Health Savings Account Ruling
Health Savings Accounts (HSA) were signed into law in December 2003 and became effective January 1, 2004. A HSA is a private, tax-deferred savings account that allows individuals to pay for both current and future medical expenses with tax-free money. HSAs are available to individuals with high-deductible health plans, with the minimum qualifying high deductible being $1,250 for an individual and $2,500 for a family as of 2013. The maximum amount an individual can contribute yearly to a HSA is $3,250 and the maximum amount for a family contribution is $6,450.
Kirk P. Leitch, a Chapter 7 debtor in Minnesota, argued that his Health Savings Account was excluded from his bankruptcy estate pursuant to Section 541(b)(7)(A)(ii) of the Bankruptcy Code which states “any amount… withheld by an employer from the wages of employees for payment as contributions… to a health insurance plan regulated by State law whether or not subject to such title” is excluded from the bankruptcy estate. The bankruptcy court disagreed with the debtor and held that the HSA was not a health insurance plan, but was a trust account to which the debtor had unrestricted access to his funds. The court said, “The account beneficiary may receive certain tax benefits if the beneficiary uses the funds for medical expenses, but that beneficial taxation does not make the account a health insurance plan regulated by state law. An HSA is not insurance.” Of the $8,686 in the HSA, the debtor was allowed by the court to claim $5,376 as exempt under the wildcard exemption and the remaining $3,310 was not exempt and deemed part of the bankruptcy estate.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.
