A prospective Orlando, Florida Chapter 13 bankruptcy client currently makes about $30,000 per year salary. He wants to file bankruptcy as soon as possible to stop an ongoing lawsuit. Based on his salary alone, he would make relatively minimal payments to his Chapter 13 bankruptcy plan and over the five year plan would pay about 20% of his unsecured creditors.Many years ago this person won a personal injury law suit resulting in a structured settlement in the form of an annuity contract with a national insurance company. Three months ago he received the final annuity payment of $40,000. He asked whether the annuity payment will be treated as income for the purpose of determining the Chapter 13 plan payment. If included as income, his plan payment would increase substantially but he would not have any future annuity payments forthcoming to help pay the higher plan payment.
The annuity is an exempt asset. Florida statutes, and Florida case law, also exempt annuity proceeds even after the annuity proceeds are received and deposited in a financial account. The annuity and the proceeds would be exempt if the debtor filed Chapter 7.
The annuity payment three months prior to bankruptcy should not be treated as income. It is not a recurring payment. There will be no future annuity receipts during the Chapter 13 bankruptcy. Most importantly, to include the annuity receipt as income deprives the annuity proceeds of their exemption from creditors because the higher plan payment attributed to the “annuity income.” would effectively force the Chapter 13 debtor to pay during the Chapter 13 plan an part of the money received from the exempt annuity. Assets owned by the debtor at the filing date which assets would be exempt in a Chapter 7 bankruptcy should not be captured indirectly in a Chapter 13 plan.