[CLBS] Rodenbough and Wilson adverse exemption decisions

[Paul Ross]

Here is a message written by John Bates of Exemption Express (now within
NACBA) regarding two Idaho decisions on exemptions.  Please be aware and
hopefully point out Mr. Bates' point so we don't see more of these
decisions in Idaho.

Paul



This message explains how failure to use the proper exemption selection
method described in exemptionsexpress resulted in two erroneous court
decisions and it comments on the nature of this process and the task of
explaining it to a court.

The cases are In Re Rodenbough, 579 B.R. 545 (Bankr. D. Idaho 2018) and In
Re Wilson, 2015 WL 1850919 (Bankr. D. Idaho 2015).

In Rodenbough and Wilson, the court erred in deciding what exemptions were
available to the debtor, resulting in prejudice to the debtors in both
cases. This was the result of the court's failure to understand the proper
exemptions selection method as explained in exemptionsexpress.

These cases were decided by the same Idaho bankruptcy court (different
judges). They involved the same basic facts and same mistake by the court.
At the time of filing these cases, the "applicable states," that is, the
states whose exemptions laws were applicable to these debtors under the
code's selection scheme, were states other than Idaho, the venue state. So,
the Idaho court had to examine the laws of those foreign states, North
Dakota and Colorado, to determine whether these Idaho residents could use
the exemptions of those states and/or the federal exemptions.

State exemptions of the applicable states, North Dakota and Colorado

Regarding the state exemptions of the applicable states, the Court
concluded correctly that their exemption statutes did not state that they
were to be used by "residents." So, these states' exemptions could be used
by the Idaho debtors. The court also held correctly that these states'
statutes allowed only limited use of their exemptions by nonresidents.
Specifically, Colorado's homestead exemption was not applicable to property
located outside that state and North Dakota's statutes permitted
non-residents to use only some of North Dakota's own exemptions. So, in
both cases, the Idaho debtors were at a significant disadvantage, not
having the full exemption rights of residents of those states.

Federal exemptions

So, could these debtors use the federal exemptions as an alternative?
Regarding possible use of the federal exemptions, the court noted correctly
that both of these foreign states (Colorado and North Dakota) had opted out
of the federal exemptions by statute. So, the court concluded that these
debtors could not use the federal exemptions. This was a mistake. The court
failed to realize or notice that, as with their state exemptions, these
states (Colorado and North Dakota) had expressly specified that their
opt-out statutes apply to "residents" and residents of other states were
therefore not prevented from using the federal exemptions.

Clearly, the Court was not made aware of that point, that is, that a
state's opt-out statute can be limited to residents in the same manner as a
state's own exemptions simply by stating in the applicable statute that it
applies to "residents." That the court failed to realize this is clear
because the Court does not even touch on it in its opinion. So the court
wrongly concluded that because the state had opted out of the federal
exemptions, those exemptions were not available to residents and
nonresidents of those states and therefore, these debtors could not use the
federal exemptions and had to use the limited set of state exemptions that
were available to nonresidents. So, these debtors were left with fewer
exemptions than those available to residents of those states.

Every other case (at least twelve) to have dealt with this situation, that
is, where the state has an opt-out statute expressly applicable to
residents of that state, has concluded that non-residents may use the
federal exemptions when that state is the applicable state. I am inserting
next a list of those cases. It is found on exemptionsexpress for all states
that have opt-out statutes applicable only to residents. As you can see,
the list is so extensive that if it had been presented to the court, it
would have been impossible to dismiss or ignore. But if the court is not
aware of this authority, mistakes like this can occur. (These cases are not
easily collected using Westlaw, which makes use of exemptionsexpress more
important.)

