The United States Bankruptcy Court for the District of New Jersey has issued a published opinion authorizing a trustee’s transfer of structured settlement payments pursuant to the New Jersey Structured Settlement Protection Act, N.J.S.A. 2A:16-63, et seq. (NJ SSPA). In In Re Jackus, 2011 WL 118216 (Bankr. N.J. Jan. 14, 2011), the Bankruptcy Court held that, inter alia, the bankruptcy court had jurisdiction to authorize the transfer under the NJ SSPA, and the transfer was in the “best interest” of the bankruptcy estate and its creditors.
On July 15, 2009, the debtors (husband and wife) filed a joint voluntary petition for bankruptcy relief under Chapter 7 of the Bankruptcy Code. The wife had been injured in an accident in 1991 and subsequently entered into a structured settlement agreement with Liberty Mutual Insurance Company (Liberty) wherein Liberty agreed to pay her $190,000 in five lump sum payments over the course of 18 years, to be funded through the purchase of an annuity. Liberty assigned to Keyport Life Insurance Company (Keyport) the obligation to make the payments; Keyport in turn purchased an annuity to fund the payments. As of the bankruptcy petition date, two lump sum annuity payments, in the aggregate amount of $130,000, remained due in the future: $40,000 due on March 19, 2012, and $90,000 due on March 19, 2017.
On June 10, 2010, the trustee filed a notice of proposed private sale of the annuity payments, to which the debtors objected. The bankruptcy court entered an order overruling the debtors’ objections, and ruling that the annuity was property of the bankruptcy estate pursuant to 11 U.S.C. § 541(a). The trustee subsequently conducted an auction, with $64,837 being submitted as the highest offer for the annuity payments. Upon the trustee’s request, the bankruptcy court entered an order approving the sale, conditioned upon a New Jersey state court finding that the sale complied with the NJ SSPA. The buyer thereupon filed a petition for approval of the sale under the NJ SSPA with the state court in Camden County, New Jersey. However, the New Jersey state court judge declared, sua sponte, that he lacked subject matter jurisdiction to consider approval of the sale, stating that the annuity was property of the bankruptcy estate and the state court therefore “had no role to play with regard to its sale.” The bankruptcy court thereafter instructed the trustee to submit an application for an order approving the sale under the NJ SSPA.
In granting the trustee’s application, Judge Michael Kaplan first held that the bankruptcy court had jurisdiction to approve the sale, citing and expanding upon its previously reached conclusion that the annuity was the property of the bankruptcy estate. Stating that the bankruptcy court must nevertheless look to state law to determine the exact nature of the trustee’s property interests, Judge Kaplan then turned to consideration of the NJ SSPA. Judge Kaplan noted that, unlike its counterparts in other states, the NJ SSPA does not require “state court” approval, but rather merely requires a “final court order.” This difference in statutory language distinguishes this case from case law in other jurisdictions holding that a bankruptcy court is not permitted to approve transfers under the applicable SSPA. See, e.g., In re Paul, 355 B.R. 64 (Bankr. N.D. Ill. 2001) (interpreting the Illinois Structured Settlement Protection Act).1
Judge Kaplan found that the proposed sale satisfied the requirements of the NJ SSPA, including the requirement that the proposed sale be “in the best interest of the payee.” In so doing, Judge Kaplan observed that the “payee” in this context is the bankruptcy estate and its creditors, and found that it would be “in the best interest of the creditors to receive an immediate distribution instead of receiving payment on the Annuity in the ordinary course.” While emphasizing that “what is in [the debtors’] best interest should not be, and is not, a central focus of the Court’s analysis,” Judge Kaplan nevertheless went on to state his belief that the proposed sale, in fact, would be in the debtors’ best interest as well.