BankruptcyProf Blog

Arizona Judge Declares California Exemption Scheme Unconstitutional

In re Regevig, 389 B.R. 736 (Bkrtcy, Ariz, Haines J, June, 2008)

Issue:   May an Arizona debtor claim California exemptions, otherwise appropriate under Section 522(b)(3)(A)?                   

Holding:    Not under California CCP 703.140(b).   

Judge Randall Haines

The debtor, an Arizona resident when the chapter 7 was filed, was required to use California exemptions because she had moved recently from California to AZ.  She claimed exemptions under the California “Wildcard,” i.e., CCP 703.140(b)(5).  The trustee objected saying the exemptions under 703.140(b) were unconstitutional because they apply only to bankruptcy cases and thus violate the Supremacy Clause.  Judge Haines agreed.  He acknowledged that what the debtors exempted would have been exempted under Section 522 if California had not opted out but that no showing of prejudice was required.

The opinion gives a little historical background and says that California instituted the “two sets of exemptions” system in 1984 to prevent stacking of exemptions by husbands and wives.  Since that is no longer allowed anyway, the two systems serve no purpose today.  In any event, California cannot pass a law whose only function is to prevent the bankruptcy trustee from doing his job.  This is especially so since the California wildcard is twice the federal wildcard.  He cites In re Kanter, 505 F.2d 228, 230 (9th Cir. 1974) which he says invalidates “under the Supremacy Clause, a California law attempting to preclude trustees and other assignees by operation of law from reaching a debtor’s cause of action, but not exempting it from the reach of other judgment creditors.”

Although there is little analysis in the opinion of the Supremacy Clause, Haines says,

"Here, Congress has pervasively defined the exemptions that a state may permit a debtor to claim only in a bankruptcy case, even if they are not generally exempt from creditors outside of bankruptcy.  Those are the exemptions defined by Bankruptcy Code § 522(d).  And Congress further specified exactly how a state may make those bankruptcy-specific exemptions available – by not opting out pursuant to Code § 522(b)(2).  Where Congress has already defined both the substantive law and the procedure, in a pervasive federal scheme that generally pre-empts State legislation, Congress has occupied the field.  There simply is no room for states to adopt their own bankruptcy-specific exemptions by a procedure other than that provided by the Code, i.e., not opting out of the Bankruptcy Code’s exemptions.”

I think he has a point although don't tell anyone - I'll be hounded out of the debtor's bankruptcy bar.  703.140(b) is called the "Federal Exemptions" in California.  It says something like, "if a person files bankruptcy, the person may use the exemptions in this list instead of any other exemtpions."  The list is very similar to Section 522(d).  One exception is that the wildcard is double 522(d).  But clearly there is no wildcard under California law unless the person files bankruptcy. 

Bankruptcy Filings Increase Again in July, 2008

Total bankruptcy filings for July, 2008 were 96,355, up from 69,059 a year ago, a 39% increase.  Is that a lot?  At that rate, the third quarter of 2008 would total 288,000 filings.  Every quarter since the 2nd quarter of 1996 (other than post-BAPCPA quarters) has exceeded that amount.   Total filings for the 2nd quarter 2008 was 272,000 and 240,000 for the 1st quarter.

I remain convinced that the hurdles Congress threw in front of debtors have been wildly successful.  The hurdles are the increased cost in terms of attorneys fees, the credit counseling, and the means test FORM (not the means test itself).    

IndyMac Bank Files Chapter 7 in Los Angeles

U.S. Bankruptcy Court
Central District Of California (Los Angeles)
Bankruptcy Petition #: 2:08-bk-21752-BB

Assigned to: Sheri Bluebond Chapter 7 Voluntary Asset

Date Filed: 07/31/2008

Debtor IndyMac Bancorp, Inc. c/o Edwin Woodsome Orrick, Harrington & Sutcliffe, LLP 777 South Figueroa Street Suite 3200 Los Angeles, CA 90017 Tax id: 95-3983415	represented by	Dean G Rallis Jr 333 S Hope St 16th Fl Los Angeles, CA 90071 213-576-1000 Fax : 213-576-1100 Email: drallis@wbcounsel.com John C Weitnauer 1201 W Peachtree St Atlanta, GA 30309-3424 404-881-7000
Trustee Alfred H Siegel Siegel, Gottlieb, Mangel & Levine 15233 Ventura Blvd., 9th Floor Sherman Oaks, CA 91403-2201 (818) 325-8441
U.S. Trustee United States Trustee (LA) 725 S Figueroa St., 26th Floor Los Angeles, CA 90017

Court Allows Attorney Fees in Full to Counsel for Creditor's Committee in Aloha Case

In my July 21 post, I noted that the firm of Sonnenschein Nath & Rosenthal which represented the Creditor's Committee for the month before the Aloha chapter 11 case was converted to chapter 7 had filed a fee application seeking $235,000 in fees.  GMAC objected and a hearing was held on July 29.  The result you ask?  Fees allowed "in full as requested."      

Circuit Court of Appeals Cases for Last Week

3rd Circuit Court of Appeals, July 29, 2008
In re Carco Elec., --- F.3d ---, 2008 WL 2908935 ( 3rd Cir. 2008)(order appealed from not final nor appealable under the limited scope of the collateral order doctrine)

3rd Circuit Court of Appeals, July 31, 2008
In re Mullarkey, --- F.3d ---, 2008 WL 2924743 ( 3rd Cir. 2008)(case remanded where court erred on various theories of preclusion)

4th Circuit Court of Appeals, July 28, 2008
Sartin v. Macik, --- F.3d ---, 2008 WL 2877514 ( 4th Cir. 2008)(default judgment over discovery dispute does not have collateral estoppel effect on these facts)

9th Circuit Court of Appeals, August 01, 2008
In the Matter of Coleman, --- F.3d ---, 2008 WL 2940306 ( 9th Cir. 2008)(student loan hardship litigation in chapter 13 can be ripe substantially in advance of plan completion)

10th Circuit Court of Appeals, July 28, 2008
In re Paul, --- F.3d ---, 2008 WL 2877476 ( 10th Cir. 2008)(order sanctioning creditor for violating discharge injunction reversed where neither the bankruptcy court's findings, nor the facts on the record, demonstrated that defendant's facially permissible actions violated the discharge injunction)

Thanks again to Findlaw.com.