West Virginia Bankruptcy Judge Rules "bankruptcy only exemptions" are not Unconstitutional

In re Morrell,  --- F.3d ---, 2008 WL 3852723 (Bkcy, N.D.W.V.,  August, 2008, Flatley J.)

Issue:   Does the West Virginia statute which permits a bankruptcy only exemption for the homestead violate the Supremacy Clause?                   

Holding:    No. 

West Virginia has a two-set exemption scheme, one for debtors in bankruptcy and one for non-bankruptcy use.  The debtors claimed an $18,000 exemption (on the $56,000 home) under W.V. law which applies only in a bankruptcy case.  The trustee wanted to limit them to a $10,000 exemption , the amount allowed under W.V. “non-bankruptcy law.”  The court ruled for the debtors.   The opinion has a very nice section on the history and purpose of bankruptcy.  It discusses the legislative history behind the “opt-out” provision permitting states specifically to design their own exemption scheme.  In “opting-out,” a state could still “frustrate the purposes and policies of the bankruptcy code,” but here, “[t]he differences between the two statutes are not so great as to call into question whether West Virginia's bankruptcy exemptions frustrates a federal bankruptcy policy.”