                             In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 05-1335
IN RE:
    DAVID A. STINNETT,
                                                             Debtor.
DAVID A. STINNETT,
                                                Debtor-Appellant,
                                v.

R. STEPHEN LAPLANTE,
                                                Trustee-Appellee.
No. 05-1733
IN RE:
    DAVID A. STINNETT,
                                                             Debtor.
DAVID A. STINNETT,
                                                Debtor-Appellant,
                                v.

R. STEPHEN LAPLANTE, Trustee,
UNITED STATES OF AMERICA, and
GUARDIAN LIFE INSURANCE COMPANY,
                                                         Appellees.
                         ____________
           Appeals from the United States District Court
     for the Southern District of Indiana, Evansville Division.
                 Nos. 3:03-CV-168-RLY-WGH and
       3:03-CV-116-RLY-WGH—Richard L. Young, Judge.
                         ____________
 ARGUED NOVEMBER 10, 2005—DECIDED SEPTEMBER 27, 2006
                         ____________
2                                   Nos. 05-1335 & 05-1733

  Before FLAUM, Chief Judge, and RIPPLE and SYKES,
Circuit Judges.
  SYKES, Circuit Judge. In 1995 David Stinnett was
diagnosed as suffering from depression and as a result
has been collecting substantial monthly benefits from
two different policies of long-term disability insurance. In
1996, and again in 1997, the Internal Revenue Service
made assessments against Stinnett for unpaid federal
income taxes. In May 2000 Stinnett filed for bankruptcy
under Chapter 7 of the United States Bankruptcy Code, and
a dispute soon erupted between Stinnett, the Bankruptcy
Trustee, and the IRS as to entitlement to the disability
insurance payments. In several appeals taken from rulings
by the bankruptcy court, the district court concluded that
the disability payments are property of the bankruptcy
estate, that the government’s tax lien attached to these
payments, and that Stinnett is entitled to an exemption of
$6000 per month under Indiana law. Stinnett has filed two
separate appeals from the orders of the district court, which
we have consolidated for decision. We agree with the
district court’s conclusion that the disability payments are
property of the bankruptcy estate and also that Stinnett is
entitled to exempt only $6000—not 100%—of the disability
payments. Because the disability payments are property of
the bankruptcy estate, Stinnett lacks standing to raise the
tax lien issue on appeal.


                     I. Background
  David Stinnett worked for Northwestern Mutual Life
Insurance Company (“Northwestern”) for twenty-three
years and was covered by long-term disability insurance
issued by that company. In 1994 Stinnett’s employment
with Northwestern was terminated. Shortly thereafter, on
November 1, 1994, he commenced employment as a sales-
man for Guardian Life Insurance (“Guardian”). At that
Nos. 05-1335 & 05-1733                                           3

time, he became covered by a policy of disability insurance
issued by Guardian. In September 1995 Stinnett sought
treatment for and was diagnosed as suffering from depres-
sion. He applied for benefits under the Northwestern
disability insurance and began receiving monthly payments
of approximately $11,400 from Northwestern beginning in
September 1995.
  Despite receiving these payments from Northwestern,
Stinnett continued his employment and received a salary
from Guardian for approximately the next five years. He did
not seek disability benefits under the Guardian policy
during this period because he was financially better off
remaining an employee and receiving a salary.
  During the five-year period Stinnett was employed by
Guardian, the IRS made two assessments for unpaid income
tax relating to the 1995 and 1996 tax years.1 When the
assessments went unpaid, the IRS filed notices of federal
tax liens regarding these liabilities pursuant to 26 U.S.C.
§ 6321.2 On May 26, 2000, Stinnett filed a petition in
bankruptcy court under Chapter 7. Four days later he
stopped working for Guardian. The IRS filed a proof of
claim with the bankruptcy court for Stinnett’s unpaid
federal income tax liability.
  In July 2001, over a year after his employment ceased
and his bankruptcy petition was filed, Stinnett submitted


1
  The 1995 tax year assessment (made on June 3, 1996) for
unpaid federal income tax was in the amount of $511,872.69, and
the 1996 tax year assessment (made on June 2, 1997) was in
the amount of $282,440.83.
2
  This section provides in pertinent part: “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.”
4                                   Nos. 05-1335 & 05-1733

