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14.2.1.4.5 Non-periodic payments

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  7. 14.2.1.4.5 Non-periodic payments

14.2.1.4.5 Non-periodic payments

Courts differ as to whether the protections of the CCPA and similar state statutes extend to non-periodic payments which result from employment, such as profit sharing, incentive payments, deferred compensation, and tax refunds. Some courts simply conclude that tax refunds58 and non-periodic earnings59 are not protected. Others consider whether the payments in question are the kind of regular, predictable compensation on which workers depend for day-to-day living.60 The Department of Labor takes the position that any lump-sum payment from the employer is earnings under the CCPA, so long as the employer paid the amount in question for the employee’s services.61

A number of courts find that deferred-compensation plan payments62 and profit-sharing payments63 are protected. On the other hand, several courts have held that stock and stock options are not earnings even when part of a compensation package.64

In Kokoszka v. Belford,65 in holding that an income tax refund was not “earnings” under the CCPA, the U.S. Supreme Court stated that it agreed with a Second Circuit opinion that earnings are limited to periodic payment of compensation. However, the statute itself defines earnings to include any “bonus,”66 which would not be a periodic payment.67 In addition, the statute defines payments from a pension plan as earnings only if they are periodic,68 without so limiting other parts of the definition of earnings, thereby implying that the protections apply to non-pension compensation, whether or not it is periodic. The Supreme Court’s statement has been characterized as dicta, in that the issue before the Court was not the scope of the earnings exemption but whether Congress intended the wage garnishment protections to override the bankruptcy laws.69

The Michigan Supreme Court has concluded that the only question under the CCPA is whether a payment is compensation for personal services, and it is irrelevant whether it is periodic, predictable, or non-discretionary.70 Thus, profit-sharing payments, a “signing bonus” awarded to each employee as a result of union wage negotiations, and “recognition awards” made to certain salaried employees who were not eligible for regular pay increases, were all protected as “earnings.”

Some courts have held that lump-sum severance payments are protected as “earnings.”71 A few courts have also suggested that these payments might fall within a state exemption for unemployment compensation.72

Footnotes

  • 58 Kokoszka v. Belford, 417 U.S. 642, 651, 94 S. Ct. 2431, 41 L. Ed. 2d 374 (1974); In re Annis, 229 B.R. 802 (B.A.P. 10th Cir. 1999) (tax refund is not “earnings for personal services” within meaning of Oklahoma hardship exemption), aff’d, 232 F.3d 749 (10th Cir. 2000); In re Dickerson, 227 B.R. 742 (B.A.P. 10th Cir. 1998) (earned income credit is not earnings within meaning of Oklahoma hardship exemption); Royster v. Dep’t of Revenue, 2006 WL 1687834 (N.D. Fla. June 15, 2006) (income tax refund is not protected by 15 U.S.C. §§ 1672 and 1673); In re Egbert, 2016 WL 5922301 (Bankr. D. Idaho Oct. 11, 2016) (state tax refunds not protected by Idaho wages exemption; funds not traceable to earnings because commingled with other funds in hands of taxing authorities); In re Arthur, 2010 WL 4674450 (Bankr. S.D. Iowa Oct. 20, 2010) (tax refund not earnings; using CCPA precedent to construe substantially similar Iowa provision); In re Rivenbark, 2010 WL 2643323 (Bankr. E.D. Va. June 29, 2010) (tax refund not earnings under Virginia law); In re Sebastian, 2008 WL 5063084 (Bankr. D. Mont. Nov. 5, 2008) (tax refund not earnings; following Kokoszka because Montana definition of earnings same as federal CCPA); In re Fandrich, 2008 WL 4610030 (Bankr. D.N.D. Oct. 16, 2008) (tax refund not earnings); In re Minton, 348 B.R. 467 (Bankr. S.D. Ohio 2006) (tax refund not earnings under federal or Ohio definition, because not periodic); In re Rangel, 317 B.R. 553 (Bankr. D. Kan. 2004) (tax refund not exempt as “earnings” under Kansas law; not periodic and has lost “direct connection” to wages); In re Sikes, 2004 WL 2028021 (Bankr. W.D. Ky. Sept. 8, 2004) (tax refund not exempt as “earnings” under Kentucky wage garnishment statute); In re Demars, 279 B.R. 548 (Bankr. W.D. Mo. 2002) (tax refund pursuant to the earned income credit was not “local public assistance benefit” exempted by Mo. Rev. Stat. § 513.440(1)(10)(a)); In re Fishbein, 245 B.R. 36 (Bankr. D. Md. 2000) (tax refunds are not wages within meaning of Maryland’s wage garnishment limitations); Funk v. Utah State Tax Comm’n, 839 P.2d 818 (Utah 1992) (because of their non-periodic nature, tax refunds do not constitute disposable earnings and are not protected by 15 U.S.C. §§ 1672 and 1673). See also In re Benn, 491 F.3d 811 (8th Cir. 2007) (tax refunds not exempt under Missouri law; opt-out statute that allows exemptions pursuant to “the law of Missouri” refers only to statutes, not common law that denied attachment of tax refunds in the hands of taxing authorities).

