Political and ethical considerations of exemption limitations: The "opt-out" as child of the first and parent of the second

American Bankruptcy Law Journal

Volumn 71, Issue 2, 1997, Pages 149-215

  Brown, William Houston ^a  

^a NONE

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EID: 0141462430     PISSN: 00279048     EISSN: None     Source Type: Journal    
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References (571)

1. By use of the term "political considerations," this Article refers to policy factors that have influenced Congress or state legislatures in formulating exemption legislation. In its broadest sense, the term includes social and economic policies that contribute to legislative choices. For example, the student loan exception from discharge represents a legislative decision to favor the government as a creditor. See, e.g., Margaret Howard, A Theory of Discharge in Consumer Bankruptcy, 48 OHIO ST. L.J. 1047, 1085-87 (1987) (discussing this exception).
2. In this Article, the term "ethical considerations" includes ethical choices confronted by the debtor in bankruptcy as well as by the debtor's attorney or other professionals.
3. Exemptions have been a fertile area for written commentary. A review of the Index of Legal Periodicals reveals at least 225 exemption articles dated January, 1979 through May, 1996. Computer-assisted research produces additional titles. A compilation of articles organized by states is found at 14 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY (15th ed. rev. 1996).
4. 11 U.S.C. § 522(b)(1) (1994) allows a debtor to choose between federal and state exemptions "unless the State law that is applicable to the debtor . . . specifically does not so authorize." The term opt-out has been used to describe the "provision that allows states to restrict bankruptcy debtors to" the state exemptions. 2 WILLIAM L. NORTON, JR., NORTON BANKRUPTCY LAW & PRACTICE 2d § 46:3 (1994).
5. Many of the exemption opinions, for example in the area of prebankruptcy planning, are well known and have been examined frequently in published commentary. For that reason, this Article will not attempt to fully discuss those opinions; instead, it will focus on the approaches to exemption issues taken by various appellate and trial courts, as well as on the commentary on and the practical impact of those opinions.
6. See, e.g., Michael Terry Hertz, Bankruptcy Code Exemptions: Notes on the Effect of State Law, 54 AM. BANKR. L.J. 339, 339 (1980).
7. 11 U.S.C. § 541 (1994) defines property of the estate.
8. Id. § 522(d).
9. The most commonly referred to nonbankruptcy exemptions include social security payments, civil service retirement benefits, certain workers' compensation benefits, and Railroad Retirement Act pensions. See 2 NORTON, supra note 4, at § 46:5 (referring to the legislative history of § 522 for a nonexclusive list of such exemptions).
10. 11 U.S.C. § 522(b)(2)(A) (1994). Because the Code restricts exemptions under either federal or state law to individual debtors, the use of the term "debtor" in this Article refers to an individual debtor or joint individual debtors. The focus is also on consumer, nonbusiness debtors who primarily file under Chapter 7 or Chapter 13 of the Code. For the twelve months ending September 30, 1995, nonbusiness Chapter 7 cases accounted for approximately sixty-four percent and nonbusiness Chapter 13 cases accounted for approximately thirty percent of the total bankruptcy cases filed in the United States. See ADMIN. OFFICE OF THE U.S. COURTS, ANNUAL REPORT OF THE DIRECTOR OF THE ADMINISTRATIVE OFFICE OF THE UNITED STATES COURTS 268 (1995) [hereinafter 1995 ANNUAL REPORT].
11. At present, thirty-five states have opted out of the federal bankruptcy exemptions. 14 KING ET AL., supra note 3, at Intro-3 n.9. Although New Hampshire had opted out, it has recently opted back in, effective January 1, 1997. Id.; N.H. REV. STAT. ANN. § 511:2-a (1983 & Supp. 1996). The number of opt-out states includes Alaska, although one treatise states that "[i]t is not clear whether or not" that state has opted out but that ALASKA STAT. § 09.38.055 (Michie 1982) appears to restrict bankruptcy exemptions to those available under state law. 14 KING ET AL., supra note 3, at AK-1.
12. For concise histories of American bankruptcy law, see Vern Countryman, Bankruptcy and the Individual Debtor - And a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809 (1983) (emphasizing the precursors to the American bankruptcy law); Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160 (1991) (covering the developments of American bankruptcy law through the Bankruptcy Act of 1898); Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5 (1995) (covering the development of American bankruptcy law through the Bankruptcy Reform Act of 1994). For a more complete history, see F. REGIS NOEL, A HISTORY OF THE BANKRUPTCY CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA (1918); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY (1935).
13. For concise histories of American bankruptcy law, see Vern Countryman, Bankruptcy and the Individual Debtor - And a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809 (1983) (emphasizing the precursors to the American bankruptcy law); Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160 (1991) (covering the developments of American bankruptcy law through the Bankruptcy Act of 1898); Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5 (1995) (covering the development of American bankruptcy law through the Bankruptcy Reform Act of 1994). For a more complete history, see F. REGIS NOEL, A HISTORY OF THE BANKRUPTCY CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA (1918); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY (1935).
14. For concise histories of American bankruptcy law, see Vern Countryman, Bankruptcy and the Individual Debtor - And a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809 (1983) (emphasizing the precursors to the American bankruptcy law); Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160 (1991) (covering the developments of American bankruptcy law through the Bankruptcy Act of 1898); Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5 (1995) (covering the development of American bankruptcy law through the Bankruptcy Reform Act of 1994). For a more complete history, see F. REGIS NOEL, A HISTORY OF THE BANKRUPTCY CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA (1918); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY (1935).
15. For concise histories of American bankruptcy law, see Vern Countryman, Bankruptcy and the Individual Debtor - And a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809 (1983) (emphasizing the precursors to the American bankruptcy law); Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160 (1991) (covering the developments of American bankruptcy law through the Bankruptcy Act of 1898); Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5 (1995) (covering the development of American bankruptcy law through the Bankruptcy Reform Act of 1994). For a more complete history, see F. REGIS NOEL, A HISTORY OF THE BANKRUPTCY CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA (1918); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY (1935).