a disability claim to Guardian seeking benefits retroactive
to September 13, 1995 (apparently the date he was deemed
disabled by depression for purposes of the Northwestern
policy). Guardian denied his claim for the period during
which he had been receiving a salary from the company,
relying on a provision in the policy providing that an
insured is not entitled to benefits “for any day of disability
during which the Employee performs work for remuneration
or profit . . . .” Guardian did, however, honor Stinnett’s
claim going forward from the date of his termination of
employment. In October 2001 Guardian granted Stinnett
long-term disability benefits of approximately $10,300 per
month, backdated to June 1, 2000 (the date on which he
ceased receiving a salary from Guardian). Accordingly, since
October 2001 Stinnett has been receiving payments from
both Northwestern and Guardian in a combined monthly
total of approximately $21,700.
  In the course of the bankruptcy action, the Trustee
commenced an adversary proceeding seeking to establish
that the Guardian disability payments were assets in-
cludable in the bankruptcy estate and that the payments
should consequently be turned over to the Trustee. The IRS
intervened, seeking to establish that its federal tax lien
attached to the payments. In the main bankruptcy case,
Stinnett and the Trustee litigated the extent to
which Stinnett was entitled to an exemption from the
bankruptcy estate for the disability payments from both
Guardian and Northwestern.
  On appeal of several orders of the bankruptcy court, the
district court held that (1) the bankruptcy court properly
concluded that the Guardian disability payments are
property of the bankruptcy estate, despite the fact that
Stinnett did not begin receiving them until after his
bankruptcy petition was filed; (2) the government’s tax lien
attached to these payments because the timing of their
Nos. 05-1335 & 05-1733                                       5

receipt (prepetition or postpetition) was within Stinnett’s
control; and (3) the bankruptcy court properly concluded
that Stinnett was entitled to exempt $6000 per month of his
combined disability payments—not 100%, as he
claimed—from the bankruptcy estate under Indiana law.


                      II. Discussion
A. Property of the Bankruptcy Estate
  The threshold issue is whether the Guardian disability
payments, for which Stinnett did not file a claim until after
the petition was filed, are includable as property of the
bankruptcy estate. The applicable statutory definition
provides in pertinent part that property of the estate
includes “all legal or equitable interests of the debtor in
property as of the commencement of the case,” plus
“[p]roceeds . . . or profits of or from property of the estate,
except such as are earnings from services performed by
an individual debtor after the commencement of the case,”
and “[a]ny interest in property that the estate acquires after
the commencement of the case.” 11 U.S.C. § 541(a)(1), (6) &
(7) (2004).
  As a general matter, insurance contracts in which the
debtor has an interest at the time the petition is filed
constitute property of the estate for purposes of § 541(a).
Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 748
(7th Cir. 1989) (“A policy of insurance is an asset of the
[bankruptcy] estate . . . .”); see also Am. Bankers Ins. Co. v.
Maness, 101 F.3d 358, 362 (4th Cir. 1996) (“[D]ebtors’
insurance policies clearly constitute ‘interests’ under
§ 541(a) of the Bankruptcy Code.”); A.H. Robbins Co. v.
Piccinin, 788 F.2d 994, 1001 (4th Cir. 1986); Ford Motor
Credit Co. v. Stevens (In re Stevens), 130 F.3d 1027, 1029
(11th Cir. 1997); Houston v. Edgeworth (In re Edgeworth),
993 F.2d 51, 55 (5th Cir. 1993) (“courts are generally in
6                                   Nos. 05-1335 & 05-1733

agreement that an insurance policy will be considered
property of the estate”).
  Further, payments from insurance policies in which the
debtor had a prepetition interest, to the extent that the
debtor has or would have a right to receive and keep those
payments when the insurer paid on a claim, are “proceeds”
of estate property and thus also property of the estate. In re
Edgeworth, 993 F.2d at 55; Am. Bankers Ins. Co., 101 F.3d
at 364; In re Stevens, 130 F.3d at 1029. As explained by the
Fifth Circuit:
      The overriding question when determining whether
    insurance proceeds are property of the estate is whether
    the debtor would have a right to receive and keep those
    proceeds when the insurer paid on a claim. When a
    payment by the insurer cannot inure to the debtor’s
    pecuniary benefit, then that payment should neither
    enhance nor decrease the bankruptcy estate. In other
    words, when the debtor has no legally cognizable claim
    to the insurance proceeds, those proceeds are not
    property of the estate.
      . . . Proceeds of such insurance policies, if made
    payable to the debtor rather than a third party such as
    a creditor, are property of the estate and may inure to
    all bankruptcy creditors.
In re Edgeworth, 993 F.2d at 55-56 (footnotes omitted).
Therefore, because Stinnett held a prepetition interest
in the Guardian policy, and also had the right to receive and
keep the proceeds of the policy at the time the insurer paid
on the claim, the Guardian payments are property of the
bankruptcy estate under § 541(a).
  On appeal, Stinnett does not raise a serious objection to
this analysis and instead argues that his disability pay-
ments should fall within the exception contained in
§ 541(a)(6), which provides that “earnings from services
Nos. 05-1335 & 05-1733                                      7

