In re Jordan, Case No. 20-02423-dd

• Citation: 624 B.R. 147
• Decision Date: 15 December 2020
• Docket Number: Case No. 20-02423-dd
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: IN RE, Patrick Michael JORDAN and Madonna Carey Jordan, Debtors.

624 B.R. 147

IN RE, Patrick Michael JORDAN and Madonna Carey Jordan, Debtors.

Case No. 20-02423-dd

United States Bankruptcy Court, D. South Carolina.

Signed December 15, 2020

Michael Conrady, Campbell Law Firm, PA, Kevin Campbell, Mount Pleasant, SC, for Debtors.

Christine E. Brimm, Barton Brimm, PA, Myrtle Beach, SC, for Trustee.

ORDER SUSTAINING OBJECTION TO EXEMPTION

David R. Duncan, US Bankruptcy Judge

This matter is before the Court on an objection to exemption filed by chapter 7 trustee Michelle L. Vieira on September 21, 2020. The debtors Patrick Michael Jordan and Madonna Carey Jordan filed a response on October 19, 2020. The Court held a hearing on November 17, 2020. At the conclusion of the hearing the Court took the matter under advisement and now issues this order.

BACKGROUND AND ARGUMENTS OF THE PARTIES

The debtors commenced their chapter 7 bankruptcy case on June 5, 2020. On their schedules the debtors listed numerous bank accounts containing funds, including a Coastal States Bank account with $32,154.20 and two Wells Fargo accounts containing $38.13¹ and $420.98. On their Schedule C, the debtors claimed exemptions in the entire amounts contained in these accounts pursuant to S.C. Code Ann. § 15-39-410.² The parties stipulated that the funds at issue are earnings from Dr. Jordan's employment as a physician. The schedules also disclosed a Coastal States Bank checking account containing $46,169.67, from a recovery for a personal injury, and the debtors claimed an exemption in those funds pursuant to S.C. Code Ann. § 15-41-30(A)(12)(b). Finally, the schedules disclosed a second Coastal States Bank checking account with a balance of $7,735.16. The funds in that account were claimed as exempt pursuant to S.C. Code. Ann. § 15-41-30(A)(5) and (A)(7). The S.C. Code Ann. § 15-41-30 exemptions are not at issue.

The trustee objects to the S.C. Code Ann. § 15-39-410 exemption because she asserts that the funds are liquid assets subject to the statutory exemption limit in S.C. Code § 15-41-30(5), which has been exhausted, and because S.C. Code Ann. § 15-39-410 does not apply in bankruptcy proceedings. The debtors respond that in addition to the exemptions set forth in S.C. Code § 15-41-30, South Carolina has enacted numerous other statutes that can be used as exemptions in bankruptcy proceedings. The debtors argue that S.C. Code § 15-39-410 is one such section and that the history of the amendments of that section make it clear that the legislature intended to protect as exempt all earnings for personal services. The debtors also argue that under the Bankruptcy Code, the trustee is limited to the status and rights of a judicial lien creditor and therefore is not entitled to reach the debtors' personal earnings under S.C. Code § 15-39-410.

ANALYSIS

When the debtors filed their bankruptcy case, an estate was created which consists of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541 ; In re Holt , 497 B.R. 817, 824 (Bankr. D.S.C. 2013). Section 522(b) of the Bankruptcy Code allows debtors to exempt certain property from the estate, and offers the debtor a choice between utilizing the exemptions set forth in § 522(d) or using the exemptions provided by federal nonbankruptcy law and state law, unless applicable state law provides otherwise. Holt , 497 B.R. at 824 (citing In re Robinson , 292 B.R. 599, 607 (Bankr. S.D. Ohio 2003) ). South Carolina has opted out of the § 522(d) exemptions and provides its own exemptions, in order to "protect from creditors a certain portion of the debtor's property." Id. (quoting Cerny v. Salter , 311 S.C. 430, 429 S.E.2d 809, 811 (1993) ). "Exemptions find a genesis in the public policy of preserving for debtors certain property that is free from creditor claims, levy, and attachment. ‘ "The historical purpose of ... exemption laws has been to protect a debtor from his creditors, to provide him with the basic necessities of life so that even if his creditors levy on all of his nonexempt property, the debtor will not be left destitute and a public charge." ’ " Id. at 824-25 (quoting Sheehan v. Morehead (In re Morehead) , 283 F.3d 199, 206 (4th Cir. 2002) ).

Black's Law Dictionary defines an exemption as "a privilege given to a judgment debtor by law, allowing the debtor to retain certain property without liability." The United States Supreme Court has also discussed exemptions in the context of bankruptcy, stating:

An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor.... Property that is properly exempted under § 522 is (with some exceptions) immunized against liability for prebankruptcy debts.