In re Camp, 631 F.3d 757 (F.3d 2011) (Debtor, not a resident of applicable
state, Florida, could use federal exemptions because Florida opt-out
provision, by its plain terms, applies only to Florida residents);
In re Townsend, 2012 WL 112995 (Bankr. D. Kan. 2012) (Debtors who are not
residents of Oklahoma on the date of filing bankruptcy may choose the
federal exemptions because Oklahoma's opt-out statute does not apply to
them);
In re Long, 470 B.R. 186 (Bank. D. Kan. 2012) (Debtor who is not Nebraska
resident may use federal exemptions because Nebraska opt-out statute
applies only to cases filed in Nebraska);
In re Rody, 468 B.R. 384 (Bankr. D. Ariz. 2012) (Because Arizona opt-out
statute applies only to Arizona residents, non-resident may use federal
exemptions)
In re Beckwith, 448 B.R. 757 (Bankr. S.D. Ohio 2011) (Ohio resident for
whom Florida is the applicable state may use federal exemptions because
Florida has limited its exemptions and federal opt-out statute to
residents.);
In re George, 440 B.R. 164, (Bankr. E.D. Wisc. 2010) (Debtor, nonresident
of applicable state, Illinois, whose exemptions apply only to residents,
could use federal exemptions under the "safe harbor" provision in 11 USC
522(b)(3) or because the Illinois opt-out statute applies only Illinois
residents};
In re Chandler, 362 B.R. 723 (Bankr. N.D.W.Va.2007) (Because applicable
state, Georgia, had not opted out for nonresidents, debtor was eligible for
federal exemptions);
In re Battle, 2006 WL 3702734 (Bankr. W.D. Tex. 2006) (Because debtor was
not resident of Florida on date of filing, debtor could not claim Florida's
exemptions, but Florida's opt-out statute, which was limited to residents,
did not bar debtor from claiming federal exemptions);
In re Underwood, 342 B.R. 358 (Bankr. N.D. Fla. 2006) (Because debtor was
not a resident of Colorado on date of filing and Colorado's exemptions and
opt-out statute were limited to residents, debtor was eligible for federal
exemptions);
In re Schulz, 101 B.R. 301 (Bankr. N.D. Fla. 1989) (Because debtor was not
Florida resident on date of filing and Florida's exemptions and opt-out
statute were limited to residents, debtor was not eligible for state
exemptions, but was entitled to federal exemptions);
In re Volk, 26 B.R. 457 (Bankr. D.S.D. 1983) (Exemptions of South Dakota
were limited to residents and, therefore, were not available to debtors who
were not residents of South Dakota on date of filing, but debtors were
eligible for federal exemptions because South Dakota's opt-out statute was
limited to residents);
In re Walley, 9 B.R. 55 (Bankr. S.D. Ala.1981) (Because Alabama's
exemptions and opt-out statute were limited to residents and debtor was not
a resident of Alabama on date of filing, Alabama's opt-out statute did not
apply and she could use the federal exemptions).

As far as I know, there are no cases to the contrary, that is, there are no
cases holding that if a State's opt-out statute states that it applies to
"residents," it nevertheless denies non-residents the right to choose
federal exemptions. After all, it would be inconsistent for a court to say
that state exemptions statutes that refer to "residents" apply only to
residents but state opt-out statutes that say the same, do not.

So, it is highly likely that this court, if presented with these cases,
would have permitted debtors to use the federal exemptions instead of
limiting them to a portion of the foreign states' exemptions.

In exemptions selection cases, it is likely that debtor's lawyer will have
to explain to the court the entire method of exemption selection for
finding the applicable state (unlikely to be contested). Then, if some
state other than the state of venue is the state whose exemption laws
apply, the lawyer can use exemptionsexpress research to explain whether
that state's statutes limits its exemptions only to residents and, if the
state has opted out of the federal exemptions, whether the opt-out statute
applies only to residents. Also, the site covers any issue that may exist
regarding application of that state's homestead exemption to property
located outside the state.

There is a only one right way for a court to apply this selection method.
It does not require an assessment or weighing of vague concepts (hardship,
definiteness, intent, equities etc.). It involves a series of essential
steps. In the two cases discussed above, the court got every step right
except the one requiring it to determine whether the applicable state's
opt-out statute applies to all debtors or only to debtors of the applicable
state. The process involved is somewhat analogous to finding your way
through a maze. There's only one right way to do it, but if that is known,
reaching the destination is assured. There is little judgment involved,
only knowledge of the method.

In nearly all the cases I have seen in which the court got the exemption
selection wrong, it resulted from failure of the court to know the correct
method, not a rejection of it. It was not that the court had a philosophy
or point of view that had to be confronted. It is quite possible to explain
to the court how to do this correctly. But some attorneys don't know this
area of law. Everything the attorney needs is on exemptionsexpress. It is
interesting that in some of the decisions on exemption selection, it is
evident that exemptionsexpress was used by counsel because the cases cited
and language used by the court is the same as that on the site.

John R. Bates
johnbatesmail at gmail.com
436 Fair Avenue NW
New Philadelphia, OH 44663

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Idaho Bankruptcy Law
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