performed by an individual debtor after the commencement
of the case” are not property of the bankruptcy estate.
Stinnett contends that his payments fall within this
exception because his entitlement to disability payments is
predicated on his inability to obtain “earnings from services
performed,” and disability payments, by their very nature,
are intended to be a substitute for earned wages. So, the
argument goes, the disability insurance payments are the
equivalent of “earnings from services performed” and are
thus excepted from property of the estate.
   We cannot agree. Disability payments may be intended to
substitute for wages, but they are available only when the
policyholder is incapable of “performing services” in ex-
change for compensation, a necessary element of the
exception under § 541(a)(6). Further, case law provides that
the postcommencement earnings exception should
be interpreted “extremely narrowly” and “excepts only
earnings from services actually performed by an individual
debtor.” In re Prince, 85 F.3d 314, 323 (7th Cir. 1996). In
light of this rule of construction and the plain language
of the statute, earnings obtained solely by virtue of the
inability to perform services cannot be considered the legal
equivalent of “earnings from services performed.” We
therefore agree with the district court and the bank-
ruptcy court that the Guardian disability payments are
property of the estate under § 541(a).


B. State Law Exemption
  The Bankruptcy Code provides, in 11 U.S.C. § 522, that
notwithstanding the provisions of § 541(a), an individual
debtor in a bankruptcy proceeding may exempt certain
property from the bankruptcy estate as enumerated in
§ 522. Alternatively, § 522(b) permits a state to “opt out” of
the federal exemption scheme and provide its own list
8                                     Nos. 05-1335 & 05-1733

of exemptions. Indiana, the relevant state for purposes of
Stinnett’s proceeding, has opted out of the federal exemp-
tion scheme. IND. CODE 34-55-10-1 (2006); see In re Ondras,
846 F.2d 33, 34 (7th Cir. 1988).3
  Stinnett contends that his disability insurance payments
are exempt from the bankruptcy estate in their entirety
pursuant to Indiana exemption law. The district court
rejected this contention and concluded that under Indiana
law Stinnett was only entitled to an exemption sufficient for
the enjoyment of the “reasonable comforts of life.” In this
case, the bankruptcy court set that amount at $6000 per
month.
  The Indiana exemption statute in question, section 27-8-
3-23(b) of the Indiana Code, is entitled “Exemption of
benefits and premiums from judicial process” and provides
in relevant part:
    The money or benefit provided or rendered by any
    corporation, association, or society authorized to do
    business under this chapter shall not be liable to
    attachment by garnishee or other process, and shall not
    be seized, taken, appropriated, or applied by any legal
    or equitable process, nor by any operation of law, to pay
    any debt or liability of a policy or certificate holder or
    any beneficiary named therein.
  Stinnett argues that on its face this statute exempts 100%
of his disability payments. However, the Indiana Supreme
Court has interpreted the statute in light of a provision in


3
  Section 34-55-10-1 of the Indiana Code provides: “In accordance
with Section 522(b) of the Bankruptcy Code of 1978 (11 U.S.C.
522(b)), in any bankruptcy proceeding, an individual debtor
domiciled in Indiana is not entitled to the federal exemptions as
provided by Section 522(d) of the Bankruptcy Code of 1978 (11
U.S.C. 522(d)).”
Nos. 05-1335 & 05-1733                                      9

the Indiana Constitution that establishes a debtor’s privi-
lege to exempt a “reasonable amount of property” in order
to “enjoy the necessary comforts of life.” IND. CONST. art. I,
§ 22. The Indiana high court has held that Indiana exemp-
tion statutes that do not contain any upper limit on the
amount that may be exempted, such as the statute at issue
here, are “constitutionally suspect” because they are
inconsistent with article I, section 22 of the Indiana Consti-
tution. Citizens Nat’l Bank v. Foster, 668 N.E.2d 1236, 1242
(Ind. 1996).
  The state constitutional provision in question provides
as follows:
    The privilege of the debtor to enjoy the necessary
    comforts of life, shall be recognized by wholesome laws,
    exempting a reasonable amount of property from
    seizure or sale for the payment of any debt or liability
    hereafter contracted: and there shall be no imprison-
    ment for debt, except in case of fraud.
IND. CONST. art. I, § 22. In Foster, the Indiana Supreme
Court found itself unable to “reconcile an unlimited exemp-
tion with the balanced approach required by Section 22’s
modest dictate that the amount set by the legislature be
reasonable,” and held that the drafters of the constitutional
provision “clearly contemplated some cap.” Foster,
668 N.E.2d at 1240 (citing In re Zumbrun, 626 N.E.2d 452
(Ind. 1993)). The Indiana court declined, however, to
“declar[e] every limitless exemption statute to be unconsti-
tutional per se.” Foster, 668 N.E.2d at 1242. Rather, Foster
directs courts applying any “constitutionally suspect”
limitless exemption statute to “delve into [the] admittedly
murkier waters of reasonable necessity[,]” notwithstanding
the lack of specific limiting language in the statutes
themselves. Id. By this, the court meant that limitless
statutory exemptions may be claimed only to the extent
they are “required to afford the ‘necessities of life.’ ” Id.
10                                  Nos. 05-1335 & 05-1733

