The Eighth Circuit BAP Holds that Health Savings Accounts are Not Ex...

By: Michelle Nicotera

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Leitch v. Christians (In re Leitch), The Eighth Circuit Bankruptcy Appellate Panel (the “BAP”) ruled that a health savings account (“HSA”) was not excluded from a debtor’s bankruptcy estate.[1]  Kirk Leitch, a chapter 7 debtor, asserted his HSA was excluded under section 541(b)(7)(A)(ii) of the Bankruptcy Code,[2] which functions to exclude a health insurance plan regulated by state law.[3]  The chapter 7 trustee objected to the debtor proposed exclusion.[4] The bankruptcy court agreed with the trustee and held that the HSA was property of the estate.[5]  On appeal, the BAP affirmed the bankruptcy court.[6]  While the BAP noted that the Minnesota statute states that a bank can “act as a trustee of certain types of accounts, including health savings accounts,” the court found that the HSA in question did not qualify as a state regulated health insurance plan.[7]  Indeed, the beneficiary would “incur tax penalties unless the [HSA] funds are used for ‘qualified medical expenses,’ which are essentially costs of health care ‘not compensated by insurance or otherwise.’”  The BAP further reasoned that the HSA was not a state regulated health insurance plan because the debtor, as the beneficiary to the account, had “liberal access to the funds” and was “entitled to distributions from the account for any purpose.”[8].

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