16. For concise histories of American bankruptcy law, see Vern Countryman, Bankruptcy and the Individual Debtor - And a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809 (1983) (emphasizing the precursors to the American bankruptcy law); Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160 (1991) (covering the developments of American bankruptcy law through the Bankruptcy Act of 1898); Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5 (1995) (covering the development of American bankruptcy law through the Bankruptcy Reform Act of 1994). For a more complete history, see F. REGIS NOEL, A HISTORY OF THE BANKRUPTCY CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA (1918); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY (1935).
17. U.S. CONST. art. I, § 8, cl. 4.
18. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified as amended at 11 U.S.C. §§ 101-1330 (1994)).
19. Bankruptcy Act of 1898, Pub. L. No. 55-171, 30 Stat. 544 (repealed 1978).
20. Bankruptcy Act of 1867, ch. 176, 14 Stat. 517 (repealed 1878); Bankruptcy Act of 1841, ch. 9, 5 Stat. 440 (repealed 1843); Bankruptcy Act of 1800, ch. 19, 2 Stat. 19 (repealed 1803).
21. Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983). See discussion infra Part III.
22. Frimet, supra note 12, at 160 (outlining the three goals of bankruptcy law and indicating that the first two goals seek "to protect the creditors, first from one another and, secondly, from their debtor").
23. Jane Forbes, In re Lucas: A Blueprint for Unlimited Exemptions in Bankruptcy, 23 U. TOL. L. REV. 565, 565-66 (1992).
24. Frimet, supra note 12, at 188.
25. Id. at 166-87.
26. Title VI of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, §§ 601-610, 108 Stat. 4106, 4147-50, established the National Bankruptcy Review Commission, which is conducting public hearings and will recommend changes in the federal bankruptcy laws.
27. See Koffler, supra note 17, at 36; Dan J. Schulman, The Constitution, Interest Groups, and the Requirements of Uniformity: The United States Trustee and the Bankruptcy Administrator Programs, 74 NEB. L. REV. 91, 99 (1995).
28. The Constitution was signed by the members present at the Constitutional Convention on September 17, 1787.
29. Frimet, supra note 12, at 164.
30. Koffler, supra note 17, at 40 (citing THE FEDERALIST NOS. 6, 7, 9 (Alexander Hamilton), Nos. 10, 42, 43, 44, 63 (James Madison) (Benjamin Fletcher Wright ed., 1961)).
31. Schulman, supra note 23, at 99 (quoting THE FEDERALIST NO. 42, at 266 (James Madison) (Lodge ed., 1888)).
32. Id. at 101 (quoting THE FEDERALIST NO. 10, at 56 (J. Madison) (Modern Library ed. 1937)).
33. Bankruptcy Act of 1898, Pub. L. No. 55-171, 30 Stat. 544 (repealed 1978).
34. Frimet, supra note 12, at 164-65.
35. Koffler, supra note 17, at 35 n.47 (citing WARREN, supra note 12, at 6-7, for the statement that Rhode Island had a model bankruptcy law in 1787). See also NOEL, supra note 12, at 120-21 (discussing early states' bankruptcy statutes).
36. Frimet, supra note 12, at 165.
37. An Act to Prevent Frauds Frequently Committed By Bankrupts, 1705, 4 Anne, ch. 17 (Eng.). See Frimet, supra note 12, at 163.
38. Frimet, supra note 12, at 163.
39. Id. at 165.
40. Id.
41. Id. at 162.
42. Countryman, supra note 12, at 809.
43. Id. See also Frimet, supra note 12, at 161.
44. See, e.g., Countryman, supra note 12, at 809.
45. Id. at 810.
46. Frimet, supra note 12, at 162.
47. Countryman, supra note 12, at 811.
48. Id. at 812 (citing An Act to Prevent Frauds Frequently Committed By Bankrupts, 1705, 4 Anne, ch. 17 (Eng.)).
49. Id. For a discussion of the history of the bankruptcy discharge, see generally John C. McCoid, II, Discharge: The Most Important Development in Bankruptcy History, 70 AM. BANKR. L.J. 163 (1996).
50. Countryman, supra note 12, at 814 (stating that a wave of state constitutional reform in the 1830s forbade imprisonment for debt).
51. U.S. CONST. art. I, § 8, cl. 4.
52. Koffler, supra note 17, at 42 (quoting Rep. William Smith of South Carolina) (footnote omitted). Debtors and creditors alike still agree that bankruptcy remains such a business, and debates over bankruptcy policy continue on both federal and state government levels.
53. Bankruptcy Act of 1800, ch. 19, 2 Stat. 19 (repealed 1803).
54. Frimet, supra note 12, at 166.
55. Tabb, supra note 12, at 14. Some of the founders of this country themselves suffered financial ruin and were interested in bankruptcy relief. Frimet, supra note 12, at 166-67.
56. Bankruptcy Act of 1800, ch. 19, 2 Stat. 19 (repealed 1803).
57. Countryman, supra note 12, at 813. See Bankruptcy Act of 1800, ch. 19, §§ 5, 34, 2 Stat. 19, 23, 30-31 (repealed 1803).
58. One side of these competing interests is seen in Thomas Jefferson's opposition to federal power to execute upon a bankrupt landowner's land, evidencing a planters' and states' rights attitude toward exemptions, as well as a fear of excessive federal power. See Koffler, supra note 17, at 42.
59. Frimet, supra note 12, at 167.
60. Id. at 167-68.
61. Bankruptcy Act of 1800, ch. 19, §§ 5, 6, 2 Stat. 19, 23 (repealed 1803). See also Tabb, supra note 12, at 15.
62. Bankruptcy Act of 1800, ch. 19, § 36, 2 Stat. 19, 31 (repealed 1803). See also Frimet, supra note 12, at 169.
63. Frimet, supra note 12, at 170.
64. Id. at 169. During its short life, only 500 persons from three states and the District of Columbia were involuntarily placed into bankruptcy. Id. at 171.
