Annuities and bankruptcy
When a bankruptcy case is filed, one of the questions asked is how does the debtor earn his or her income? When you have a younger, working age debtor, that answer most likely will be that he or she has a job. However, when dealing with older, retired debtors, they may not earn income but receive income from investments. One way might be an annuity that provides a certain amount of funds every month. The question then is whether this annuity income may be claimed as exempt from the bankruptcy case. In Georgia, for example, an annuity can be claimed as exempt under O.C.G.A. Section 44-13-100(a)(2)(E), provided that certain factors are present with regard to that annuity.
After reviewing a couple of situations involving annuities and bankruptcy, I discovered that if a debtor is drawing monthly distributions from an annuity, those distributions may be claimed as exempt provided that the annuity was created prior to the filing of the bankruptcy case and those funds are being used to replace what was considered income. Additionally, support for exemption will also be evident if the annuity was funded by the debtor through his or her savings. Where a trustee may challenge the exemption of an annuity is when a debtor created that annuity with funds he or she has inherited within approximately 1 to 1-1/2 years prior.
If you are one of these types of debtors who is living on the distributions from an annuity and may be facing the possibility of filing bankruptcy, then it would be wise to seek legal advice from a bankruptcy attorney to see if the annuity will in fact be exempt.