Monday, March 16, 2009

Exemption Cases Take a Campy Turn

When Bankruptcy Judge Craig Gargotta decided In re Camp, 396 B.R. 194 (Bankr. W.D. Tex. 2008), he staked out a unique position on how exemption laws should be applied when Sec. 522(b)(3)(A) requires application of the law of another state. Judge Gargotta concluded that Sec. 522(b)(3)(A) was a choice of law provision so that the law chosen should be applied to the debtor as though the state where he currently resided was the state whose law was being applied. As a result, Judge Gargotta concluded that where a Florida resident living in Florida would be prevented from using the federal exemption scheme that a Texas resident subject to Florida law could not claim federal exemptions either. In reaching this decision, Judge Gargotta disagreed with In re Battle, 366 B.R. 635 (Bankr. W.D. Tex. 2006), a decision by his Western District colleague Judge Leif Clark. Indeed, Judge Gargotta's analysis appeared to be unique to him. Now two additional courts have considered the Camp analysis, reaching differing results.

Camp Followed

The Camp choice of law approach has now been applied by a second judge. In re Morgan C. Smith, No. 07-20614 (Bankr. S.D. Tex. 3/12/09) is a decision by Judge Richard Schmidt which applies Louisiana law to a Texas resident. The Debtors lived in Louisiana from 1991 to 2007. During that time, his parents conveyed 245 acres in San Patricio County to the debtor and his siblings. After the property was partitioned, the Debtor received 81.79 acres solely in his name. Later in 2007, the Debtors filed under Chapter 12 and claimed Texas exemptions. Under these facts, the exemption allowed to the Debtor would be:

Unlimited as to 81.79 acres if Texas law applied;
Limited to $40,400 if federal exemptions could be claimed; or
Limited to $25,000 if Louisiana law applied.

The Court concluded that because the Debtors had only been domiciled in Texas for 230 days prior to filing that Texas law did not apply.

The Court then concluded that under the Camp decision, because Louisiana law did not allow debtors to choose federal exemptions, that this choice was not available either.

As a result, the Court found that Louisiana law was the only choice available for the Debtors and limited the exemption to $25,000. The Louisiana statute did not specify that only land in Louisiana could be claimed as homestead. However, if the Court followed the Camp opinion to its logical conclusion, the Debtor would be able to claim the full Louisiana exemption on a Texas property for the reason that the Court would be required to apply the law as if the Texas property were really in Louisiana.

Camp Rejected

While Smith followed Camp to allow extra-terratorial application of the Louisiana law, the 10th Circuit BAP rejected Camp but still allowed extra-terratorial application of the Iowas homestead law. In In re Stephens, 2009 Bankr. LEXIS 305 (10th Cir. BAP 3/9/09), a debtor sold his Iowa homestead and moved to Oklahoma. Iowa law allowed an exemption in proceeds of a homestead sale for a "reasonable" time. The Court rejected the Camp choice of law analysis, which would have held that restrictions on applying Iowa law to property outside of Iowa were preempted. However, the court reached the same result by concluding that nothing in the Iowa law prevented it from being applied to homestead proceeds taken to another state. As a result, the Court concluded that Iowa could have chosen to prevent its homestead exemption from being applied to property located in another state, but had not done so.

I have one final comment after reading these cases: Does your head hurt yet? Mine does.

1 comment:

Anonymous said...

Steve -- The U.S. District Court here in Austin reversed the Camp case on 9/9/09. In re Camp, Cause No. A-08-CA-831-LY (W.D. Tex. September 9, 2009). State opt-out statutes may be limited by state residence requirements. State law may prohibit the extraterritorial application of state exemptions. -- Robert W. Berry