  In the present case, the bankruptcy court undertook the
analysis directed by Foster, determined that Stinnett
required $6000 per month to live comfortably, and conse-
quently permitted Stinnett to exempt this amount of his
disability payments from the bankruptcy estate. The
district court affirmed both the bankruptcy court’s legal
analysis and its factual determination of a reasonable
exemption amount.
  Stinnett’s contention on appeal is that Foster’s rejection
of unlimited exemptions was intended to apply only to
situations in which a debtor engages in abusive prepetition
conduct such as the conversion of nonexempt assets into
exempt assets in anticipation of bankruptcy. We do not read
Foster to be so limited. The holding in Foster was not
motivated by a concern for the potential abuse of an
unlimited exemption by unscrupulous debtors, but rather by
the facial incompatibility between a limitless exemption
statute and the Indiana Constitution’s “dictate that the
amount set by the legislature be reasonable.” Id. at 1240.
The holding is rooted in what the court perceived to be a
conflict between a limitless exemption statute and the
constitutional limitation on the power of the state legisla-
ture to enact such a statute. The court thus resolved a
purely legal question untethered to the conduct of any
particular litigant. Accordingly, we reject Stinnett’s attempt
to relegate Foster to cases involving allegations of asset
manipulation by the debtor. (Stinnett raises no challenge to
the bankruptcy court’s factual conclusion that $6000 is a
reasonable exemption.)


C. IRS Tax Lien
  The preceding two issues were raised by Stinnett in
appeal No. 05-1335. In a separate appeal that we ordered
consolidated for oral argument and decision, No. 05-1733,
Stinnett challenges the district court’s conclusion that the
Nos. 05-1335 & 05-1733                                      11

federal tax lien attaches to his disability payments from
Guardian Insurance. Our holding on the issues raised in the
first appeal, however, renders Stinnett without standing to
maintain his claim concerning the tax lien.
  We have agreed with the bankruptcy and district
courts that all but $6000 per month of the combined
disability payments is property of the bankruptcy estate.
This means Stinnett is unable to realize any economic
benefit from a potential reversal of the district court’s
decision that the IRS’s lien attaches to the Guardian
payments. We have previously addressed the question of a
debtor’s standing to object to a bankruptcy order in the
following terms:
      Bankruptcy standing is narrower than Article III
    standing. To have standing to object to a bankruptcy
    order, a person must have a pecuniary interest in the
    outcome of the bankruptcy proceedings. Only those
    persons affected pecuniarily by a bankruptcy order have
    standing to appeal that order. Debtors, particularly
    Chapter 7 debtors, rarely have such a pecuniary inter-
    est because no matter how the estate’s assets are
    disbursed by the trustee, no assets will revert to the
    debtor.
      ....
      . . . If the debtor can show a reasonable possibility of
    a surplus after satisfying all debts, then the debtor has
    shown a pecuniary interest and has standing to object
    to a bankruptcy order.
In re Cult Awareness Network, Inc., 151 F.3d 605, 607-08
(7th Cir. 1998) (citations omitted).
   It is undisputed that Stinnett’s Chapter 7 bankruptcy
petition listed assets in the amount of $394,530 and
liabilities in the amount of $4,495,420. Clearly, all creditors
will not be paid 100%, there will be no surplus remaining
12                                   Nos. 05-1335 & 05-1733

after all creditors’ claims have been paid, and Stinnett has
no reasonable possibility of emerging from Chapter 7 with
any estate property. Were we to reverse on the question of
the IRS tax lien, the result would be that the disability
proceeds would remain under the control of the Trustee free
of the lien so that the Trustee could distribute them to
creditors. Stinnett can realize nothing more than the $6000-
per-month exemption ordered by the bankruptcy court,
which we have affirmed. In the absence of a reasonable
possibility of a claim to the assets of the estate, Stinnett has
no standing to challenge the district court’s decision and
order on the IRS tax lien. The Trustee, as representative of
the estate, would have standing to pursue an appeal
concerning the tax lien, but has chosen not to do so.
  Accordingly, in appeal No. 05-1335, the order of
the district court is AFFIRMED. Appeal No. 05-1733 is
DISMISSED for lack of jurisdiction.

A true Copy:
       Teste:

                         ________________________________
                         Clerk of the United States Court of
                           Appeals for the Seventh Circuit




                    USCA-02-C-0072—9-27-06
