Thompson, In re, 88-2554

• Decision Date: 01 February 1989
• Docket Number: No. 88-2554,88-2554
• Citation: 867 F.2d 416
• Parties: , 22 Collier Bankr.Cas.2d 1191, 18 Bankr.Ct.Dec. 1513, Bankr. L. Rep. P 72,740, 8 UCC Rep.Serv.2d 202 In re Gary THOMPSON and Randalyn Thompson, Debtors-Appellees. Appeal of ABBOTSFORD STATE BANK.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 416

867 F.2d 416

57 USLW 2486, 22 Collier Bankr.Cas.2d 1191,

18 Bankr.Ct.Dec. 1513, Bankr. L. Rep. P 72,740,

8 UCC Rep.Serv.2d 202

In re Gary THOMPSON and Randalyn Thompson, Debtors-Appellees.

Appeal of ABBOTSFORD STATE BANK.

No. 88-2554.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 3, 1989.

Decided Feb. 1, 1989.

Terrence J. Byrne, Wausau, Wis., for debtors-appellees.

William C. Gamoke, Nikolay, Jensen, Scott, Gamoke & Grunewald, Colby, Wis., for defendant-appellant.

Before CUMMINGS, POSNER, and FLAUM, Circuit Judges.

POSNER, Circuit Judge.

This case is a sequel to In re Patterson, 825 F.2d 1140 (7th Cir.1987), another appeal by the Abbotsford State Bank of Wisconsin from a ruling in favor of a bankrupt farm couple to whom the bank had made a secured loan. The principal question in Patterson was whether cows and a tractor were eligible for the exemption in 11 U.S.C. Sec. 522(d)(6) for "the debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor." We held that they were not; that the exemption is intended for personal tools of modest value not for farm animals or an expensive piece of machinery such as a tractor. See 825 F.2d at 1145-47. Rather than proceeding under section 522(d)(6), the Pattersons could have availed themselves of the exemption from execution by creditors that Wisconsin law creates for livestock, farm implements, and tools of the trade, see Wis.Stat. Secs. 815.18(6), (8), since the Bankruptcy Code permits a debtor to take out of the bankrupt estate property that is exempt from execution under either state or federal law. 11 U.S.C. Sec. 522(b)(2)(A); see generally In re Sullivan, 680 F.2d 1131 (7th Cir.1982). The debtors in this case, the Thompsons, did take the state fork in the road: they claimed an exemption under the Wisconsin statute for fifteen items of farm equipment, including tractors and a combine. The total appraised value of this equipment was $13,775, but the exemption claimed was only $8,375, because the statute places a ceiling on the value of specific items. (For example, there is a ceiling of $1,500 on each tractor, and the debtor may exempt only one, although the Thompsons were allowed to exempt two because both Thompsons had declared bankruptcy.) But unlike its federal counterpart, 11 U.S.C. Sec. 522(d)(6), quoted above, the Wisconsin statute places no overall dollar limit on the exemption for implements and tools of the trade; that is why the Thompsons were able to claim more than $8,000. On the generosity of the Wisconsin exemption, see In re Erickson, 815 F.2d 1090 (7th Cir.1987).

Merely obtaining an exemption would have done the Thompsons no good. (This was also true in Patterson.) The bank had a lien on the farm equipment, and an exemption is not effective against a lien unless it comes within the lien-avoidance provision of the Bankruptcy Code, 11 U.S.C. Sec. 522(f); otherwise it is effective only against unsecured creditors. That provision allows the debtor to "avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under [11 U.S.C. Sec. 522(b)(2)(A) ], but only [so far as directly relevant to this case] if such lien is ... a nonpossessory, nonpurchase-money security interest in any ... implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor." 11 U.S.C. Sec. 522(f)(2)(B). The bankruptcy judge, see 82 B.R. 985 (Bankr.W.D.Wis.1988), and the district judge to whom the bank appealed the bankruptcy judge's ruling, agreed that the exemption claimed by the Thompsons under the Wisconsin statute is eligible for lien avoidance.

