Eleventh Circuit Requests Supreme Court of Georgia’s Help in HSA-Bankruptcy Question

In In re Mooney, No. 15–11229, 2016 WL 537076 (11th Cir. Feb. 11, 2016), the Eleventh Circuit certified three questions about a Georgia bankruptcy statute for the Georgia Supreme Court. Even though bankruptcy proceedings are generally governed by federal law, each state is allowed to specify a list of exemptions. Thus, the Eleventh Circuit decided that the Georgia Supreme Court was the best body to determine whether a Health Savings Account (HSA) is exempt from inclusion in a bankruptcy estate under Georgia law. The court certified three questions: (1) is an HSA a “disability, illness, or unemployment benefit” under O.C.G.A. § 44-13-100(a)(2)(C)? (2) is an HSA “a payment under pension, annuity, or similar contract” under O.C.G.A. § 44-13-100(a)(2)(E)? and (3) is an HSA a payment “on account of illness [or] disability” under O.C.G.A. § 44-13-100(a)(2)(E)? If so, the HSA could be exempted from the estate when bankruptcy is filed.

Mooney opened an HSA account in 2008, which she funded with deposits from her personal checking account and used only for medical expenses. An HSA is an account with money set aside to be used only for out-of-pocket medical expenses. If the money in the HSA is used only for medical expenses, special tax rates will apply; if the money is used for any other purpose, it will be taxed as gross income and subject to an additional 20% tax. When Mooney filed for Chapter 7 bankruptcy in 2013, she attempted to exempt her HSA from her estate, claiming that the HSA fell under the exemptions listed in O.C.G.A. § 44-13-100(a)(2)(C) and (E). Webster, the Chapter 7 trustee, objected to this exemption, and the United State Bankruptcy Court for the Middle District of Georgia sustained the objection. Mooney appealed to the district court, which affirmed the court’s decision. Mooney then appealed to the court of appeals, which certified three questions for the Supreme Court of Georgia.

Mooney maintained that the funds in her HSA were exempt under O.C.G.A. § 44-13-100(a)(2)(C) because they were a “benefit,” while Webster said they were not a benefit funded by a third party because Mooney funded the account herself. In disputing whether the HSA funds were exempt under O.C.G.A. 44-13-100(a)(2)(C), both Mooney and Webster used Rousey v. Jacoway, 544 U.S. 320 (2005) and Silliman v. Cassell, 738 S.E.2d 606 (Ga. 2013) to support their arguments. Mooney claimed that just as an IRA account was exempt in Rousey and an annuity was exempt under Silliman, her HSA account was exempt as a “similar plan or contract” since the HSA was a wage substitute like the IRA or annuity. Webster disagreed, as did the district court, saying the HSA was a place to put wages, but not a wage substitute. Mooney also claimed that because the funds in the HSA must be used for medical expenses or be taxed, they comply with the use “on account of illness [or] disability” requirement for exemptions. Webster countered that Mooney had complete control of the funds and was free to use them for whatever she wanted, and therefore did not comply with that requirement.

On appeal, Mooney further argued that the Georgia General Assembly intended HSAs to be exempt in bankruptcy because HSAs were authorized after the exemption statute was passed. Webster countered that if the legislature intended for HSAs to be included as an exemption, the statute would have been amended. Webster also argued that the exemptions are for funds that the debtor has yet to receive, but that Mooney already received these funds because the HSA was funded from her personal account. The Eleventh Circuit concluded that since HSAs are new and rising in popularity and exemptions fall under state law, this issue was important enough to ask the Georgia Supreme Court whether or not HSAs can be exempted under the Georgia exemption statute.

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