McManus, Matter of
| Decision Date | 26 July 1982 |
| Docket Number | Nos. 81-3080,81-3445,s. 81-3080 |
| Citation | 681 F.2d 353 |
| Parties | 6 Collier Bankr.Cas.2d 1194, 9 Bankr.Ct.Dec. 561, Bankr. L. Rep. P 68,925 In the Matter of Thomas Yale McMANUS and Betty Sue Smith McManus, Bankrupts. Thomas Yale McMANUS and Betty Sue Smith McManus, Appellants, v. AVCO FINANCIAL SERVICES of LOUISIANA, INC., Appellee. In the Matter of Wallace GIPSON and Bobbie Phenix Gipson, Bankrupts. BLAZER FINANCIAL SERVICES, INC., Creditor/Appellant, v. Wallace GIPSON and Bobbie Phenix Gipson, Debtors/Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Wayne H. Cobb, Jr., Shreveport, La., for appellants in No. 81-3080.
Michael F. Adoue, New Orleans, La., for appellee in No. 81-3080.
Herschel C. Adcock, Baton Rouge, La., amicus curiae for Blazer Financial Services, Inc.
Adcock, Dupree & Shows, Herschel C. Adcock, Martha S. Hess, Baton Rouge, La., for creditor/appellant in No. 81-3445.
Donald R. Avery, Baton Rouge, La., for debtors/appellees in No. 81-3445.
Appeal from the United States District Court for the Western District of Louisiana.
Appeal from the United States District Court for the Middle District of Louisiana.
Before DYER *, JOHNSON and WILLIAMS, Circuit Judges.
I.
Two bankruptcy cases, both arising out of Louisiana, have been consolidated for appeal. In the case of McManus v. Avco Financial Services of Louisiana, a husband and wife filed a joint petition for relief under Chapter 13 of the Bankruptcy Act, 11 U.S.C.A. § 1301, et seq. In the couple's petition and proposed plan, Avco Financial Services of Louisiana (Avco) was listed as an unsecured creditor. Avco, however, in its proof of claim and in a formal rejection of the couple's proposed plan, established that it was a fully secured creditor. Avco held a promissory note secured by a nonpossessory, nonpurchase money security interest in the form of a chattel mortgage on certain household goods and furnishings belonging to the couple and the couple's dependents. The bankruptcy court for the Western District of Louisiana held a hearing on Avco's rejection of the couple's proposed plan on July 23, 1980. The hearing was continued until August 25, 1980. On July 28, 1980, the couple moved to avoid Avco's lien under 11 U.S.C.A. § 522(f), in order to allow them to exempt their household goods and furnishings from the bankruptcy estate. The Motion for Avoidance was consolidated with Avco's formal rejection.
Subsequently, the bankruptcy court rendered judgment in favor of Avco and against the couple, upholding Avco's rejection of the proposed plan and denying the couple's Motion for Avoidance of Avco's nonpossessory, nonpurchase money security interest in their household goods and furnishings. The couple appealed this determination to the district court. The district court affirmed the decision of the bankruptcy court and this appeal followed. This Court affirms the judgment of the district court in McManus.
The case of Gipson v. Blazer Financial Services arose in basically the same way. In Gipson, a married couple borrowed money from Blazer Financial Services (Blazer). Security for the debt was in the form of a nonpossessory, nonpurchase money security interest in the couple's household goods and furnishings. Sometime thereafter, the couple filed a voluntary petition for relief under the Bankruptcy Act and an application to avoid the lien pursuant to 11 U.S.C.A. § 522(f). As in McManus, the couple hoped to avoid the lien in order to exempt their household goods and furnishings from the bankruptcy estate.
In Gipson, the bankruptcy court cancelled Blazer's nonpossessory, nonpurchase money security interest. Blazer appealed the determination of the bankruptcy court to the district court. The district court affirmed the bankruptcy court's judgment and this appeal followed. This Court reverses the judgment of the district court in Gipson.
II.