  • 59 Pallante v. Int’l Venture Invs., Ltd., 622 F. Supp. 667 (N.D. Ohio 1985) (lump-sum severance payment under voluntary separation plan not earnings because not periodic); In re Cook, 454 B.R. 204 (Bankr. N.D. Fla. 2011) (bonuses, paid at irregular intervals to minority shareholder of closely held corporation and dependent on the company’s profits, are not earnings); In re Merrill, 431 B.R. 239 (Bankr. D. Idaho 2009) (early withdrawal of entire IRA was non-periodic payment, so exemption lost); In re Radez, 2009 WL 1404326 (Bankr. S.D. Ind. May 15, 2009) (end-of-year bonus not earnings under CCPA or Indiana garnishment law, which court construes to be limited to periodic payments); In re Petitt, 2009 WL 1012977 (Bankr. S.D. Ind. Apr. 15, 2009) (“separation bonus” paid to employees of closed plant, pursuant to agreement with union, is not earnings under Indiana law, but not addressing CCPA); Brown v. Schwegmann, 990 So. 2d 1282 (La. Ct. App. 2008) (trust consisting of accumulated fringe benefits not protected by Louisiana wage garnishment restrictions because payments are not made weekly, biweekly, or monthly); In re Galvez, 990 P.2d 187 (Nev. 1999) (Nevada wage exemption does not protect real estate agent’s non-periodic lump-sum commission). Cf. In re Marples, 266 B.R. 202 (Bankr. D. Idaho 2001) (expressing doubt whether car, awarded by random drawing from pool of sales leaders, is exempt “earnings” under state law).

  • 60 Shearin v. Beaman, 323 B.R. 917 (E.D.N.C. 2004) (North Carolina exemption of earnings for personal services exempts portion of year-end bonus but not interest in capital account of partnership), aff’d, 126 Fed. Appx. 640 (4th Cir. 2005) (per curiam); In re Dittmar, 2011 WL 1238914 (Bankr. D. Kan. Mar. 30, 2011) (cash bonus and shares of stock were protected by Kansas exemption for earnings for personal services when they were provided by company in exchange for union’s agreement to a pay reduction and were available only to employees who worked during specified time); In re Grauer, 2009 WL 4938497 (Bankr. D. Md. Dec. 10, 2009) (Maryland earnings exemption protected severance pay); Cadle Co. v. G & G Assocs., 757 So. 2d 1278 (Fla. Dist. Ct. App. 2000) (evidentiary hearing required to determine if various sums held by employer for “expense reimbursement,” “reimbursement for investment,” and “capital account” were earnings within meaning of Florida statute exempting head of household’s earnings from garnishment). See also In re Eutsler, 2010 WL 27499 (Bankr. W.D.N.C. Jan. 12, 2012) (year-end bonus is earnings within meaning of North Carolina statute but, because it was earned over the previous year, is not covered by exemption for personal services within sixty days preceding the order of execution); Bohrer v. DeHart, 969 P.2d 801 (Colo. App. 1999) (“distribution” from two-person corporation to “employee” who owned and controlled corporation was in fact earnings for personal services, and thus could be reached by writ of continuing garnishment).

  • 61 U.S. Dep’t of Labor, Wage & Hour Div., Fact Sheet #30 (revised Oct. 2019) (listing as examples commissions; discretionary and nondiscretionary bonuses; productivity or performance bonuses; profit sharing; referral and sign-on bonuses; moving or relocation incentive payments; attendance, safety, and cash service awards; retroactive merit increases; payment for working during a holiday; workers’ compensation payments for wage replacement, whether paid periodically or in a lump sum; termination pay (e.g., payment of last wages, as well as any outstanding accrued benefits); severance pay; and back and front pay payments from insurance settlements), available at www.dol.gov.

  • 62 In re Foster, 556 B.R. 233 (Bankr. E.D. Va. 2016) (payments from section 409A deferred compensation plan, which included an anti-alienation clause, were earnings exemptible under Virginia law). But cf. In re Stroup, 221 B.R. 537 (Bankr. M.D. Fla. 1997) (“deferred compensation” paid to physician upon leaving medical group was not earnings within meaning of Florida exemption, when amount was determined by income of entire group, so was more like severance pay or a dividend on the physician part-owner’s financial investment, rather than payment for personal services). See also §§ 14.4.1–14.4.4, infra (whether deferred-compensation plans fall within state exemptions for retirement plans).

