This document summarizes a debate around whether a bankruptcy court or state court has jurisdiction to approve the sale of periodic payments from a structured settlement when the recipient files for Chapter 7 bankruptcy. Some key points: - Periodic payments are considered property of the bankruptcy estate, but many states have laws (SSPAs) governing the sale of such payments. - Courts are split on whether bankruptcy court approval alone is sufficient, or if state court approval under the SSPA is also required. - Requiring trustees to also go through the state SSPA process could burden the bankruptcy process and creditors' ability to get paid in a timely manner from proceeds of the sale. - SSPAs aim to

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The Essential Resource for Today’s Busy Insolvency Professional
Consumer Corner II
By Andrew S. Hillman
It’s My Money, and I Want It Now!
Personal-Injury Settlement Transfers and Chapter 7:
Whose Jurisdiction Is It, Anyway?
A
t one time or another, you have probably
seen garish television ads proclaiming “I
have a structured settlement; it’s my money
and I want it now.” These ubiquitous ads offer a
lump sum of cash “now” in return for the sale or
“factoring” of settlement payments to be received
through the settlement of a personal-injury claim
(a “structured settlement”). The recipients of these
payments sometimes seek protection in bankrupt-
cy from creditors, more often than not pursuant to
chapter 7.1
While some or all of the payments might
be subject to state or federal exemptions, a trustee
will want to sell the remaining payments for the
benefit of creditors.2
As a potential purchaser of the payments, a
trustee, standing in a debtor’s shoes, would prefer to
obtain a bankruptcy court order and not have to seek
a substantially similar order from a state court under
state statutes that provide for an orderly process to
purchase these payments. This article will explore
whether a bankruptcy court has the exclusive juris-
diction to approve a sale by a trustee of structured
settlement payments, or whether a trustee must also
seek and obtain state court approval for a sale in the
face of state laws that govern the sale of structured
settlement payments.
Anatomy of a Structured Settlement
Structured settlements are a popular and common
method for settling personal-injury and wrongful-
death lawsuits.3
A structured settlement is an agree-
ment between a personal-injury plaintiff and a defen-
dant liability insurance company (the “obligor”) in
which a claimant agrees to settle a personal-injury
lawsuit in exchange for periodic payments to be made
by the obligor over time. The obligor then purchas-
es an annuity policy from a highly rated life insur-
ance company (an “annuity issuer”) to make those
payments to the plaintiff on behalf of the obligor (a
claimant is sometimes referred to as “annuitant” or
“seller”). The periodic payments are “structured” in
the sense that they are to be paid periodically over
time to assist an annuitant to plan for their financial
future and ensure that the annuitant does not squander
a one-time lump-sum payment. Structured settlements
have been likened to spendthrift trusts, since they con-
tain anti-assignability clauses that prohibit the assign-
ment, sale or transfer of the periodic payments.
Structured Settlement
Factoring Transaction
At some point in time after an annuitant begins
to receive periodic payments, an annuitant may
want to sell some or all of them in return for imme-
diate cash for various reasons, including life’s basic
necessities, school tuition, medical needs, to con-
solidate high-interest personal debt or for some
other exigent circumstance. In order to do this,
annuitants must seek and obtain, pursuant to state
structured settlement protection statutes (SSPAs),
final state court orders in their state of residence that
direct annuity issuers to make the periodic payments
directly to the buyer of the payments.4
Andrew S. Hillman
Specialty Asset
Advisors Inc.
West Palm Beach, Fla.
1 11 U.S.C. § 101, et seq.
2 Debtors’ counsel should determine whether structured settlement annuities are exempt
property under § 522 of the Bankruptcy Code. State statutes differ with respect to how
they define the term “annuities,” with some relating to retirement or life insurance annui-
ties. Moreover, some state exemption statutes specifically exempt awards from personal-
injury or wrongful-death claims but do not include the term “annuities” in those descrip-
tions. See Cal. CCP Code section 704.140 (personal-injury causes of action and awards)
and Cal. CCP Code section 740.150 (wrongful-death causes of action and awards).
3 Daniel Hindert, “Structured Settlements and Periodic Payment Judgments,” N.Y.L.J. (1986).
Andrew Hillman is
president and CEO
of Specialty Asset
Advisors Inc. in West
Palm Beach, Fla.
4 In September 2000, representatives from the National Structured Settlement Trade
Association and the National Association of Settlement Purchasers agreed upon language
contained in the “Structured Settlement Protection Act (the “SSPA” or “Model Act”). The idea
was to effect legislation in the states that would foster the orderly transfer of structured set-
tlement payments based on the Model Act. Since then, 49 states have adopted some form of
the Model Act, with most of the substantive and procedural provisions remaining extant. See
www.ncoil.org/Docs/2011/StructuredSettlementsModel.pdf (last visited Jan. 21, 2015).

