" under section 548 illustrates, love and affection
are clearly insufficient to protect the transfers from the Trustee. "Value" means
"property, or satisfaction or securing of a present or antecedent debt of the
debtor, but does not include an unperformed promise to furnish support to the
debtor or to a relative of the debtor." Id. Sec. 548(d)(2)(A). The daughters did
not give their father property or satisfy or secure any of his debts. Hopefully, he
already had their love and affection. Even if the love and affection of the
daughters for their father increased $4,000 worth, it is of no benefit to the
creditors. That his love and affection for them motivated the gift does not
satisfy the intent of the statute. The object of section 548 is to prevent the
debtor from depleting the resources available to creditors through gratuitous
transfers of the debtor's property. See S.Rep. No. 989, 95th Cong., 2d Sess. 89,
reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5875 (Section 548
"permits the trustee to avoid transfers by the debtor in fraud of his creditors").
Love and affection have been held to be inadequate consideration under state
fraudulent conveyance laws. United States v. West, 299 F.Supp. 661, 666
(D.Del.1969); Roddam v. Martin, 285 Ala. 619, 622, 235 So.2d 654, 656
(1970). The transfers in this case were no more than gifts. See Flatau v. Atef (In
re Gaites), 466 F.Supp. 248, 254 (M.D.Ga.1979) (when the recited
consideration is love and affection, there is generally a gift). And a debtor's
gifts made within one year of filing for bankruptcy are voidable by the trustee.
Stone v. Moore, 375 F.2d 110, 113 (5th Cir.1967).
6
The only issue here, then, is whether the Social Security Act forecloses the
operation of section 548 as to the accumulated social security benefits that were
transferred. Section 207 of the Social Security Act, 42 U.S.C.A. Sec. 407,
provides:
The right of any person to any future payment [of social security benefits] shall
not be transferable or assignable, at law or in equity, and none of the moneys
paid or payable or rights existing under this subchapter shall be subject to
execution, levy, attachment, garnishment, or other legal process, or to the
operation of any bankruptcy or insolvency law.
The question immediately posed is what the plain words of the statute
9 none of the moneys paid or payable ... shall be subject to ... the operation of any
...
bankruptcy or insolvency law
10
mean, if the following analysis is correct. In our view, the words merely
indicate that the exemption there given cannot be taken away by a bankruptcy
law. They do not prevent the Bankruptcy Code from requiring a debtor to claim
the exemption affirmatively, or to forego another otherwise available
exemption if the social security exemption is claimed.
11
The purpose of section 407 and the legislative history and intent of the
Bankruptcy Code convince us that section 407 does not override the fraudulent
conveyance provision of federal bankruptcy law in this case. The key to the
decision really lies in the exemption framework of the Bankruptcy Code. Under
11 U.S.C.A. Sec. 522(b), a debtor filing for bankruptcy may exempt certain
assets from the property of the estate available for creditors. He may either take
the exemptions specified in the Code itself, 11 U.S.C.A. Sec. 522(d), unless
state law prohibits this option,2 "or, in the alternative," he may take the
exemptions provided by other federal statutes and state law. That the debtor
must choose between the two exemption systems, rather than enjoy the benefits
of both, is perfectly clear. H.Rep. No. 595, 95th Cong., 1st Sess. 126, 360,
reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6087, 6316. See
18
This analysis of section 522 illustrates that the exemption from the operation of
the bankruptcy law provided by 42 U.S.C.A. Sec. 407 is not absolute. If a
debtor chooses the Bankruptcy Code exemptions, he gives up the protection of
section 407, freeing accumulated social security benefits for the satisfaction of
creditors.
19
Thus, the Debtor in this case could have obtained the exemption of section 407,
but only by forsaking the exemptions specified in the Bankruptcy Code, 11
U.S.C.A. Sec. 522(d), and electing the state and non-bankruptcy federal
exemptions. 11 U.S.C.A. Sec. 522(b). Nothing in the language of section 407
permits a social security recipient to claim all bankruptcy exemptions in
addition to the social security exemption. It is undisputed that the Debtor
claimed exemptions under section 522(d) and did not claim an exemption for
any accumulated social security benefits.3
20
A contrary reading of the statute would not serve the purpose of section 407.
The reason for exempting social security benefits from creditors' claims is to
insure the needy have the necessary resources for continuing basic care and
maintenance. See Department of Health and Rehabilitative Services, Florida v.
Davis, 616 F.2d 828, 831 (5th Cir.1980); Estate of Vary, 65 Mich.App. 447,
450, 237 N.W.2d 498, 500 (1975), aff'd 401 Mich. 340, 258 N.W.2d 11 (1977),
cert. denied, 434 U.S. 1087, 98 S.Ct. 1283, 55 L.Ed.2d 793 (1978). The
benefits in this case are not helping the Debtor care for himself because he
transferred the money without receiving value in exchange. Despite the "allinclusive" language of section 407, Philpott v. Essex County Welfare Board,
409 U.S. 413, 415, 93 S.Ct. 590, 591, 34 L.Ed.2d 608 (1973), we previously
have rejected a construction that would bar creditors where the statutory
objective of preserving essential resources for the debtor could not have been
effectuated. See Department of Health and Rehabilitative Services, Florida v.
Davis, 616 F.2d at 831 (debtor, an incompetent who could not use the social
security benefits to care for himself, lived in a facility operated by the state
creditor). See also Estate of Vary, 237 N.W.2d at 500 (debtor had died).
21
REVERSED.
At the time the Debtor filed for bankruptcy, Georgia, the state of his domicile,
permitted a debtor to take the federal bankruptcy exemptions. Since then,
Georgia has amended its law to restrict a debtor to the state exemptions, which
have been enlarged to include, among other things, social security benefits,
Ga.Code Sec. 51-1301.1 (Supp.1981), and the non-bankruptcy federal
Although not in the record on appeal, the Trustee's brief recites the following
property claimed on Schedule B-4 of the bankruptcy petition:
Cash on hand
Joint Checking Account at C & S Bank,
Augusta, Georgia (1/2 interest)
Joint Checking Account at American
Security Bank, Washington, D. C.
(1/2 interest)
Joint Savings Account at Fort Gordon
Federal Credit Union (1/2 interest)
Motor Vehicles:
1975 Chevrolet Caprice (1/2 interest)
1976 Chevrolet Luv pick-up (1/2
interest) (door smashed)
100 Shares Montana Power Co. Stock
(1/2 interest)
Cash Value of Life Insurance Policy
with Great Southern Life
Firearms:
12 Gauge Shotgun
.22 Rifle
.270 Rifle
$ 30.00
312.50
110.00
310.50
750.00
1,000.00
975.00
8,220.00
75.00
10.00
75.00
---------$11,868.00