Section 541 of the Bankruptcy Code defines “property of the estate” to include “all legal or equitable interests of the debtor in property as of the commencement of the estate.” Consistent with a policy of expanding the bankruptcy estate, the property listed under section 541 is available to the trustee to satisfy the estate’s creditors once a petition has been filed. This aggregation provides the debtor an opportunity for a fresh start and ensures effective distribution among creditors and thus “promotes the fundamental purpose of the Bankruptcy Code.” Although section 541(a) defines “property of the estate” broadly, section 541(b) list those items that are specifically excluded from the property of the estate.
Further, section 522 allows a debtor to set aside certain property as exempt from the claims of creditors. Section 522 provides federal exemptions but it also permits states to create their own exemptions. Section 522 also allows for a state to opt out of the federal exemptions. Under section 522(b)(1) provides a state can enact legislation specifically opts out of the federal exemption scheme, thereby “denying its citizens access to the federal exemptions.” Finally, under 522(b)(2), if the state has not opted out of the federal exemption scheme, “a debtor [may] choose between the exemptions set forth in state law and a federal exemption package.”
In the interest of public policy, these exceptions and exemptions prevent the debtor from emerging from the bankruptcy without any assets, thereby allowing the debtor to maintain an appropriate standard of living. Since healthcare is an essential part of that standard of living, the Bankruptcy Code allows for specific exemptions relating to heal insurance and health benefits. Specifically, section 541(b)(7)(A)(ii) excludes from property of the estate “any amount withheld by an employer from the wages of employees for payment contributions to a health insurance plan regulated by State law.” Similarly, section 522(d)(10)(C) exempts “the debtor’s right to receive a disability, illness, or unemployment benefit.” Likewise, section 522(d)(11)(D) further exempts “the debtor’s right to receive, or property that is traceable to a payment . . . on account of personal bodily injury.” Since these provisions do not explicitly address health savings accounts (“HSAs”), however, courts have had to decide whether such accounts are excluded from property of the estate under section 541(b) or exempt under section 522 and/or state law.