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SSPAs are essentially consumer-protection statutes that are
designed to prevent annuitants from dissipating their future
payments without having a sufficient amount of information to
make an informed decision as to whether to sell their periodic
payments. SSPAs provide a procedural and substantive road
map for this process. They also require that an annuitant dem-
onstrate to a judge that the transaction is in the “best interest of
the [annuitant] and its dependents.”5
Unless a state court order
is obtained that complies with the requirements of an SSPA (a
“qualified order”), a buyer of the payments will be subject to
an excise tax of 40 percent of the purchase price.6
Are Periodic Payments Part
of a Bankruptcy Estate?
Section 541‌(a) of the Bankruptcy Code provides that a
bankruptcy estate consists of all of the debtor’s legal and
equitable interest in the debtor’s property as of the date of the
filing of the bankruptcy petition.7
Assuming that no federal or
state exemptions apply to the periodic payments, whether they
become the property of the bankruptcy estate for purposes of
§ 541, is an issue of federal law (i.e., the Bankruptcy Code).8
Section 541‌(c)‌(1)‌(A) provides, inter alia, that a debtor’s
interest in the property will become property of the estate
regardless of any applicable restrictions, whether contractual
or under nonbankruptcy law. It follows then that notwith-
standing that periodic payments are not assignable by the
very terms of the settlement agreement, and that the disposi-
tion of the periodic payments is subject to SSPA compliance,
the periodic payments are property of the bankruptcy estate.9
In In re Pipkins,10
the debtor was receiving structured
settlement payments. The debtor entered into a post-petition
sale-factoring agreement, did not disclose the agreement to the
bankruptcy court or the trustee, did not initially claim the struc-
tured settlement payments as exempt, and did not amend his
schedules to reflect the actual value of the payments under the
structured-settlement annuity. The trustee argued that notwith-
standing that the structured settlement payments, by the terms
of the settlement agreement, were not assignable or transfer-
able, under § 541‌(c)‌(1)‌(a) such a provision was unenforce-
able and the payments were therefore property of the estate.
The court noted that because the trustee “correctly realiz‌[ed]
that the interests in the future structured settlement payments
belong to the estate,” the trustee had the authority to enter into
an offer to purchase from a different factoring company. The
purchasing company was represented by the author.
Jurisdictional Issues: Are Both State
and Federal Court Approval Required?
Under the terms of SSPAs, “interested parties” in
transfer proceedings have the right to object to requests
to sell periodic payments. “Interested parties” expressly
includes annuity issuers.11
As previously noted, SSPAs
also mandate that in order for a petition for the sale of
periodic payments to be approved, a state court judge must
find that the transaction is in the best interest of the annui-
tant and its dependents. Annuity issuers will occasion-
ally object to these transfers on grounds that payments are
not assignable, that the periodic payments are obtained
from workers’ compensation lawsuits and other reasons.
Annuity issuers maintain that the SSPAs, among other
things, provide certainty in the payment process and pro-
tect their customers (annuitants) from making imprudent
financial decisions when transferring periodic payments.
On the other hand, a chapter 7 trustee wants to dispose of
the periodic payments as efficiently and expeditiously as
possible. Having to jump another hurdle to comply with
the SSPAs is neither palatable nor indeed necessary in
some trustees’ minds. Many annuity issuers have a differ-
ent viewpoint: since SSPAs are viewed as protective of
their annuitant and the annuity issuers themselves, obtain-
ing court orders under SSPAs is essential.
There are at least two conflicting reported cases regard-
ing whether a bankruptcy trustee must seek a court order
under the SSPAs even after a bankruptcy judge approves
the sale by a trustee of the periodic payments. In In re
Crossman,12
the court found no conflict between the Illinois
SSPA and the Bankruptcy Code as to warrant pre-emption
of the Bankruptcy Code over the SSPA. The court con-
cluded that the trustee needed to comply with the Illinois
SSPA (in addition to obtaining approval in the bankruptcy
court) in order to transfer to the buyer the trustee’s right to
the periodic payments.
In re Jackus13
dealt with an SSPA under New Jersey law
that was very similar to Illinois’s. In this case, the state court
refused to hear a trustee’s petition for approval of a sale on
the grounds that the sale involved property of the bankruptcy
estate and that the state court had no role to play with regard
to its sale. The bankruptcy judge in Jackus then proceeded to
analyze whether the proposed transfer was in the best interest
of the bankruptcy estate and the debtor, citing In re Sparks.14
The bankruptcy court in Sparks, in the face of a strong objec-
tion of an annuity issuer opposing the sale, disagreed with the
Crossman court, stating:
This court respectfully disagrees with the conclusion
of the [Illinois] bankruptcy court. Once the property
5 Model Structured Settlement Prot. Act, § 4(a)(1).
6 26 U.S.C. § 5891. Any concern that a bankruptcy estate might be subject to the excise tax for non-
compliance with an SSPA is misplaced. Section 5891 was intended to penalize a purchaser of periodic
payments that does not comply with the requirements of an SSPA, but such is not the case here. Periodic
payments are part of the bankruptcy estate and it is the trustee (on behalf of the estate) that is selling
periodic payments. A selling trustee does not include the definition of a “transferor,” defined in the Model
Act as “an individual who is receiving tax free payments under a structured settlement and proposes to
make a transfer of payments thereof” (emphasis added).
