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In re Leitch

United States Bankruptcy Appellate Panel of the Eighth Circuit

July 16, 2013

In re: Kirk Patrick Leitch Debtor.
v.
Julia A. Christians Trustee-Appellee. Kirk Patrick Leitch Debtor-Appellant.

Submitted: June 26, 2013

Appeal from United States Bankruptcy Court for the District of Minnesota - Minneapolis

Before FEDERMAN, Chief Judge, SALADINO and NAIL, Bankruptcy Judges.

SALADINO, Bankruptcy Judge.

Debtor, Kirk Patrick Leitch, appeals an order of the bankruptcy court[1] dated March 6, 2013, holding that the funds in his health savings account ("HSA") are not excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(b)(7)(A)(ii) and are not exempt. For the reasons that follow, we affirm.

BACKGROUND

This appeal concerns $3, 310.01[2] held in an HSA owned by Mr. Leitch at the time he filed his voluntary Chapter 7 petition on November 24, 2012. Mr. Leitch is employed as a police officer with the City of Mounds View, Minnesota. He and his family are insured through a high-deductible health insurance policy offered through his employer. Mr. Leitch also has an HSA, which he uses to pay his family's medical expenses up to the amount of the deductible under his health insurance policy. Mr. Leitch listed the funds in his HSA on the date of bankruptcy filing as an asset on Schedule B of his bankruptcy petition and asserted that the funds were excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2). He subsequently amended Schedule C, which amendment continued to assert that the funds were excluded from the estate, but also provided the alternative assertion that the funds were exempt pursuant to 11 U.S.C. § 522(d)(10)(C) and (11)(E).

The Chapter 7 trustee objected to Mr. Leitch's exclusion arguments and exemption claims. For the first time, in Mr. Leitch's response he argued his primary position on appeal - that the HSA was excluded from the estate pursuant to 11 U.S.C. § 541(b)(7)(A)(ii). The bankruptcy court held a hearing on March 6, 2013, and issued an oral ruling rejecting Mr. Leitch's arguments. This appeal followed.

STANDARD OF REVIEW

The bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. First Nat'l Bank of Olathe v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997). The bankruptcy court's construction of a statute is a question of law, subject to de novo review. In re Graven, 936 F.2d 378, 384-85 (8th Cir. 1991).

DISCUSSION

Health savings accounts were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Pursuant to that Act, an HSA is "a trust created or organized in the United States as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary . . . [.]" 26 U.S.C. § 223(d)(1). An individual can make contributions to an HSA only if that individual is separately covered by a "high deductible health plan." 26 U.S.C. § 223(c)(1)(A). A "high deductible health plan" is a health plan that requires beneficiaries to pay a certain amount of out-of-pocket expenses before the insurance plan begins picking up the tab. See 26 U.S.C. § 223(c)(2)(A).

The beneficiary of an HSA has liberal access to the funds - indeed, the beneficiary is entitled to distributions from the account for any purpose. See Treasury Notice 2004-50, 2004 WL 1636921 at Q-79. However, the beneficiary will incur tax penalties unless the funds are used for "qualified medical expenses, " which are essentially costs of health care "not compensated for by insurance or otherwise." 26 U.S.C. ยง 223(d)(2)(A). In this appeal, Mr. Leitch first asserts that his "clearest and most concise argument" is that the funds in his HSA are excluded ...


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