UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
FRANKLIN T. CASPER
JACQUELINE CAROL CASPER CASE NO. 96-30390
OPINION AND ORDER
This matter is before the Court upon the Objection to Exemption filed by the trustee herein on September 23, 1996. That matter was heard before the Court on October 9, 1996. The Court notes that the debtors have amended the section under which they claim the exemption and are now asserting the exemption under KRS 427.150(2)(f).
The question before the Court involves a voluntary incentive pay which debtor, Franklin Casper, was entitled to receive, but had not yet received for his agreement to take early retirement from active military service and enter the National Guard. The amount of that incentive pay is $5,230.
The debtors contend that the incentive pay is in the nature of those types of retirement accounts which are exempt as described in KRS 427.150(2)(f). That section appears to exempt annuities and other payments which are recognized by the Internal Revenue Code for deferral of income tax until the date benefits are distributed. Debtors have cited to the Court 10 U.S.C.'1175(d)(3) which appears to provide that the voluntary incentive pay to which Mr. Casper is entitled is recaptured from his retirement pay at the time he begins to receive the retirement income. In effect, it is arguable that he is presently entitled to receive a portion of his retirement pay in the form of incentive pay for his change of service.
Exemption statutes should be liberally interpreted in favor of the debtor. Matter of Barker, 768 F.2d. 191 (7th Cir. 1985). The reason for this principle is obviously to allow financially distressed debtors to take full advantage of what are, in some states, meager exemptions left to them upon filing a Chapter 7 bankruptcy proceeding.
Applying the principle of Barker leads the Court to conclude that the debtors should be allowed to claim the voluntary incentive pay as exempt and it is accordingly hereby
ORDERED that the objection of the trustee be, and the same hereby is, OVERRULED.
Dated this _____ day of October, 1996.
BY THE COURT
Mark Miller, Esq.
Stephen C. Sanders, Esq.