65. Id. at 171-77.
66. Id. at 172-73. Adoption of a federal bankruptcy law became a platform position in the Presidential election of 1840, with the Whigs appealing to 400,000 estimated insolvents in the country at that time. Id. at 177-78.
67. Bankruptcy Act of 1841, ch. 9, 5 Stat. 440 (repealed 1843).
68. Id. §§ 1, 3, 4, 5 Stat. at 440-44. See Frimet, supra note 12, at 179-80.
69. See Koffler, supra note 17, at 51.
70. Bankruptcy Act of 1841, ch. 9, § 3, 5 Stat. 440, 442-43 (repealed 1843). See also Tabb, supra note 12, at 17.
71. Countryman, supra note 12, at 815.
72. Frimet, supra note 12, at 179. In approximately one year's existence of this Act, 33,379 debtors and 1,000,000 creditors were affected.
73. Bankruptcy Act of 1867, ch. 176, 14 Stat. 517 (repealed 1878).
74. Frimet, supra note 12, at 181; Countryman, supra note 12, at 815.
75. See Koffler, supra note 17, at 52.
76. The Thirteenth Amendment bars involuntary servitude, except as punishment for duly convicted criminal violations. U.S. CONST. amend. XIII. The Thirteenth Amendment continues to provide some support for an argument against an involuntary Chapter 13. Whether a delayed discharge, conditioned upon the debtor's best efforts at payment of creditors, violates the Thirteenth Amendment is a subject beyond the scope of this Article. See Countryman, supra note 12, at 827 (suggesting that § 707(b), if enacted, could be vulnerable to a Thirteenth Amendment challenge); Howard, supra note 1, at 1082-85 (discussing mandatory Chapter 13).
77. Frimet, supra note 12, at 182.
78. Tabb, supra note 12, at 20.
79. Bankruptcy Act of 1867, ch. 176, § 14, 14 Stat. 517, 522-24 (repealed 1878). In addition to wearing apparel, modest necessities in a maximum amount of $500, and any property exempted by federal nonbankruptcy law, the debtor could claim those state exemptions that were free "from levy and sale upon execution or other process or order of any court by the laws of the State" of the bankrupt's domicile. Id., 14 Stat. at 523.
80. Act of June 8, 1872, ch. 339, 178 Stat. 334. See Frimet, supra note 12, at 183; Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 356 (1991).
81. Countryman, supra note 12, at 815.
82. Koffler, supra note 17, at 26.
83. Frimet, supra note 12, at 183.
84. Id. at 184-85.
85. Act of December 16, 1873, 43d Cong., 1st Sess.
86. Act of June 22, 1874, ch. 390, 18 Stat. 178 (repealed 1878).
87. Tabb, supra note 12, at 20-21.
88. Frimet, supra note 12, at 185.
89. Act of June 7, 1878, ch. 160, 20 Stat. 99. See also Frimet, supra note 12, at 186.
90. Bankruptcy Act of 1898, Pub. L. No. 55-171, 30 Stat. 544 (repealed 1978).
91. Koffler, supra note 17, at 53. See also Countryman, supra note 12, at 817; Tabb, supra note 12, at 23.
92. Section 6 of the Bankruptcy Act of 1898 provided: "This Act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the . . . State laws in force at the time of the filing of the petition . . . ." Bankruptcy Act of 1898, Pub. L. No. 55-171, § 6, 30 Stat. 544, 548 (repealed 1978). See Tabb, supra note 12, at 24.
93. The Act of 1841 was repealed by Act of March 3, 1843, ch. 82, 5 Stat. 614.
94. Koffler, supra note 17, at 53.
95. Countryman, supra note 12, at 818.
96. Id. at 817. See also James B. Haines, Jr., Section 522's Opt-Out Clause: Debtors' Bankruptcy Exemptions in a Sorry State, 1983 ARIZ. ST. L.J. 1, 18 (1983).
97. Koffler, supra note 17, at 53.
98. Act of June 22, 1938, Pub. L. No. 75-696, 52 Stat. 840 (repealed 1978). See Koffler, supra note 17, at 23.
99. 11 U.S.C. §§ 1301-1330 (1994).
100. Act of June 22, 1938, Pub. L. No. 75-696, ch. XIII, 52 Stat. 840, 930-38 (repealed 1978). See also Countryman, supra note 12, at 818.
101. Countryman, supra note 12, at 817-18 (citing Act of June 22, 1938, Pub. L. No. 75-696, ch. XX, 52 Stat. 840, 930).
102. Id. at 817.
103. Koffler, supra note 17, at 26 n.10.
104. Act of July 24, 1970, Pub. L. No. 91-354, 84 Stat. 468.
105. See COMM'N ON THE BANKR. LAWS OF THE U.S., REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R. DOC. NO. 93-137 (1973) [hereinafter 1973 COMMISSION REPORT].
106. Id. at 79.
107. Id. at 169.
108. A term now defined by reference to "consumer debt," meaning a "debt incurred by an individual primarily for a personal, family, or household purpose." 11 U.S.C. § 101(8) (1994). Thus, the term "consumer debtor" generally refers to a nonbusiness, individual debtor whose debts primarily arose from individual and family functions.
109. 1973 COMMISSION REPORT, supra note 101, at 169.
110. Id. at 171. See also William T. Vukowich, The Bankruptcy Commission's Proposal Regarding Bankrupts' Exemption Rights, 63 CAL. L. REV. 1439 (1975).
111. Countryman, supra note 12, at 818.
112. See infra notes 112-113 and accompanying text.
113. See TERESA A. SULLIVAN ET AL., AS WE FORGIVE OUR DEBTORS: BANKRUPTCY AND CONSUMER CREDIT IN AMERICA 28 (1989) ("Congress once again sidestepped a sticky political issue by leaving the decision to state legislatures.").
