Keywords: exemptions . Constitution .
Exemptions: Constitutionality of State Bankruptcy-Only Exemption Laws17 Cases , IssueID 33 |
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Topic Description:This topic collects a few bizarre rulings that go against established precedent to state that state "bankruptcy-only" exemption laws are unconstitutional. These cases fly in the face of many many years of established federal law and will probably eventually be overturned. Lines of Cases:
Topic Background / Overview: |
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DISAGREED WITH BY 9th Cir BAP in Applebaum.
"There is simply no room for states to adopt their own bankruptcy-specific exemptions by a procedure other than that provided by the Code, i.e., not opting out of the Bankruptcy Code's exemptions."
"The exemptions set forth in California Code of Civil Procedure section 703.140 are a nullity. No debtors are entitled to use that statute's provisions."
Georgia's "bankruptcy-only" exemptions are the only exemptions that can be used in Georgia. Other exemption statutes in the state cannot be used. -- at least when it comes to annuities. In this case debtor cannot use laws that extend protection to annuities that is broader than the existing BK statute.
West Virginia's bankruptcy-only exemption statutes are constitutional and are not preempted by federal law.
Court notes spit of authority.
"[2] The constitutionality of bankruptcy-specific exemption statutes has been the subject of much debate. The courts addressing the issue have split, although not all have addressed the precise issue presented here (i.e. whether the Supremacy Clause renders such statutes invalid). See Kulp v. Zeman, 949 F.2d 1106 (10th Cir. 1991); In re Brown, No. 06-30199, 2007 WL 2120380 (Bankr. N.D.N.Y. July 23, 2007); In re Shumaker, 124 B.R. 820 (Bankr. D. Mont. 1991); In re Vasko, 6 B.R. 317 (Bankr. N.D. Ohio 1980) (all holding bankruptcy-only exemption schemes valid). But see In re Kanter, 505 F.2d 228 (9th Cir. 1974); In re Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008); In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006); In re Mata, 115 B.R. 288 (Bankr. D. Colo. 1990); In re Lennen, 71 B.R. 80 (Bankr. N.D. Cal. 1987); In re Reynolds, 24 B.R. 344 (Bankr. S.D. Ohio 1982); In re Cross, 255 B.R. 25 (N.D. Ind. 2000) (all holding bankruptcy-only exemption schemes invalid).
"[S]tates may not create exemptions that apply only to bankruptcy proceedings. Doing so frustrates the full operation of federal law by challenging the balance Congress struck which allocates the consequences of bankruptcy between debtors and creditors."
"While it is constitutionally permissible for Congress to permit state exemptions to apply in bankruptcy, it is not permissible for states to seek to enact two different levels of exemptions, one applicable in bankruptcy and one without."
"When a state endeavors to adopt exemptions applicable only in the bankruptcy court, it then invades an area of law reserved to the federal government, as preempted by the United States Constitution and statutes enacted pursuant thereto.... [States] cannot ... adopt provisions peculiar to and applicable only under federal bankruptcy law."
Georgia's "bankruptcy-only" exemptions are the only exemptions that can be used in Georgia. Other exemption statutes in the state cannot be used. -- at least when it comes to annuities. In this case debtor cannot use laws that extend protection to annuities that is broader than the existing BK statute.
West Virginia's bankruptcy-only exemption statutes are constitutional and are not preempted by federal law.
Court notes spit of authority.
"[2] The constitutionality of bankruptcy-specific exemption statutes has been the subject of much debate. The courts addressing the issue have split, although not all have addressed the precise issue presented here (i.e. whether the Supremacy Clause renders such statutes invalid). See Kulp v. Zeman, 949 F.2d 1106 (10th Cir. 1991); In re Brown, No. 06-30199, 2007 WL 2120380 (Bankr. N.D.N.Y. July 23, 2007); In re Shumaker, 124 B.R. 820 (Bankr. D. Mont. 1991); In re Vasko, 6 B.R. 317 (Bankr. N.D. Ohio 1980) (all holding bankruptcy-only exemption schemes valid). But see In re Kanter, 505 F.2d 228 (9th Cir. 1974); In re Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008); In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006); In re Mata, 115 B.R. 288 (Bankr. D. Colo. 1990); In re Lennen, 71 B.R. 80 (Bankr. N.D. Cal. 1987); In re Reynolds, 24 B.R. 344 (Bankr. S.D. Ohio 1982); In re Cross, 255 B.R. 25 (N.D. Ind. 2000) (all holding bankruptcy-only exemption schemes invalid).
DISAGREED WITH BY 9th Cir BAP in Applebaum.
"There is simply no room for states to adopt their own bankruptcy-specific exemptions by a procedure other than that provided by the Code, i.e., not opting out of the Bankruptcy Code's exemptions."
"[S]tates may not create exemptions that apply only to bankruptcy proceedings. Doing so frustrates the full operation of federal law by challenging the balance Congress struck which allocates the consequences of bankruptcy between debtors and creditors."
"While it is constitutionally permissible for Congress to permit state exemptions to apply in bankruptcy, it is not permissible for states to seek to enact two different levels of exemptions, one applicable in bankruptcy and one without."
"The exemptions set forth in California Code of Civil Procedure section 703.140 are a nullity. No debtors are entitled to use that statute's provisions."
"When a state endeavors to adopt exemptions applicable only in the bankruptcy court, it then invades an area of law reserved to the federal government, as preempted by the United States Constitution and statutes enacted pursuant thereto.... [States] cannot ... adopt provisions peculiar to and applicable only under federal bankruptcy law."
All Cases A to Z
If you're not familiar with what "case law" is, and how to use it, check out Chapter 7 of Nolo's LegalResearch: How to Find and Understand the Law for a guide to how to read through a case to get the parts that matter.
Also, you need to be familiar with the concept of "jurisdiction." Here are some helpful links:
When you read a case, check to make sure that the case's decision applies to your local district. Do this by looking at which court has decided the case -- either the U.S. Supreme Court, a court of appeal (listed here in large type), or a district court (listed in small type). Your local district court judge is not bound to follow the opinion of judges from other district courts, but often they look to these cases for advice. Your local district, however, is bound to follow decisions in cases from it governing circuit court. You'll see fairly few Supreme Court case here, but those cases are also binding on all districts."
NO! NO! NO! This is a start for your research. New cases are constantly being decided. I update this when I have time. This is only a fraction of the actual published opinions out there. Dozens of cases are handed down nationwide every week. I catalog interesting ones when I have time. They are meant to serve as a starting point for your research -- NOT as a comprehensive listing of the current state of the law.