Patterson v. Shumate
Headline: ERISA pension protections upheld, blocking trustees from seizing ERISA‑qualified retirement benefits and making federal law control whether pensions stay out of bankruptcy estates.
Holding: The Court held that the phrase 'applicable nonbankruptcy law' includes federal ERISA protections, so an ERISA-required antialienation rule prevents a trustee from treating a participant’s qualified pension interest as part of the bankruptcy estate.
- Protects ERISA‑qualified pension benefits from bankruptcy trustees' claims.
- Makes federal ERISA law, not just state law, decide pension protection.
- Reduces creditors' ability to reach vested pension funds in bankruptcy.
Summary
Background
A long‑time employee and participant in his employer’s ERISA‑qualified pension plan filed for bankruptcy after the company’s plan was terminated and liquidated. The bankruptcy trustee sought the worker’s $250,000 interest in the plan for the bankruptcy estate. Lower courts disagreed about whether the Bankruptcy Code’s phrase “applicable nonbankruptcy law” referred only to state law or also to federal law like ERISA.
Reasoning
The Court focused on the plain text of the Bankruptcy Code and ERISA. It held that “applicable nonbankruptcy law” is not limited to state law and can include federal law such as ERISA. ERISA contains an antialienation rule — a rule preventing assignment or transfer of pension benefits — and that rule is enforceable, so the debtor’s interest fit the statutory exclusion from the bankruptcy estate. The Court affirmed the Fourth Circuit’s decision for the debtor.
Real world impact
The ruling means that participants in ERISA‑qualified pension plans keep their plan interests out of the bankruptcy estate when those plans have enforceable transfer restrictions. Creditors and trustees cannot use bankruptcy to reach vested benefits governed by ERISA. The Court also explained why this approach preserves uniform national treatment of pensions and reduces strategic efforts by creditors to reach protected funds.
Dissents or concurrances
Justice Scalia joined the opinion but wrote separately to emphasize statutory‑text principles and to note concerns about inconsistent earlier interpretive approaches by the Court.
Opinions in this case:
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