Matter of Meyers
| Decision Date | 04 February 1980 |
| Docket Number | Bankruptcy No. 75-03571-B,Adversary No. 79-0058-B. |
| Citation | 2 BR 603 |
| Parties | In the Matter of Frank D. MEYERS, Debtor. CREDITHRIFT OF AMERICA, INC., a Michigan corporation, Plaintiff, v. Franklin D. MEYERS, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Douglass H. Shermeta, Troy, Mich., for plaintiff.
Professional Legal Centers by William M. Crawforth, Detroit, Mich., for defendant.
This is an action instituted by Credithrift of America, a Michigan corporation (hereinafter referred to as "Credithrift"), to reclaim property claimed as exempt by the debtor.
The facts are not in dispute. On October 23, 1979, Frank D. Meyers (hereinafter referred to as the "debtor") filed a voluntary petition in bankruptcy. In his schedules, he claimed as exempt, pursuant to Section 522(d)(6) of the Bankruptcy Reform Act of 1978 (Public Law 95-598) (hereinafter referred to as the "Bankruptcy Code"), a 1973 Dodge pick-up truck.1 The truck was subject to a security interest which the debtor had given to Credithrift as collateral for a loan that he obtained in 1978. Relying on its security interest, Credithrift filed a complaint to reclaim the truck. The debtor moved to dismiss the complaint contending that the truck is a tool of his trade and, therefore, Credithrift's security interest is void by virtue of Section 522(f).
The parties have stipulated that Credithrift has a valid nonpurchase-money security interest in the pick-up truck, that the outstanding indebtedness on the loan subject to Credithrift's security interest is $1,106.95, and that the pick-up truck has a market value of $650.00.
Under pre-Code law, a security interest in exempt property was not affected by the debtor's discharge in bankruptcy. Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886). Section 522(f) of the Bankruptcy Code markedly changes pre-Code law. Section 522(f) enables a debtor to avoid a nonpossessory, nonpurchase-money security interest in certain enumerated property, including tools of the trade of the debtor which the debtor claims as exempt.2
The issues simply presented are whether the debtor's truck is a tool of his trade and, if it is, whether the security interest of Credithrift may be avoided by the debtor under Section 522(f).
The question as to whether a motor vehicle qualifies as a tool of trade arises under state exemption statutes which essentially provide that "the tools, team and implements, or stock in trade of any . . . person, used and kept for the purpose of carrying on his trade or business, . . . shall be exempt . . .." § 89-2992, Rev.St.Wyo.1931. In deciding this question under such statutes, courts have looked to the facts and circumstances of each case.
Holt v. Flournoy, 24 So.2d 171, 173 (La.App.1945).
Adopting this approach, the courts generally have held that a motor vehicle is a tool of trade, but only if the motor vehicle is necessary to and used by the debtor to carry on his trade. Thus, it has been held that a motor vehicle is a tool of trade when used by a salesman (Matter of Pioch, 235 F.2d 903 (3rd Cir. 1956)); by a sales manager who was required to make numerous visits to customers and frequent trips to the company's branch offices, and who was required by his contract of employment to provide his own car (In re Trotter, 97 F.Supp. 249 (D.C.La.1951)); by an independent insurance adjuster who was required to make insurance investigations in the city and surrounding rural areas (Gunn v. Credit Service Corp., 46 So.2d 628 (La.App.1950)), and by a construction foreman, who used the motor vehicle for errands and to transport workmen and tools, and where the testimony established that he could not have kept his job as foreman without the automobile (Dowd v. Heuson, 122 Kan. 278, 252 P. 260 (1927)). But a motor vehicle is not exempt if it is not necessary to, nor used by the debtor to carry on his trade. Britt v. Merritt, 56 So.2d 766 (La.App.1952); Holt v. Flournoy, supra; Jones v. Scott, 167 So. 117 (La.App.1936), and Morris-Wilson Buick Co. v. Robertson, 146 So. 339 (La.App.1933).
The conclusion that a motor vehicle is a tool of trade only if it is necessary to, and is used by the debtor to carry on his trade, is more easily reached under the Bankruptcy Code. The federal exemption provisions are very liberal. Congress apparently wanted to insure that a debtor would be accorded a realistic fresh start. The Bankruptcy Code not only permits a debtor to claim as exempt tools that enable him to carry on his trade, but also permits him to claim as exempt a motor vehicle regardless of the purpose for which it is used. § 522(d)(2). In providing for separate exemptions for tools of trade and a motor vehicle, Congress clearly did not intend that a motor vehicle automatically qualify as a tool of trade. Cf. In re Temple, 20 F.Supp. 593 (D.C.Ohio 1937).
An analysis of the factors that motivated the enactment of Section 522(f), aids in reaching the same conclusion. Congress, in adopting Section 522(f), did not intend to make it possible for a debtor to avoid all nonpossessory, nonpurchase-money security interests in exempt property. Lending institutions generally have required a consumer-debtor to convey a security interest in household goods or tools of trade as a condition of making a loan. The lending institutions took a security interest in such property, not because of the intrinsic value of the property, but because of the leverage it gave them in a bankruptcy proceeding. When the debtor filed a petition in bankruptcy, the secured creditor would threaten to repossess the property subject to its security interest unless the debtor reaffirmed his debt. Such property usually has little realizable market value, but the replacement cost is high, and thus the creditor was able "to use the threat of repossession, rarely carried out, to extract more than he would be able to if he did foreclose or repossess." H.R.Rep.No.595, 95th Cong., 1st Sess. 127 (1977), U.S.Code Cong. & Admin.News 1978, pp. 179, 304. A creditor can no longer exert this pressure with respect to property enumerated in Section 522(f), if the property is claimed and allowed as exempt. However, since Section 522(f) does materially affect the rights of secured creditors, its application should not be extended beyond the evil it attempted to reach. Lending institutions which make loans to consumer-debtors serve a legitimate purpose in our credit-oriented society. Congress did not intend to place all nonpurchase-money secured loans in jeopardy when the debtor filed a bankruptcy petition. A motor vehicle is a...
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