Section 541 of the Bankruptcy Act dictates that, upon commencement of an action in bankruptcy, all property of the debtor becomes property of the bankruptcy estate. 11 U.S.C.A. § 541. However, once the property becomes a part of the estate, the debtor then is allowed to exempt certain property. The debtors involved in the consolidated cases contend that, in Louisiana, a nonpossessory, nonpurchase money security interest in household goods and furnishings may be avoided pursuant to 11 U.S.C.A. § 522(f). Such an avoidance would allow the debtors to exempt some of their property from the bankruptcy estate. The creditors involved in the cases sub judice argue that the State of Louisiana, by enacting certain legislation, has precluded such an avoidance.
The first step in resolution of the controversy is an examination of the federal avoidance mechanism the debtors wish to utilize. This mechanism, expressed in 11 U.S.C.A. § 522(f), states in full:
(f) Notwithstanding any waiver of exemptions, the debtor may 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 subsection (b) of this section, if such lien is-
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money security interest in any-
(A) household furnishings, household goods, wearing apparel, appliances,
books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor.
Significantly, the avoidance provisions of section 522(f) are available to debtors seeking to avoid a lien only "to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b)" of section 522. In other words, this federal avoidance section is not a separate exemption statute. It provides only a limited mechanism for avoiding liens, since the only liens that may be avoided are those impairing an exemption the debtor would have been entitled to receive under section 522(b). Since the invocation of section 522(f) is dependent upon whether a debtor may be legally entitled to an exemption under section 522(b), the second step in resolving the controversy is an examination of section 522(b).
Section 522(b) provides the individual states with a choice of allowing their debtors one of two methods of exempting property from the bankruptcy estate. 1 First, depending upon state law, a debtor may be entitled to utilize the federal "laundry list" exemptions specified in section 522(d). 2 Use of the federal laundry list is precluded, however, if "the state law that is applicable to the debtor ... specifically does not ... authorize" its use. 3 In those instances in which state law precludes use of the federal laundry list, a debtor may exempt from property of the bankruptcy estate any property that is legally exempt under either (1) federal law other than the previously described laundry list or (2) applicable state or local law.
Section 522(b) expressly grants the states broad discretion and an open-ended opportunity to determine what property may be exempt from the bankruptcy estate, as long as the state law does not conflict with property exempt under federal law other than the laundry list. Significantly, the section does not mandate that debtors be guaranteed a right to exempt particular types of property. The unambiguous language of section 522(b) implicitly indicates a state may exempt the same property included in the federal laundry list, more property than that included in the federal laundry list, or less property than that included in the federal laundry list. The states also may prescribe their own requirements for exemptions 4 which may either circumscribe or enlarge the list of exempt property.
This leads to the third step in the Court's analysis. Examination of the avoidance provision-11 U.S.C.A. § 522(f)-reveals it is tied to the exemption provision, 11 U.S.C.A. § 522(b). In turn, examination of 11 U.S.C.A. § 522(b) reveals it is tied to applicable state law. Accordingly, the third step in resolving the present dispute is an evaluation of applicable state law.
Louisiana is the applicable state in the cases sub judice, and the State of Louisiana precludes a debtor's use of the federal laundry list by expressly not authorizing its use. LSA-R.S. 13:3881 B states,
In cases instituted under the provisions of Title 11 of the United States Code, entitled "Bankruptcy," there shall be exempt from the property of the estate of an individual debtor only that property and income which is exempt under the laws of the State of Louisiana and under federal laws other than subsection (d) of Section 522 of said Title 11 of the United States Code.
(emphasis added). By enacting section 13:3881 B, Louisiana, pursuant to its federal authority to do so, has "opted out" of the opportunity to allow its debtors to use the federal laundry list of exemptions contained in 11 U.S.C.A. § 522(d). The only property a Louisiana debtor is entitled to exempt from the bankruptcy estate is property exempt under federal law other than the laundry list 5 and property exempt under Louisiana state law.
The exemptions available under Louisiana law are found in LSA-R.S. 13:3881. Subsection 3881(A)(4) lists household goods and furnishings as property a debtor may exempt from the estate. This general list of exemptions only provides part of the answer, however. LSA-R.S. 13:3885 expressly states that household goods and furnishings subject to a chattel mortgage are not exempt. The section states:
Notwithstanding the provisions of R.S. 13:3881(2) and (4) to the contrary, a person who has granted a chattel mortgage on his property described in R.S. 13:3881(2) or (4) may not thereafter claim an exemption from the seizure...
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