Over a decade has passed since the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 created health savings accounts (HSA). Since that time, the use has grown to almost 14 million accounts, all receiving tax preferred treatment to help offset the out of pocket costs of a high-deductible health insurance plans. While the use of HSAs has grown, questions regarding the safety of the funds from creditors has emerged.
The bankruptcy code is currently unclear regarding the protection of the HSA account from creditors. Certain states, such as Florida and Mississippi, expressly passed legislation that protects the debtor’s HSA from creditors during bankruptcy. Absent an express exemption, however, the question will depend upon whether the HSA is included in the estate of the chapter 7 bankrupt debtor.
Generally, the bankruptcy code includes all legal and equitable interests of the debtor. The exceptions include funds for healthcare, such as amounts withheld for a health plan regulated by state law. It is also arguable that the funds could be exempt under other provisions of the bankruptcy code. The issue, however, is that the bankruptcy code does not explicitly provide for HSAs, thus it is unclear whether they are exempt from the debtor’s bankruptcy estate. Recently, the Eighth Circuit Court of Appeals, whose jurisdiction includes Nebraska, held that the HSA does not fall within bankruptcy code exemptions and exceptions. For now, protecting the HSA from the bankruptcy estate is questionable and the result will vary significantly from one jurisdiction to another.
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