Owen v. Owen , 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). The United States Supreme Court has also stated that exemptions in bankruptcy

effectuate a careful balance between the interests of creditors and debtors. On the one hand, ... "every asset the Code permits a debtor to withdraw from the estate is an asset that is not available to ... creditors." On the other hand, exemptions serve the important purpose of "protect[ing] the debtor's essential needs."

Clark v. Rameker , 573 U.S. 122, 129, 134 S.Ct. 2242, 189 L.Ed.2d 157 (2014) (internal citations omitted). In Clark , the Court examined a claim of exemption by a chapter 7 debtor in funds in an inherited IRA account. The Court pointed out that nothing about the legal characteristics of the IRA would prevent the debtor from using the funds on luxuries such as a vacation home or a sports car immediately after completing the chapter 7 bankruptcy case. The Court stated, "Allowing that kind of exemption would convert the Bankruptcy Code's purposes of preserving debtors' ability to meet their basic needs and ensuring that they have a ‘fresh start,’ into a ‘free pass.’ " Clark , 573 U.S. at 129, 134 S.Ct. 2242 (internal citations omitted).

A number of South Carolina's exemptions are set forth in S.C. Code Ann. § 15-41-30, including the homestead exemption, motor vehicle exemption, household furnishing exemption, an exemption in individual retirement accounts, and relevant to this case, an exemption in cash and other liquid assets. However, there are also exemptions found throughout the South Carolina Code, including S.C. Code Ann. § 38-63-40,³ S.C. Code Ann. § 59-2-140,⁴ S.C. Code Ann. § 43-5-190,⁵ and S.C. Code § 41-39-20.⁶

In this case, the Court must decide whether the statute the debtors are attempting to use, S.C. Code § 15-39-410, confers an exemption or is in the nature of an anti-garnishment statute. In South Carolina, garnishment is generally not permitted, except in a few limited circumstances. For example, S.C. Code Ann. § 37-5-104 states, "With respect to a debt arising from a consumer credit sale, a consumer lease, a consumer loan, or a consumer rental-purchase agreement, regardless of where made, the creditor may not attach unpaid earnings of the debtor by garnishment or like proceedings." Conversely, South Carolina does allow income tax refunds to be garnished if an individual fails to comply with financial responsibility requirements set forth in the motor vehicle title of the Code,⁷ and permits garnishment for child support⁸ and unpaid taxes.⁹

S.C. Code Ann. § 15-39-410, states, "The judge may order any property of the judgment debtor, not exempt from execution, in the hands either of himself or any other person or due to the judgment debtor, to be applied toward the satisfaction of the judgment, except that the earnings of the debtor for his personal services cannot be so applied." This provision is in the chapter of the Code regarding executions and judicial sales under the article regarding discovery, arrest,¹⁰ garnishment, receivers and the like. The plain language of the statute authorizes the judge to order any property of a judgment debtor, including debts owed the debtor, by whomever held, subject to execution to satisfy a judgment, other than exempt property or earnings from personal services. The statute provides that property not exempt from execution can be applied to satisfy a judgment, except for earnings of the debtor for personal services. This creates three categories of property: exempt property, earnings from personal services, and all other property. The exclusion of personal services earnings separate and apart from the exclusion of property exempt from execution suggests that the exclusion of the personal services earnings is not an exemption. Further, the statute does not exempt personal services income from all court processes, but protects personal service income from execution only. The statute references property in the context of executions upon judgment and is not ambiguous. See Crespo v. Holder , 631 F.3d 130, 133 (4th Cir. 2011) ("When interpreting statutes we start with the plain language. It is well established that when the statute's language is plain, the sole function of the courts-at least where the disposition required by the text is not absurd-is to enforce it according to its terms.") (cleaned up).

A review of South Carolina's exemption statutes reinforces the importance of this limited application. The exemption statutes provide that the property the statute allows a debtor to exempt is protected from the reach of creditors in all types of proceedings. For example, S.C. Code Ann. § 15-41-30 states that the property listed in that section is exempt from "attachment, levy, and sale under any mesne or final process issued by a court or bankruptcy proceeding." S.C. Code Ann. § 38-63-40 broadly provides that certain life insurance proceeds are "exempt from creditors." S.C. Code Ann. § 59-2-140 contains nearly the same language as § 15-41-30, stating that the South Carolina College Investment Program trust fund, contributions to the fund, and any rights accruing under the chapter addressing the trust fund are "exempt from attachment, garnishment, levy, and...