Bankruptcy-Specific Exemptions Found Constitutional

Posted by NCBRC - August 20, 2012

In a comprehensive opinion, the Sixth Circuit today joined the Fourth Circuit and upheld bankruptcy-specific exemptions against a challenge based on the Bankruptcy and Supremacy Clauses of the Constitution. Richardson v. Schafer (In re Schafer), No. 11-1340 (6th Cir. Aug. 20, 2012) (rev’g 455 B.R. 590 (B.A.P. 6th Cir. 2011)). See also Sheehan v. Peveich, 574 F.3d 248, 252 (4th Cir. 2009).

The court began its analysis by rejecting the strained reading of section 522(b) under which the BAP found that while Congress had endowed debtors with the right to opt out of the federal exemptions it did not grant states the power to enact exemption laws limited to bankruptcy debtors.

Sidestepping the larger question of whether the Uniformity Clause is applicable to state action under a theory of delegation of congressional power, the court found that bankruptcy-specific exemptions do not create the lack of uniformity contemplated by that clause. The Uniformity Clause prohibits a process that is not uniform without regard to whether that process may lead to disparate outcomes. Making specific reference to NACBA’s amicus brief, the court further found that, contrary to the finding by the BAP, there is no requirement under the Uniformity Clause that the trustee in bankruptcy must be able to take whatever would have been available under non-bankruptcy laws.

With respect to the Supremacy Clause, the court found no field preemption by virtue of the traditional reference to state exemption laws in bankruptcy, and no actual conflict. In a nod to the bankruptcy goal of providing debtors with a fresh start, the court stated that “[b]y permitting debtors in bankruptcy a higher homestead exemption than either the general state exemption statute or the federal exemption statute allow, bankruptcy debtors in Michigan are better able to achieve a fresh start and to obtain ‘a new opportunity in life with a clear field for future effort,unhampered by the pressure and discouragement of preexisting debt.’”

The Ninth Circuit BAP has also upheld California bankruptcy-specific exemptions against a constitutional challenge, Sticka v. Applebaum (In re Applebaum), 422 B.R. 684, 693 (B.A.P. 9th Cir. 2009), and the issue is currently pending before the Tenth Circuit BAP in Williams v. Westby (In re Westby), No. 12-27 (B.A.P. 10th Cir.).

Schafer opinion

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