Pine, In re

• Decision Date: 07 September 1983
• Docket Number: No. 82-5243,82-5243
• Citation: 717 F.2d 281,9 C.B.C.2d 271
• Parties: 9 Collier Bankr.Cas.2d 271, 10 Bankr.Ct.Dec. 1467, Bankr. L. Rep. P 69,357 In re Lamar Barclay PINE, Sr., and Shirlene Tucker Pine, Debtors. Melvin GILES and Wanda Giles, Debtors, Plaintiffs-Appellees, v. CREDITHRIFT OF AMERICA, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 281

717 F.2d 281

9 Collier Bankr.Cas.2d 271, 10 Bankr.Ct.Dec. 1467,

Bankr. L. Rep. P 69,357

In re Lamar Barclay PINE, Sr., and Shirlene Tucker Pine, Debtors.

Melvin GILES and Wanda Giles, Debtors, Plaintiffs-Appellees, v. CREDITHRIFT OF AMERICA, INC., Defendant-Appellant.

No. 82-5243.

United States Court of Appeals, Sixth Circuit.

Argued April 25, 1983.

Decided Sept. 7, 1983.

Richard J. McAfee, Miller & Martin, Lawrence Ahern III (argued), Chattanooga, Tenn., for defendant-appellant.

Mark T. Young (argued), Meldorf & Young, Ronald J. Berke (Pine) (argued), Chattanooga, Tenn., for plaintiffs-appellees.

Before MERRITT and KENNEDY, Circuit Judges, and WEICK, Senior Circuit Judge.

MERRITT, Circuit Judge.

These two cases have been consolidated on appeal for opinion because they present common issues of bankruptcy law. In the case of Pine v. Credithrift of America, Inc., the Pines filed a voluntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code. They scheduled certain household goods as property of the estate and claimed the goods as exempt. Prior to the filing of the petition, Credithrift of America, Inc. had obtained as security for a loan a non-possessory, non-purchase money security interest in the household goods of the Pines. The debtors filed a complaint in bankruptcy court seeking to have the security interest avoided under Sec. 522(f) of the Bankruptcy Code. The Bankruptcy Court, 11 B.R. 595, ordered the lien avoided, and the District Court 18 B.R. 711 affirmed the ruling. Credithrift seeks to have their security interest reinstated, claiming that the State of Tennessee ¹ has enacted legislation preventing the federal avoidance statute from operating in this case.

In Giles v. Credithrift of America, Inc., the plaintiffs filed a Chapter 7 petition in bankruptcy listing various household goods as property of the estate and claiming the property as exempt. As in Pine, the Bankruptcy Court 9 B.R. 135 ordered that Credithrift's non-possessory, non-purchase money security interest in the debtor's household goods be avoided under 11 U.S.C. Sec. 522(f), and the District Court, 18 B.R. 708 affirmed. Credithrift again maintains that Georgia's exemption statute precludes the use of the federal avoidance statute.

Section 522(f) of the Bankruptcy Code provides the debtor with a mechanism for preserving exemptions to which he would otherwise be entitled under Sec. 522(b). Section 522(f) provides in relevant part that:

(f) [T]he 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--

* * *

* * *

(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....

(Emphasis added.)

This section specifically allows the debtor to avoid only those liens which are on property that would otherwise be exempt under Sec. 522(b). Thus, the avoidance power only comes into play after there has been a determination under Sec. 522(b) of what property may be claimed as exempt.

Section 522(b) then provides for three alternative definitions of exempt property depending on the action of the states--(1) a federal "laundry list" of exemptions itemized in subsection (d) which applies in the absence of any state legislation; (2) the federal list as expressly modified by state legislation by reference to subsection (d); and (3) a new list of exemptions completely defined by state legislation without reference to the federal list contained in subsection (d). Those alternatives are incorporated in the following language of Sec. 522(b):

(b) [A]n individual debtor may exempt from property the estate either--

(1) property that is specified under subsection (d) of this section [the federal list], unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or in the alternative,

(2)(A) any property that is exempt under ... State or local law that is applicable on the date of the filing of the petition....

11 U.S.C. Sec. 522(b).

Section 522(b) emerged from Congress as a compromise. The Senate wished to preserve the prerogative of the states to set exemptions for debtors as had been the practice under the old Bankruptcy Act. The House of Representatives, on the other hand, sought to create nationwide uniformity by establishing one list of exemptions contained in the federal Bankruptcy Code. Acting on a conference committee report, Congress passed a compromise bill containing elements of each plan. Section 522(d) contains a "laundry list" of federal exemptions which the debtor may choose instead of the relevant state exemptions. ²

Both Georgia and Tennessee have "opted out" of the federal list entirely under the alternative provided in subsection (b)(2)(A). The states require that their residents exempt property only under their exemption statutes. ³ The Georgia exemption statute provides in relevant part that:

[A]ny debtor ... may exempt ... for the purposes of bankruptcy ...

(4) The debtor's interest, not to exceed $200 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances ... that are held for the personal, family or household use of the debtor or a dependent of the debtor. The exemption of the debtor's interest in the items contained in this subsection shall not exceed $3500 in total value....

The Tennessee legislature has also enacted a statute containing a specific list of exemptions for debtors in bankruptcy. T.C.A. Sec. 26-2-102 provides as follows:

Personal property to the aggregate value of four thousand dollars (4000.00) debtor's equity interest shall be exempt from execution, seizure or attachment ... [The debtor] may select for exemption the items of the owned and possessed personal property ... up to the aggregate value of four thousand dollars (4000.00) debtor's equity interest.

The two legislatures have specifically declined to exempt household goods to the extent that they are encumbered by a lien. The Georgia statute refers only to the "debtor's interest" in property and the Tennessee statute refers to the "debtor's equity interest" when delineating the exempt property. Rather than simply listing the type of possessions that are exempt (e.g., the debtor's car) without regard to legal interests or specifying generally that the "debtor's property" is exempt, these two states have said that only the debtor's legal interest is exempt. In other words, the debtor may exempt only that interest in property which is owned by him and unencumbered by third party liens.

The debtors in these cases argue that the states may not circumvent the federal avoidance statute by excluding encumbered property from the state's lists of exemptions. They maintain, and the courts below so concluded, that the state's prerogative to opt out of the federal exemption program is limited to specifying the particular items of property--e.g., a car, musical instruments, furniture--and the dollar amounts. Basically, the...