Bankruptcy-Specific Exemptions Found Constitutional by Tenth Circuit BAP

Posted by NCBRC - February 6, 2013

The Bankruptcy Appellate Panel for the Tenth Circuit found that Kansas’s bankruptcy-only exemption scheme, under which a debtor in bankruptcy is permitted to exempt his Earned Income Tax Credit, is constitutional. Williamson v. Westby (In re Westby), No. 12-27 (B.A.P. 10th Cir. Feb. 4, 2013). The panel deferred to Kansas Bankruptcy Judge Karlin’s “extremely well-crafted” opinion in which she held as follows: “1) because the Kansas exemption statute is a state rather than federal enactment relating to bankruptcy, there is no Uniformity Clause violation; 2) because the Trustee demonstrated no express conflict between the Kansas exemption statute and the Bankruptcy Code, nor an implied conflict between the EIC exemption and the language and goals of the Bankruptcy Code, there is no Supremacy Clause violation; and 3) the Kansas exemption statute does not impermissibly reprioritize or preempt bankruptcy law with regard to the payment of bankruptcy claims.” In re Westby, 473 B.R. 392 (Bankr. D. Kan. 2012).

The Panel went on to address the impact of the recent case out of the Sixth Circuit, Richardson v. Schafer (In re Schafer), 689 F.3d 601 (6th Cir. 2012), petition for cert. filed, 81 U.S.L.W. 3310 (U.S. Nov. 16, 2012) (No. 12-643). In that case, the Sixth Circuit found with respect to the Uniformity Clause that it is “not the outcome that determines the uniformity, but the uniform process by which creditors and debtors in a certain place are treated.” Therefore, a law that applies uniformly to a specified class of debtors does not violate the uniformity requirement. The Tenth Circuit BAP also agreed with the conclusion in Schafer that the Supremacy Clause is not violated by the state bankruptcy-specific exemptions because section 522(b) of the Bankruptcy Code specifically authorizes use of state law over federal exemption law. Moreover, the operation of the Kansas exemption statute which furthers the federal bankruptcy goal of providing debtors with a fresh start does not actually conflict with federal law.

The court refused to consider the trustee’s argument that she should have been permitted to supplement her brief in the bankruptcy court to include an argument that the state exemption statute actually conflicts with the trustee’s power under section 544 to avoid the bankruptcy-only exemption and execute upon the property.

NCBRC assisted with the debtor’s brief in this case.

The constitutionality of Kansas’s bankruptcy-specific exemption is currently under consideration in the Kansas District Court in the cases of Nazar v. Hudson (In re Hudson), No. 12-1298, and In re Lea, No. 12-1297. NACBA has filed amicus briefs in those cases.

Westby BAP 10 Feb 2013 opinion

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