DISTRICT JUDGE DETERMINES ANNUITY RIGHTS ARE PROPERTY OF BANKRUPTCY ESTATE.

                 IN THE UNITED STATES DISTRICT COURT

1. The Order of the bankruptcy court sustaining Debtor's objection to proof of claim BE, and the same hereby IS, REVERSED;

2. This matter BE, and hereby IS, REMANDED to the bankruptcy court for further proceedings consistent with this opinion; and

3. The Clerk is directed to mail a copy of this Order and the accompanying Memorandum Opinion to counsel for the parties and CLOSE this case.

                                   Deborah K. Chasanow

[2] This is an appeal from an Order of the bankruptcy court sustaining Debtor's objection to proof of claim. Debtor successfully argued below that, pursuant to 11 U.S.C. section 541(c)(2), his rights in several TIAA/CREF annuities, which were subject to federal tax liens, were excluded from the property of the bankruptcy estate and thus could not be considered in determining the value of the IRS's secured claim under 11 U.S.C. section 506(a). For the reasons that follow, the court shall REVERSE the Order of the bankruptcy court. ¹

I. BACKGROUND

[3] Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on August 10, 1998. On December 11, 1998, the Internal Revenue Service filed a proof of claim in the amount of $119,741.33, asserting that it held a secured claim in the amount of $87,575.15 for unpaid federal individual income taxes for 1986, 1987 and 1988, plus penalties and interest thereon. ² In its proof of claim, the IRS asserted it was secured as to Debtor's automobile, real estate and all of Debtor's right, title and interest to property pursuant to 26 U.S.C. section 6321.

[4] At the time of filing his bankruptcy petition, Debtor had a beneficial interest in six pension annuity contracts administered by Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF), from which he was receiving $2273.00 in monthly income. Debtor scheduled the retirement income from these annuities on his Schedule I and listed them on his Bankruptcy Schedule B, but did not value the annuities, claiming they did not constitute property of the estate. Other than the pension interests, the value of Debtor's equity in property subject to the tax liens was $32,539.00.

[5] On January 21, 1999, Debtor filed an objection to the proof claim. He challenged the secured portion of the claim, arguing that the secured claim was limited to the non-pension property worth $32,539.00. In its response, the IRS argued that its secured claim would also include the annuity payments Debtor was receiving from TIAA/CREF. The bankruptcy court sustained Debtor's objection, holding that although the tax liens attached to the annuity payments, the annuities were not property of the estate. The bankruptcy court held that the IRS did not have a secured claim under 11 U.S.C. section 506(a) as to the annuity payments because it did not have a lien on property in which the bankruptcy estate had an interest. The bankruptcy court concluded that the disputed portion of the secured claim must be treated as a general unsecured claim, and that the Bankruptcy Code's automatic stay provision, 11 U.S.C. section 362(a)(6), prohibited the IRS from attempting to collect on Debtor's retirement funds. This appeal followed.

II. ANALYSIS

[6] In order for the IRS's claim against Debtor's annuity income to be considered a secured claim under section 506(a) of the Bankruptcy Code, the claim must be "secured by a lien on property in which the estate has an interest." There is no dispute that the IRS's tax lien attaches to Debtor's right to receive payments under the TIAA/CREF annuities. See 26 U.S.C., section 6321 ("If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."); United States v. National Bank of Commerce, 472 U.S. 713, 719-20 (1985) (the language of section 6321 "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have"); In re Wesche, 193 B.R. 76, 77-78 (Bankr. M.D. Fla. 1996) (holding that federal tax lien attached to debtor' s right to receive pension plan benefits). The only issue presented by this appeal is whether Debtor's rights in the TIAA/CREF annuities are property of the bankruptcy estate. This issue presents a question of law, which is reviewed de novo. See Cooper v. Productive Transp. Servs., Inc. (In re Bulldog Trucking, Inc.), 147 F.3d 347, 351 (4th Cir. 1998).

[7] The Bankruptcy Code provides that property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. section 541(a)(1). As a general rule, restrictions on the transfer of debtor's property contained in an agreement, transfer instrument or applicable nonbankruptcy law will be inoperative to prevent inclusion of the property in the estate. 11 U.S.C. section 541(c)(1). The one express exception to this rule is found in section 541(c)(2), which provides: "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 this title." Therefore, an interest in a trust subject to enforceable transfer restrictions does not become property of the estate.

