September 18, 2008
More Further Thoughts on the California Wildcard Exemption
More further thoughts about the Regevig case in Arizona. I will admit that at first I thought Judge Haines had a supportable argument for his proposition. He ruled that California cannot tell the trustee to leave things alone which applies only when a federal bankruptcy proceeding is in process. But I really believe after considering it further that he is 100% wrong (or maybe 90%).
1. Suppose the California legislature passed a law which said that there are no state exemptions at all. Suppose also Cal did not "opt out" as the Bankruptcy Code allows it to do. The debtor would be able to claim all sorts of stuff exempt under the Bankruptcy Code. The trustee would be told to leave things alone even though other creditors could seize the same stuff outside of BK.
2. Suppose Cal passed a law which had the state exemptions (CCP 704 et seq) and no Section 703 exemptions (where the wildcard is) and did not opt out – same thing. The trustee would be prevented from taking things that other creditors could take in Cal. And he is prevented because the Bankruptcy Code stops him. Congress thought this up, not Cal.
3. Suppose Cal kept the 704 exemptions and opted out but 703.140(b) was verbatim Section 522(d). Surely that is constitutional because it parrots the Bankruptcy Code passed by the federal government. And again, Cal law provides that the trustee must stay away from stuff other creditors can take but it the same stuff Congress prohibits the trustee from getting.
4. Suppose Cal had no exemptions at all and still opted out. There would be an uproar that Cal cannot tell debtors that they cannot use any exemptions when the federal government has provided for exemptions. The uproar would be that the trustee should be forced to leave alone at least what 522(d) says to leave alone even though everyone else outside of bankruptcy can grab at will.
So the issue cannot be the "scheme" or the fact that the trustee is prevented from doing something that other creditors are not. The issue is whether the amount of the wildcard - being double the federal exemptions in Section 522(d) - "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," per Perez v. Campbell, 402 U.S. 637 (1971) and lots of older Supreme Court cases.
There is a question as to whether Cal can modify 522(d) at all and it seems that the answer is yes unless the modification stands as an obstacle etc. If the answer is yes, Cal can modify 522(d), the rule is that Cal gets the benefit of the doubt as to the amount of the changes. I smell another 5-4 decision in our future.
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