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11 U.S.C.S. § 541(c)(2) provides the following exclusion from the otherwise broad definition of "property of the estate" contained in § 541(a)(1) of the Bankruptcy Code: A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under Title 11. The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law. Nothing in § 541 suggests that the phrase "applicable nonbankruptcy law" refers exclusively to state law. The text contains no limitation on "applicable nonbankruptcy law" relating to the source of the law.
Respondent Shumate was a participant in his employer's pension plan, which contained the anti-alienation provision required for tax qualification under the Employee Retirement Income Security Act of 1974 (ERISA). The District Court rejected his contention that his interest in the plan should be excluded from his bankruptcy estate under § 541(c)(2) of the Bankruptcy Code, which excludes property of the debtor that is subject to a restriction on transfer enforceable under "applicable nonbankruptcy law." The court held, inter alia, that the latter phrase embraces only state law, not federal law such as ERISA, and that Shumate's interest in the plan did not qualify for protection as a spendthrift trust under state law. The court ordered that Shumate's interest in the plan be paid over to petitioner, as trustee of Shumate's bankruptcy estate. The Court of Appeals reversed, ruling that the interest should be excluded from the bankruptcy estate under § 541(c)(2).
Did an anti-alienation provision contained in an ERISA-qualified pension plan constitute a restriction on transfer enforceable under "applicable non-bankruptcy law"?
The court held that the plain language of the Bankruptcy Code and ERISA establishes that an anti-alienation provision in a qualified pension plan constitutes a restriction on transfer enforceable under "applicable non-bankruptcy law" for purposes of § 541(c)(2). Bankruptcy Code excluded from the bankruptcy estate property of the debtor that was subject to a restriction on transfer enforceable under "applicable non-bankruptcy law." 11 U.S.C.S. § 541(c)(2). The court found that the text of § 541(c)(2) did not support petitioner's contention that "applicable non-bankruptcy law" was limited to state law. Plainly read, the court found that the provision encompassed any relevant nonbankruptcy law, including federal law such as ERISA. The court next determined that the anti-alienation provision contained in the ERISA-qualified Plan at issue satisfied the literal terms of § 541(c)(2). The anti-alienation provision required for ERISA qualification and contained in the Plan at issue constituted an enforceable transfer restriction for purposes of § 541(c)(2)'s exclusion of property from the bankruptcy estate.