114. H.R. 8200, 95th Cong. § 522 (1978). This structure was proposed originally in a bill advanced by the National Conference of Bankruptcy Judges (the "Judges' Bill"). See H.R. 32, 94th Cong. (1975); S. 235, 94th Cong. (1975). See also Hertz, supra note 6, at 341; Haines, supra note 92, at n.26.
115. S. 2266, 95th Cong., § 522 (1978).
116. Section § 522(f)(2) of the 1978 Code is now codified at 11 U.S.C. § 522(f)(1)(B) (1994).
117. 124 CONG. REC. H11,095 (daily ed. Sept. 28, 1978) (statement of Rep. Edwards), reprinted in KING ET AL., supra note 3, app. D, at 4-2443; 124 CONG. REC. S17,412 (daily ed. Oct. 6, 1978) (statement of Sen. DeConcini), reprinted in KING ET AL., supra note 3, app. D, at 4-2556.
118. 124 CONG. REC. H11,095 (daily ed. Sept. 28, 1978) (statement of Rep. Edwards), reprinted in KING ET AL., supra note 3, app. D, at 4-2443; 124 CONG. REC. S17,412 (daily ed. Oct. 6, 1978) (statement of Sen. DeConcini), reprinted in KING ET AL., supra note 3, app. D, at 4-2556.
119. See, e.g., Lawrence Ponoroff & F. Stephen Knippenberg, Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start? 70 N.Y.U. L. REV. 235, 253 n.76 (1995) (discussing authorities that describe § 522(b)(1) as a political compromise).
120. One commentator has said that the opt-out was "unconsidered" by Congress. Haines, supra note 92, at 6. See also Hertz, supra note 6, at 341 (stating that "little, if any, consideration was given to a possible constitutional impediment to its effectiveness").
121. Tabb, supra note 12, at 35.
122. The Chapter 13 discharge is subject to fewer exceptions than are applicable in Chapter 7. Compare 11 U.S.C. § 523(a) (1994), with id. § 1328(a). However, the Code's encouragement of the use of Chapter 13 has been lessened by subsequent amendments that "[weaken] the discharge and [require] compliance with a 'disposable income' test as a prerequisite to plan confirmation." Tabb, supra note 12, at 36. The disposable income test was added to § 1325(b) by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 317, 98 Stat. 333, 356. Section 1328(a) was amended in 1990 to add the § 523(a)(8) and (9) exceptions to discharge. See Student Loan Default Prevention Initiative Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388. Finally, in 1994, criminal fines were added to the scope of § 1328(a)(3) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 302, 108 Stat. 4106, 4132.
123. See, e.g., Winchester v. Watson (In re Winchester), 46 B.R. 492, 494 (B.A.P. 9th Cir. 1984) (noting that § 1306(b) allows debtors to retain all property of the estate).
124. 11 U.S.C. § 707(b) (1994). Subsequent to the adoption of § 707(b), appellate courts have consistently upheld the statute and, notwithstanding its statutory presumption in favor of granting the relief requested by the debtor, have construed it to allow bankruptcy courts to consider the debtor's ability to pay creditors as one, if not a solely sufficient, basis for finding substantial abuse of Chapter 7 relief. Of course, the very encouragement of Chapter 13 through dismissal under § 707(b) is subject to the criticism that it may result in an involuntary commitment of the debtor's future income to payment of creditors. See, e.g., Green v. Staples (In re Green), 934 F.2d 568 (4th Cir. 1991); In re Krohn, 886 F.2d 123 (6th Cir. 1989). See also Tabb, supra note 12, at 36; Ponoroff & Knippenberg, supra note 114, at 298 (Section 707(b) "as construed, is directed at the debtor who is not, in the estimation of the bankruptcy court to which the request for relief in chapter 7 has been made, unfortunate to a proper degree.").
125. 2 NORTON, supra note 4, § 46:11, at 46-20 (citing In re Schuler, 13 B.R. 478 (Bankr. D. Mont. 1981), for other terms applied to the wild card exemption, such as "spillover," "grubstake," or "unfilled bin"). See also Lowell P. Bottrell, Comfortable Beds, A Church Pew, A Cemetery Lot, One Hog, One Pig, Six Sheep, One Cow, A Yolk Of Oxen or a Horse, and Your Notary Seal: Some Thoughts About Exemptions, 72 N.D. L. REV. 83 (1996) (advocating a single wild card exemption).
126. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 306(b)-(c), 98 Stat. 333, 353. In addition to the amendments to § 522(d), the 1984 BAFJA contained the following amendments to § 522: § 522(a)(2) was amended to clarify the term "value"; § 522(b) was amended to prevent "stacking," or separately claimed exemptions by joint debtors; § 522(e) was given a technical amendment; and § 522(m) was amended to incorporate the Consumer Credit Amendments to § 522(b).
127. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 108, 108 Stat. 4106, 4111-13. In addition to the amendments to § 522(d), the 1994 amendments also contained the following amendments to § 522: § 522(b) was amended to properly reference the Federal Rules of Bankruptcy Procedure; § 522(f)(1)(A) was added to protect judicial liens securing family support debts; § 522(f)(2)(a) was added to introduce a formula for determining when liens impair exemptions; § 522(f)(3) was added to create a limited exception to the debtor's ability to avoid nonpossessory, nonpurchase-money security interests; § 522(h)(1) and § 522(i)(2) were amended to correct typographical or technical errors contained in § 283(i)(1) and (2) of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986.
128. Id. § 108(e), 108 Stat. at 4112.
129. See In re Lee, 179 B.R. 643, 644 (Bankr. E.D. Mo. 1995) (holding that it was unnecessary for Missouri to "re-opt-out" of federal exemptions, as the Bankruptcy Reform Act of 1994 did not change § 522(b)'s opt-out provisions).
130. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 310, 108 Stat. 4106, 4137-38.
131. Id.
132. NAT'L BANKR. CONFERENCE, REFORMING THE BANKRUPTCY CODE: THE NATIONAL BANKRUPTCY CONFERENCE'S CODE REVIEW PROJECT, FINAL REPORT 110 (1994) (citing Pub. L. No. 101-647, 104 Stat. 4933 (codified at 28 U.S.C. §§ 3001-3014 (1994))) [hereinafter NATIONAL BANKRUPTCY CONFERENCE REPORT]. The National Bankruptcy Conference has used this suggestion to support its position for the abolishment of the opt-out.
133. 28 U.S.C. § 3014(a) (1994).
134. See, e.g., Countryman, supra note 12, at 819. The number of opt-out states includes Alaska, which appears to restrict bankruptcy exemptions to those available under state law. See supra note 11.
135. See discusion infra Part IV.
136. Appendix I to this paper is a chart demonstrating the number of times since 1978 that the various states have amended specific statutes. The chart demonstrates the relative frequency of state exemption amendment activity compared to the relative stability of the federal exemptions. It does not break out the particular subparts of a statute that were amended; rather, the amendments reflect the total activity in particular types of exemptions. A deeper search might reveal that a particular subsection had been the subject of multiple amendments.
137. 2 NORTON, supra note 4, § 46:1, at 46-43.
138. See, e.g., William J. Woodward, Jr., Exemptions, Opting Out, and Bankruptcy Reform, 43 OHIO ST. L.J. 335, 336 (1982).
139. Local Loan Co. v. Hunt (In re Hunt), 292 U.S. 234, 244 (1934). While this opinion normally is cited as the source of this concept, Professor Margaret Howard points out that the Local Loan Co. court cited Williams v. U.S. Fidelity Co., 236 U.S. 549, 554-55 (1915), which had cited Whitmore v. Markoe, 196 U.S. 68, 77 (1904), for the following proposition: "Systems of bankruptcy are designed to relieve the honest debtor from the weight of indebtedness which has become oppressive and to permit him to have a fresh start in business or commercial life." Howard, supra note 1, at 1047 n.1.
140. The protection of exempt assets and the expectation of a discharge are typically considered the components of a fresh start. See, e.g., William T. Vukowich, Debtors' Exemption Rights Under the Bankruptcy Reform Act, 58 N.C. L. REV. 769, 801 (1980) ("The fresh start objective is basic to the bankruptcy laws of the United States and is dependent upon two key federal policies: the discharge policy and the exemption policy."). Professor Douglass Boshkoff includes the statutory prohibition against discrimination as a component. See Douglass G. Boshkoff, Fresh Start, False Start, or Head Start?, 70 IND. L.J. 549, 549 (1995). Professor Boshkoff specifically refers to 11 U.S.C. § 525, which prevents a governmental unit from discriminating in specified ways against persons who have been debtors solely because of such bankruptcy and prevents private employers from terminating employment, or discriminating with respect to employment, against an individual who is or has been a debtor solely because of such bankruptcy. Id. Antidiscrimination protection, whether viewed as a separate component or as an element of discharge, certainly enhances the discharge, and for purposes of this Article, references to discharge will include the antidiscrimination element.
141. The protection of exempt assets and the expectation of a discharge are typically considered the components of a fresh start. See, e.g., William T. Vukowich, Debtors' Exemption Rights Under the Bankruptcy Reform Act, 58 N.C. L. REV. 769, 801 (1980) ("The fresh start objective is basic to the bankruptcy laws of the United States and is dependent upon two key federal policies: the discharge policy and the exemption policy."). Professor Douglass Boshkoff includes the statutory prohibition against discrimination as a component. See Douglass G. Boshkoff, Fresh Start, False Start, or Head Start?, 70 IND. L.J. 549, 549 (1995). Professor Boshkoff specifically refers to 11 U.S.C. § 525, which prevents a governmental unit from discriminating in specified ways against persons who have been debtors solely because of such bankruptcy and prevents private employers from terminating employment, or discriminating with respect to employment, against an individual who is or has been a debtor solely because of such bankruptcy. Id. Antidiscrimination protection, whether viewed as a separate component or as an element of discharge, certainly enhances the discharge, and for purposes of this Article, references to discharge will include the antidiscrimination element.
142. 11 U.S.C. § 362(a) (1994).
143. Discharge as a discrete subject is broader than the scope of this Article allows for complete discussion. There are various views of what discharge should mean or accomplish. See, e.g., Howard, supra note 1; Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393 (1983); Ponoroff & Knippenberg, supra note 114, at 240; Doug Rendleman, The Bankruptcy Discharge: Toward a Fresher Start, 58 N.C. L. REV. 723 (1980); Steve Wolfe, Prefiling Engineering and Denial of Discharge: Who Should Slaughter the Hog?, 96 COM. L.J. 189 (1991). For purposes of this Article, discharge refers to the individual debtor's expectation that at some point the debtor will receive a release of the legal obligation to pay remaining prepetition debt. For a discussion of the development of discharge in American bankruptcy law, see generally Tabb, supra note 76. For a discussion of the English origins of discharge, see generally McCoid, supra note 45.
144. Discharge as a discrete subject is broader than the scope of this Article allows for complete discussion. There are various views of what discharge should mean or accomplish. See, e.g., Howard, supra note 1; Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393 (1983); Ponoroff & Knippenberg, supra note 114, at 240; Doug Rendleman, The Bankruptcy Discharge: Toward a Fresher Start, 58 N.C. L. REV. 723 (1980); Steve Wolfe, Prefiling Engineering and Denial of Discharge: Who Should Slaughter the Hog?, 96 COM. L.J. 189 (1991). For purposes of this Article, discharge refers to the individual debtor's expectation that at some point the debtor will receive a release of the legal obligation to pay remaining prepetition debt. For a discussion of the development of discharge in American bankruptcy law, see generally Tabb, supra note 76. For a discussion of the English origins of discharge, see generally McCoid, supra note 45.