  • 63 See, e.g., Genesee Cty. Friend of the Court v. Gen. Motors Corp., 626 N.W.2d 395 (Mich. 2001) (profit-sharing payments, recognition awards, and signing bonuses are “earnings” under CCPA); Meyer Jewelry Co. v. Johnson, 581 N.W.2d 734 (Mich. Ct. App. 1998) (profit-sharing payment was “payment for work and labor” within meaning of this section; plan was offered to employees and was part of their compensation package). But see In re Larkins, 2012 WL 1378470 (Bankr. N.D. Ohio Apr. 19, 2012) (profit-sharing bonus, paid when company made a profit, in amount determined by performance and length of service, not exempt earnings under Ohio law because both discretionary and non-periodic); Swig v. Props. Asset Mgmt. Servs., L.L.C., 924 N.Y.S.2d 368 (N.Y. App. Div. 2011) (incentive compensation not protected by New York earnings exemption when it depended on profits, and no showing that debtor’s services were the cause of profits).

  • 64 United States v. Belfort, 340 F. Supp. 3d 265 (E.D.N.Y. 2018) (LLC membership interests, which will not pay out until the value of the company reaches a specified amount, are not exempt; noting that debtor does not rely on these interests to support himself or his family); In re Kramer, 339 B.R. 761 (Bankr. D. Colo. 2006) (stock purchased by payroll deductions as part of compensation package not exempt earnings under Colorado exemption statute; stock was personal property); In re Lawton, 261 B.R. 774 (Bankr. M.D. Fla. 2001) (stock options offered to employees not protected by Florida exemption for wages because neither tied to individual performance nor provided in lieu of conventional compensation). But cf. In re Dittmar, 2011 WL 1238914 (Bankr. D. Kan. Mar. 30, 2011) (cash bonus and shares of stock were protected by Kansas exemption for earnings for personal services when they were provided by company in exchange for union’s agreement to a pay reduction and were available only to employees who worked during specified time).

  • 65 Kokoszka v. Belford, 417 U.S. 642, 651, 94 S. Ct. 2431, 41 L. Ed. 2d 374 (1974).

  • 66 15 U.S.C. § 1672(a).

  • 67 See United States v. Ashcraft, 732 F.3d 860, 863 n.4 (8th Cir. 2013) (noting that bonuses are frequently not periodic, that the Supreme Court’s discussion was in an analysis of legislative history, and that the statute is not limited to periodic payments).

  • 68 Id.

  • 69 Genesee Cty. Friend of the Court v. Gen. Motors Corp., 626 N.W.2d 395, 401 n.7 (Mich. 2001).

  • 70 Id.

  • 71 In re Grauer, 2009 WL 4938497 (Bankr. D. Md. Dec. 10, 2009) (Maryland earnings exemption protects severance pay); Shah v. City of Farmington Hills, 748 N.W.2d 592 (Mich. Ct. App. 2008) (severance pay was protected by CCPA limitations; payment was based on amount of previous earnings, and whether employee signed release); Gen. Elec. Capital Corp. v. ICO, Inc., 230 S.W.3d 702 (Tex. App. 2007) (Texas exemption for current wages protects severance pay in hands of employer, but exemption lost when paid over to employee). See also In re John, 459 B.R. 684 (Bankr. E.D. Mich. 2011) (compensation for loss of future earnings—here, an employer’s buyout in return for early termination of employment—is exempt so far as needed for support). But see Pallante v. Int’l Venture Invs., Ltd., 622 F. Supp. 667 (N.D. Ohio 1985) (lump-sum severance payment under voluntary separation plan not protected by CCPA garnishment limits because not periodic); In re A’Hearn, 2011 WL 4704235 (Bankr. N.D. Iowa Oct. 4, 2011) (monthly installments of severance pay to downsized executive were not earnings within the meaning of the CCPA or the Iowa statute, which uses CCPA definitions); In re Johnson, 199 B.R. 155 (Bankr. W.D. Ky. 1995) (severance pay not earnings within meaning of Kentucky exemption statute); Klauder v. Nickerson, 2018 WL 5307845 (Conn. Super. Ct. Oct. 5, 2018) (concluding that severance pay—to be paid out in installments over a year—is not protected by Connecticut exemption for “earnings,” defined as “debt accruing by reason of personal services, including any compensation payable by an employer to an employee for such personal services”; court’s reasoning is unclear). But cf. In re Stroup, 221 B.R. 537 (Bankr. M.D. Fla. 1997) (“deferred compensation” paid to physician upon leaving medical group was not earnings within meaning of Florida exemption where the amount was determined by income of entire group, so was more like severance pay or a dividend on the physician part-owner’s financial investment, rather than payment for personal services).

  • 72 See In re Gonsalves, 2010 WL 5342084 (Bankr. D. Mass. Dec. 21, 2010) (finding debtor’s severance pay to be “in the nature of an unemployment benefit,” so exempt under federal bankruptcy law).