7 11 U.S.C. § 541(a)(1).
8 Fisher v. Apostolou,155 F.3d 876, 880 (7th Cir. 1988).
9 See In re Donald C. Pipkins, Case No. 13-30087DM, 2014 Bankr. LEXIS 2654 (Bankr. N.D. Cal. 2014),
(finding that periodic payments under § 541‌(c)‌(1)‌(a) were part of bankruptcy estate that could be sold by
trustee notwithstanding restrictions on alienability on payments).
10 Id.
11 Model Structured Settlement Prot. Act, § 2(f).
12 259 B.R. 301 (Bankr. N.D. Ill. 2001).
13 442 B.R. 365, 368 (Bankr. D.N.J. 2011).
14 2005 WL 1669609, 2005 Bankr. WL 1348, at *5 (Bankr. W.D. Tenn. 2005).
It is clear that courts in at least
three different states have
differing views as to whether a
state court or the bankruptcy
court has exclusive jurisdiction to
issue a final court order to approve
the sale of periodic payments.

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becomes property of the estate, the trustee is autho-
rized to use, sell, or lease the property for the benefit
of creditors. The state law procedure for approving
the assignment of structured settlement payments
is designed to protect the payee/beneficiary. The
bankruptcy court is in a better position to determine
whether the proposed sale is in the best interest of
creditors of the estate.15
Observations
It is clear that courts in at least three different states have
differing views as to whether a state court or the bankruptcy
court has exclusive jurisdiction to issue a final court order to
approve the sale of periodic payments. No federal appellate
court has ruled on this issue. In this regard, In re Wilcox16
is
instructive. Although no formal opinion was issued, the court
issued an order approving the sale of the periodic payments
to the trustee stating that “[t]‌he sale to [the purchaser] is in
the best interest of the bankruptcy estate and the creditors,”
and ordered the annuity issuer to make the periodic payments
directly to the purchaser.17
The Wilcox court was not con-
vinced that a state court order was necessary to approve the
sale, relying on Sparks.
Some annuity issuers require an order under an SSPA
(as well as a bankruptcy court order), while others are
content with a bankruptcy order alone. When an annuity
issuer objects to a sale that has been filed by a trustee
seeking to transfer the periodic payments, the issue is
joined. Purchasers of periodic payments argue that since
such payments are property of the bankruptcy estate,
only a bankruptcy court can approve their sale. It makes
no sense to require a trustee to go through the SSPA
process in order to realize the estate property’s current
value. To the extent an SSPA could be read to require
a trustee to comply with an SSPA as did the annuity
issuer in Crossman, that process implicates the bank-
ruptcy court’s exclusive jurisdiction under 28 U.S.C.
§ 1334‌(c)‌(1) and must give way to the bankruptcy
court’s determination as to what is in the best interest of
the bankruptcy estate. As recently explained by the U.S.
Supreme Court in Marshal v. Marshall18
in discussing
exceptions to federal jurisdiction,
[j]‌urisdiction is determined ‘by the court’s creation and
cannot be defeated by the extra-territorial operation
of a [state] statute ... even though it created a right of
action’…. [W]‌e have held that the jurisdiction of the fed-
eral courts, “having existed from the beginning of the
Federal government, [can]‌not be impaired by subsequent
state legislation.”
SSPAs are consumer-protection statutes primarily
designed to assist an annuitant in making informed deci-
sions and to ensure that the cash they receive in return for
their periodic payments is used in their best interest. When
periodic payments are sold in bankruptcy, those same con-
cerns are not present. It is the estate that is receiving the
proceeds of a sale, and it is always in the best interest of the
estate and its creditors that the transaction be consummated.
Thus, compliance with an SSPA in this context is unneces-
sary and an artificial barrier to getting creditors paid in a
timely fashion. abi
Reprinted with permission from the ABI Journal, Vol. XXXIV,
No. 4, April 2015.
The American Bankruptcy Institute is a multi-disciplinary, non-
partisan organization devoted to bankruptcy issues. ABI has
more than 12,000 members, representing all facets of the insol-
vency field. For more information, visit abi.org.
15 Id. at *6 (emphasis added).
16 In re William Richard Wilcox, Case No. 13-14558 Order (Bankr. E.D. Pa. 2013).
17 Id. at A.
18 547 U.S. 293, 314; 126 S. Ct. 1735, 1749 (2006).