145. Discharge as a discrete subject is broader than the scope of this Article allows for complete discussion. There are various views of what discharge should mean or accomplish. See, e.g., Howard, supra note 1; Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393 (1983); Ponoroff & Knippenberg, supra note 114, at 240; Doug Rendleman, The Bankruptcy Discharge: Toward a Fresher Start, 58 N.C. L. REV. 723 (1980); Steve Wolfe, Prefiling Engineering and Denial of Discharge: Who Should Slaughter the Hog?, 96 COM. L.J. 189 (1991). For purposes of this Article, discharge refers to the individual debtor's expectation that at some point the debtor will receive a release of the legal obligation to pay remaining prepetition debt. For a discussion of the development of discharge in American bankruptcy law, see generally Tabb, supra note 76. For a discussion of the English origins of discharge, see generally McCoid, supra note 45.
146. Estimates of debtor fraud may be attempted, but statistical data to support such estimates is not available through the Administrative Office of the United States Courts. For example, no statistics are maintained to reflect the number of § 727(a)(2) complaints that would relate to specific fraud.
147. See, e.g., Carol Werner Gustavson, The Ethical Role of a Debtor's Attorney in a Consumer Bankruptcy Filing, 6 GEO. J. LEGAL ETHICS 665, 665 n.2 (1993) (quoting from John Updike's essay The Bankrupt Man).
148. See, e.g., Carol Werner Gustavson, The Ethical Role of a Debtor's Attorney in a Consumer Bankruptcy Filing, 6 GEO. J. LEGAL ETHICS 665, 665 n.2 (1993) (quoting from John Updike's essay The Bankrupt Man).
149. Countryman, supra note 12, at 826.
150. See. e.g., John Rothchild, A Case for Debtors' Prison, 135 FORTUNE, March 3, 1997, available in 1997 WL 3108145.
151. "After two years of decline, filings in the United States bankruptcy courts increased 5.5 percent to 883,457 in 1995. Prior to 1993, bankruptcy filings had increased each year for eight years." 1995 ANNUAL REPORT, supra note 10, at 32. Whether the number of bankruptcy filings is a cause for placing blame or is one of the effects of the economic system in general and the credit system in particular is a subject beyond the scope of this Article.
152. "Reaching an all-time high, filings in the U.S. bankruptcy courts soared 26 percent to 1,111,964 in 1996." ADMIN. OFFICE OF THE U.S. COURTS, ANNUAL REPORT OF THE DIRECTOR OF THE ADMINISTRATIVE OFFICE OF THE UNITED STATES COURTS 30 (1996).
153. See, e.g., Suggestions for the National Bankruptcy Review Commission and Congress, 4 AM. BANKR. INST. L. REV. 487 (1996).
154. See, e.g., discussion supra Part I.
155. See, e.g., Tabb, supra note 76, at 370.
156. Boshkoff, supra note 135, at 550.
157. Id.
158. Schulman, supra note 23, at 104. See also Tabb, supra note 76, at 370 ("The pro-creditor 1800 Bankruptcy Act was followed by the pro-debtor 1841 Bankruptcy Act, after which came the more restrictive 1867 law, which in turn was followed by the exceedingly liberal 1898 Act, which then was ameliorated in 1903, leaving us roughly where we still are today.").
159. See supra notes 109-115 and accompanying text.
160. The scope of these two core constituents of the fresh start policy-discharge and exemptions - is put to the test when the debtor, while insolvent and anticipating a bankruptcy filing, converts what were nonexempt assets to exempt assets for the purpose of taking maximum advantage of available exemptions. On the one hand, there is something instinctively unsettling in abiding a debtor with significant unencumbered assets who purposefully converts those assets into exempt form, thereby placing them beyond the reach of creditors, and then seeks absolution from her unpaid debts by means of the bankruptcy discharge. On the other hand, the very existence of statutory exemptions reflects a deliberate policy choice to tolerate this type of 'legal fraud' in order to further even more important social interests. The lack of clear consensus or direction on where and how the balance is to be struck continues to generate uncertainty for bankruptcy practitioners and unwanted additional litigation for bankruptcy courts. Ponoroff and Knippenberg, supra note 114, at 241 (footnotes omitted).
161. Id. at 243. See also Haines, supra note 92, at 41-42 ("Congress should enact a federal provision effecting federal fresh start objectives.") (emphasis in original).
162. Ponoroff and Knippenberg, supra note 114, at 249.
163. Id. at 239.
164. See infra notes 356-357 and accompanying text.
165. Ponoroff and Knippenberg, supra note 114, at 239. See generally Howard, supra note 1; Jackson, supra note 137; Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate, 59 GEO. WASH. L. REV. 56 (1990).
166. Ponoroff and Knippenberg, supra note 114, at 239. See generally Howard, supra note 1; Jackson, supra note 137; Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate, 59 GEO. WASH. L. REV. 56 (1990).
167. Ponoroff and Knippenberg, supra note 114, at 239. See generally Howard, supra note 1; Jackson, supra note 137; Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate, 59 GEO. WASH. L. REV. 56 (1990).
168. Ponoroff and Knippenberg, supra note 114, at 239. See generally Howard, supra note 1; Jackson, supra note 137; Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate, 59 GEO. WASH. L. REV. 56 (1990).
169. See supra notes 33-36 and accompanying text.
170. See Tabb, supra note 156, at 63-64 ("A condition that creditors consent was contained in each of the first three United States Bankruptcy Acts.").
171. See Douglass G. Boshkoff, Limited, Conditional and Suspended Discharges in Anglo-American Bankruptcy Proceedings, 131 U. PENN. L. REV. 69 (1982).