[8] In Patterson v. Shumate, 504 U.S. 753 (1992), the Supreme Court resolved a split among the circuits concerning the meaning of "applicable nonbankruptcy law," holding the provision "encompasses any relevant nonbankruptcy law, including federal law such as ERISA." Id. at 759. Prior to Patterson, many courts construed the phrase "applicable nonbankruptcy law" to include only state spendthrift trust law, and held that section 541(c)(2) exempted from the estate "only those 'spendthrift trusts' traditionally beyond the reach of creditors under state law." See Goff v. Taylor (In re Goff), 706 F.2d 574, 582 (5th Cir. 1983). The Patterson court, however, held that an ERISA-qualified pension plan containing the requisite anti-alienation provision could be excluded from the bankruptcy estate pursuant to section 541(c)(2). Patterson, 504 U.S. at 759-60.

[9] Here, as the bankruptcy court noted, it is unclear whether the annuities were created under the provisions of ERISA. The parties appear to agree, however, that Debtor's TIAA/CREF annuities qualify as spendthrift trusts under New York law that many courts have excluded from the bankruptcy estate under section 541(c)(2). See, e.g., Morter v. Farm Credit Servs., 937 F.2d 354, 357-59 (7th Cir. 1991); In re Fink, 153 B.R. 883, 885-86 (Bankr. D. Neb. 1993); In re Montgomery, 104 B.R. 112, 115-18 (Bankr. N.D. Iowa 1989). The IRS argues, however, that the analysis cannot end here, as it did for the bankruptcy court. The IRS contends that the restrictions on transfer contained in the TIAA/CREF annuity contracts, which are enforceable against ordinary creditors, are ineffective against federal tax liens created by 26 U.S.C. section 6321. Therefore, the transfer restrictions are not "enforceable under applicable nonbankruptcy law" -- federal tax lien law -- with respect to the IRS, and Debtor's rights in the annuities cannot be excluded from the estate under section 541(c)(2).

[10] The IRS relies on In re Lyons, 148 B.R. 88 (Bankr. D.D.C. 1992), in support of its argument. In Lyons, the IRS asserted secured claims against a chapter 13 debtor for unpaid income taxes, penalties and interest based on filed notices of tax liens. At the time of filing his bankruptcy petition, the debtor was receiving payments under four TIAA/CREF annuity contracts. Debtor argued that his annuity contracts were riot property of the estate and could not be security for the IRS tax lien. The IRS argued, as it does here, that because it had filed notices of federal tax liens against the debtor, it had a secured claim with respect to the amount of the income stream from his pension annuity payments. The court interpreted the IRS's argument to be that "the IRS has a secured claim on [debtor's] retirement fund to the extent of the 'present value' of the debtor's future TIAA/CREF retirement benefits." Id. at 90-91.

[11] The court held that debtor's annuity rights were property of the estate. Relying on Patterson, the court found that federal tax lien law is "applicable nonbankruptcy law" under section 541(c)(2). at 93. From this proposition the court reasoned as follows:

     Outside bankruptcy, a federal tax lien may attach to a

[12] In Jones v. Internal Revenue Service (In re Jones), 206 B.R. 614 (Bankr. D.D.C. 1997), Judge Teel, who wrote the Lyons opinion, revisited the issue in a case involving a tax lien on a debtor's Thrift Savings Plan account and held that the federal tax lien required the debtor's plan to provide secured status to the IRS claims:

     [A]s this court has held on slightly different facts, the TSP

[13] This court finds the reasoning of Lyons persuasive, and holds that Debtor's rights under the TIAA/CREF annuities are property of the estate with respect to the IRS. The IRS, therefore, shall have a secured claim under section 506(a) against Debtor's annuity rights to the extent of their value. The value of the annuity rights shall be fixed at the present value of the future stream of payments to be received by Debtor under the annuities. See In re Wesche, 193 B.R. 76, 78-79 (Bankr. M.D. Fla. 1996) and cases cited therein.

III. CONCLUSION

[14] For the foregoing reasons, the court shall REVERSE the Order of the bankruptcy court and REMAND the case for further proceedings consistent with this opinion.

[15] A separate Order will be entered.

                                   Deborah K. Chasanow

² The remaining elements of the claim, which are not relevant to this appeal, included: 1) a priority claim of $1521.60 for Debtor's unpaid federal individual income taxes for 1996 and interest thereon; and 2) a general unsecured claim of $30,644.58 for Debtor's unpaid federal individual income taxes for 1991 and 1992 plus penalties and interest thereon, and for penalties on the priority claim.

³ The Perkins court went on to hold that even assuming debtor's pension rights were not "property of the estate" under section 541, they did constitute property in which the estate had an interest under section 506, which was sufficient to permit secured status for the IRS. Id. at 411-12.