The bank disagrees. It argues that our narrow construction in Patterson of the words "implements" and "tools of the trade" as they appear in 11 U.S.C. Sec. 522(d)(6) must extend to the identical language in section 522(f)(2)(B), even though we had said in Patterson that "the same language in section 522(f), since it could be picking up a tools of the trade exemption in state law as well as the tools of the trade exemption (which need not have the same scope) in 522(d), could mean two different things." 825 F.2d at 1146. The identical wording of sections 522(d)(6) and 522(f)(2)(B) (identical save for the dollar limit in the former) supports the bank's interpretation. So does the purpose of section 522(f)(2), which is to prevent the form of overreaching that occurs when a creditor, in order to coerce payment of a debt owed him, seizes or threatens to seize items of slight market value that may nevertheless be of great importance to the happiness, dignity, employability--even identity--of the debtor. These are such items as household furnishings and other household goods, including clothing, held primarily for the personal use of the debtor or his family; implements, professional books, or tools of the trade of the debtor or his dependents; and professionally prescribed health aids for the debtor or his dependents. These are, in fact, the three classes of goods that are entitled to lien avoidance (to the extent exempt) under the three subsections of section 522(f)(2). See H.R.Rep. No. 595, 95th Cong., 2d Sess. 126-27 U.S.Code Cong. & Admin.News pp. 5787, 6087, 6088 (1978). (Section 522(f)(1) has a different purpose from (f)(2). It allows the debtor to avoid a judicial lien on exempt property- --that is, a lien obtained by a creditor who has beaten the debtor to court. Such a lien interferes with the bankruptcy court's control over the bankrupt estate. See H.R.Rep. No. 595, supra, at 126-27.)

Allowing the debtor to avoid a lien on tractors and other items of farm equipment potentially worth many thousands of dollars does not advance the purpose of the lien-avoidance section. It not only opens a large loophole in the statute to the detriment of secured lenders, but by doing so it hurts farmers as a class. The less security they can give for a loan, the less money secured lenders will lend them. Alternatively those lenders will charge higher interest rates to protect themselves against the increased risk that in the event of a default some of the collateral for the loan will be placed beyond the lender's reach. Or they may demand more collateral. There might appear to be a partial offset, however--for wouldn't unsecured creditors be willing to lend on better terms, the less secured credit had been extended to the debtor? But no; the exemption that triggers lien avoidance under section 522(f) is also effective against unsecured creditors--that is what it means to exempt property; it is removed from the bankrupt estate. In addition, because disappointed secured creditors will file as unsecured creditors, there will be more creditors fighting over the debtor's carcass. The general point is that, at least within broad limits, the law cannot help debtors by curtailing the rights of creditors. "The welfare of debtors and of creditors is intertwined; the fewer the protections for creditors, the higher interest rates are, and interest is paid by debtors; conversely, the greater the protection for creditors, the lower interest rates are, and debtors as a group benefit." In re Xonics Imaging, Inc., 837 F.2d 763, 765 (7th Cir.1988). We have made this point--repeatedly--with reference to bankruptcy provisions designed to "help" farmers. See In re Stegall, 865 F.2d 140, 144 (7th Cir.1989), and cases cited there. Patterson held that Congress had conceived the implements and tools of the trade exemption narrowly in section 522(d)(6), as limited to personal equipment of modest value. In using the identical language in section 522(f)(2)(B), Congress may have intended a similarly narrow compass for the privilege of avoiding a lien on these items, consonant with the narrow compass of the surrounding subsections (household furnishings and medical aids).

Despite the powerful arguments for the bank's interpretation, we, like the three other circuits that have addressed the question, consider them overborne by the language and structure of section 522 as a whole. See In re Liming, 797 F.2d 895, 901 (10th Cir.1986); In re LaFond, 791 F.2d 623, 627 (8th Cir.1986); Augustine v. United States, 675 F.2d 582 (3d Cir.1982); 3 Collier on Bankruptcy p 522.29, at p. 522-90 (15th ed. 1988). Section 522(b)(2)(A), in language that could not be clearer (and whose purport is not questioned by the bank), entitles the debtor to elect between state and federal exemptions. Among the common state exemptions--one the draftsmen of the Bankruptcy Code of 1978 must have been aware of (and we say this even though acutely aware of the danger of imputing unrealistic amounts of knowledge to Congress, see Edwards v. United States, 814 F.2d 486, 488 (7th Cir.1987))--is one for implements, professional books, and tools of the trade (for the sake of brevity we shall collapse the three categories to "tools of the trade"). See, e.g., Ill.Rev.Stat. ch. 110, p 12-1001(d); Ky.Rev.Stat. Sec. 427.010(1); Mich.Comp.L. Sec. 600.6023(5). Another reason the draftsmen would have known that some debtors would elect the state exemption for tools of the trade rather than the federal exemption in section 522(d)(6) is that the federal exemption has a low ceiling ($750); the Kentucky and Michigan exemptions, cited above, like the Wisconsin exemption, are far more generous than the federal one. In addition, the Code expressly authorizes states to forbid their citizens to elect the federal exemptions. See 11 U.S.C. Sec. 522(b)(1). More than two-thirds of the states have taken up Congress's invitation. See Dominion Bank v. Nuckolls, 780 F.2d 408, 414 (4th Cir.1985) (concurring opinion); 3 Collier on Bankruptcy, supra, p 522.02, at p. 522-11 n. 4a.

Section 522(f)(2)(B) explicitly names the tools of the trade exemption...