172. Section 727(a) limits the discharge to individuals and denies a discharge from those debtors who have engaged in inappropriate activity, including: (i) transferring or concealing property within one year prior to bankruptcy or after the date of the filing of the petition; (ii) concealing, destroying, falsifying, or failing to keep or preserve records from which the debtor's financial condition or business transactions might be ascertained; (iii) making a false oath or a false claim; (iv) withholding from an officer of the estate books and records relating to the debtor's property or financial affairs; (v) failing to explain satisfactorily any loss of assets or deficiency of assets to meet the debtor's liabilities; (vi) refusing to obey any lawful order of the court or asserting the privilege against self-incrimination after the debtor has been granted immunity; or (vii) committing any of the foregoing acts within one year before the date of the filing of the petition, or during the case, in connection with another case. 11 U.S.C. § 727(a)(I)-(7) (1994). A debtor may receive a Chapter 7 discharge only once every six years. Id. § 727(a)(8). A debtor who has received a discharge in a Chapter 12 or Chapter 13 case commenced within the last six years may receive a Chapter 7 discharge only under certain circumstances. Id. § 727(a)(9).
173. In general, a bankruptcy discharge will not discharge an individual debtor from any debt: for certain taxes; incurred through fraud or furnishing a false financial statement; incurred to purchase some luxury goods purchased within ninety days of the filing; neither listed nor scheduled in time to permit timely filing of a proof of claim and timely request for a determination of dischargeability; for fraud, defalcation, embezzlement or larceny by fiduciaries; for alimony, support and maintenance; for willful and malicious injury; to the extent the debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit and is not compensation for actual pecuniary loss, other than a tax penalty relating to certain taxes; for an educational loan unless a hardship discharge is granted; incurred in a drunk driving case; that was or could have been listed or scheduled by the debtor in a prior case where the debtor waived the discharge, or was denied a discharge under § 727(2)-(7); incurred through fraud on financial institutions; for criminal restitution; for loans taken out to pay nondischargeable taxes; for certain property settlements incurred in divorce proceedings; and, for postpetition condominium assessments on the debtor's residence. Id. § 523(a).
174. See discussion supra note 117.
175. 11 U.S.C. § 1328(a) (1994).
176. Id. § 1325(a), (b). Section 1325's requirements for confirmation of Chapter 13 plans, including the disposable income test, are not discussed in this Article. For a detailed discussion of § 1325's requirements, see, for example, KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY , ch. 5 (2d ed. 1994); Freeman v. Schulman (In re Freeman), 86 F.3d 478 (6th Cir. 1996) (holding that "disposable income" may include otherwise exempt property such as a tax refund).
177. Id. § 1325(a), (b). Section 1325's requirements for confirmation of Chapter 13 plans, including the disposable income test, are not discussed in this Article. For a detailed discussion of § 1325's requirements, see, for example, KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY , ch. 5 (2d ed. 1994); Freeman v. Schulman (In re Freeman), 86 F.3d 478 (6th Cir. 1996) (holding that "disposable income" may include otherwise exempt property such as a tax refund).
178. 11 U.S.C. § 1328(b) (1994).
179. See Robert E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 WASH. & LEE L. REV. 515, 519 (1991) (suggesting that "the central justification for the debtor financial relief provisions of the Bankruptcy Code is founded in a natural law theory of morality."); Jackson, supra note 137, at 1398-424 (discussing the normative and human behavioral theories supporting discharge); Tabb, supra note 156, at 90-101 (discussing the normative, debtor cooperative, social utility, humanitarian and economic efficiency theories of discharge).
180. See Robert E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 WASH. & LEE L. REV. 515, 519 (1991) (suggesting that "the central justification for the debtor financial relief provisions of the Bankruptcy Code is founded in a natural law theory of morality."); Jackson, supra note 137, at 1398-424 (discussing the normative and human behavioral theories supporting discharge); Tabb, supra note 156, at 90-101 (discussing the normative, debtor cooperative, social utility, humanitarian and economic efficiency theories of discharge).
181. See Robert E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 WASH. & LEE L. REV. 515, 519 (1991) (suggesting that "the central justification for the debtor financial relief provisions of the Bankruptcy Code is founded in a natural law theory of morality."); Jackson, supra note 137, at 1398-424 (discussing the normative and human behavioral theories supporting discharge); Tabb, supra note 156, at 90-101 (discussing the normative, debtor cooperative, social utility, humanitarian and economic efficiency theories of discharge).
182. See Howard, supra note 1, at 1048 (describing five policies of bankruptcy woven into the concept of discharge - bankruptcy as: (i) a collection device; (ii) a reward for worthy debtors; (iii) a protection for worthy creditors; (iv) a rehabilitation for debtors; and (v) an allocation of risks).
183. See, e.g., Ponoroff & Knippenberg, supra note 114, at 237.
184. See 11 U.S.C. §§ 1207, 1306 (1994).
185. A chart prepared by the Bankruptcy Division of the Administrative Office of the United States Courts shows that 97.1 percent of the nonbusiness Chapter 7 cases that were closed during the year ended September 30, 1995 were no-asset cases. Statistical Information Compiled By the Administrative Office of the United States Courts [hereinafter 1995 Chart] (copy available from the Administrative Office of the United States Courts and on file with author). See also 2 DAVID G. EPSTEIN ET AL., BANKRUPTCY § 7-1, at 280 (1992) ("[T]he norm in Chapter 7 is not for the collection and distribution of the debtor's assets, but rather for the discharge of the debtor without any distribution whatsoever to unsecured creditors.").
186. 11 U.S.C. § 1325(a)(4) (1994).
187. See infra note 447-468 and accompanying text.
188. See, e.g., Boshkoff, supra note 159, at 88-89 (comparing English and American bankruptcy discharge).
189. See infra Part IV for discussion of state exemption laws.
190. See, e.g., Katie Thein Kimlinger & William P. Wassweiler, The Good Faith Fable of 11 U.S.C. § 707(a): How Bankruptcy Courts Have Invented a Good Faith Filing Requirement for Chapter 7 Debtors, 13 BANKR. DEV. J. 61 (1996).
191. See, e.g., Katie Thein Kimlinger & William P. Wassweiler, The Good Faith Fable of 11 U.S.C. § 707(a): How Bankruptcy Courts Have Invented a Good Faith Filing Requirement for Chapter 7 Debtors, 13 BANKR. DEV. J. 61 (1996).
192. FRANK R. KENNEDY, THE ORIGINS AND GROWTH OF BANKRUPTCY AND REORGANIZATION LAWS IN THE 20TH CENTURY 19 (1994) ("The bankruptcy laws of the United States are unique in the role that they give the fresh start, the rehabilitation of the debtor").
193. This is illustrated by the conceptualization of the fresh start as one that "allows a debtor to exempt enough property to begin life anew after bankruptcy, . . . based on a consensus that this is preferable to creating a class of at least temporary wards of the state." James C. Mordy et al., Constitutionality of 'Opt-Out' Statutes Providing for Exemptions to Bankrupts, 48 MO. L. REV. 627, 627 (1983).
194. Norwest Bank Neb., N.A. v. Tveten (In re Tveten), 848 F.2d 871, 876 (8th Cir. 1988) (quoting Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Nonexempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615, 621 (1978)).
195. Norwest Bank Neb., N.A. v. Tveten (In re Tveten), 848 F.2d 871, 876 (8th Cir. 1988) (quoting Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Nonexempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615, 621 (1978)).
196. Id.
197. Id.
198. Resnick, supra note 178, at 621.
199. Tveten, 848 F.2d at 876.
200. Finance One v. Bland (In re Bland), 793 F.2d 1172, 1173 (11th Cir. 1986) (quoting H.R. REP. NO. 95-595, at 126 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6089).
201. First Bank v. Reid (In re Reid), 757 F.2d 230, 236 (10th Cir. 1985) (quoting Security Bldg. & Loan Ass'n v. Ward, 50 P.2d 651, 657 (Okla. 1935)).
202. 11 U.S.C. § 522(d)(10)(D), (d)(11)(B)-(D) (1994) (referring to the allowance of an exemption for alimony, support and maintenance, wrongful death payments, personal injury payments, and loss of future earnings, respectively). See also DeMassa v. MacIntyre (In re MacIntyre), 74 F.3d 186 (9th Cir. 1996) (quoting CAL. CIV. PROC. CODE § 704-115(a)(3)'s provision for exemption of certain annuity, pension, retirement, disability, and death payments to the extent necessary to provide support).
203. Clark v. O'Neill (In re Clark), 711 F.2d 21, 23 (3d Cir. 1983) (quoting H.R. REP. NO. 95-595, at 126 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6087).
204. U.S. CONST. art. I, § 8, cl. 4.
205. Professor Charles Tabb succinctly expressed four primary constitutional issues arising from the Bankruptcy Clause: The first issue questions what comprises the "subject of bankruptcies." The second is determining whether a bankruptcy law is "uniform." The third major concern is establishing when a state law regulating relationships between debtors and creditors is preempted by Congress's exercise of its powers under the Bankruptcy Clause. Finally, courts have had to sort out the relationship between the Bankruptcy Clause and other constitutional provisions, such as the Fifth Amendment Takings Clause and the Seventh Amendment right to a jury trial. Tabb, supra note 12, at 43. For purposes of exemptions, the uniformity issue is predominate, although it may overlap other issues such as delegation. Cf. Schulman, supra note 23, at 128-31 (discussing the Uniformity Clause in the context of the United States Trustee).
206. There is admittedly circumstantial evidence suggesting that the Framers "intended to establish a national system of bankruptcy laws to be set above the partial, clashing laws of the states." Koffler, supra note 17, at 58.
207. Tracey Nicolau Bosomworth, Federal Exemptions and the Opt-Out Provisions of Section 522: A Constitutional Challenge, 58 IND. L.J. 143, 146 (1982).
208. See Frimet, supra note 12, at 184.
209. 3 F. Cas. 26 (C.C.D. Mo. 1870). Beckerford was decided by a court consisting of Supreme Court Justices sitting as circuit court judges.
210. Id. at 27. See also Koffler, supra note 17, at 62-67 (discussing Bedyrford). Professor Koffler pointed out that a Beckerford rule that "bankruptcy law is uniform because it uniformly incorporates the exemption rule of each state," is unacceptably broad because such a rule then could be applied to other bankruptcy concepts such as discharge. Id. at 63.
211. 7 F. Cas. 334 (C.C.E.D. Va. 1874).
212. Id. See Koffler, supra note 17, at 70-71 for a critique of the court's reliance upon the Contract Clause.
213. 186 U.S. 181 (1902).
214. Id. at 188. See also Tabb, supra note 12, at 46.
215. Koffler, supra note 17, at 59 (citing Brief for Plaintiff in Error, Hanover Nat'l Bank v. Moyses, 186 U.S. 181 (1902), for the proposition that the bank did not contend that there was a lack of uniformity of application of federal bankruptcy laws as to the debtor; rather, the bank contended that federal protection to creditors was not uniform).
216. 186 U.S. at 189.
217. See, e.g., Countryman, supra note 12, at 817.
218. See 186 U.S. at 189. For an examination of these cases, see Koffler, supra note 17, at 62-71.
219. Koffler, supra note 17, at 60.
220. Id.
221. Id. at 60, 62.
222. 186 U.S. at 190. See Koffler, supra note 17, at 61; Tabb, supra note 12, at 47 (Moyses may be read to uphold the uniformity of bankruptcy laws when: "(i) the substantive law applied in a bankruptcy case conforms to that applied outside of bankruptcy under state law; (ii) the same law is applied to all debtors within a state and to their creditors; and (iii) Congress uniformly delegates to the states the power to fix those laws.").
223. Koffler, supra note 17, at 71, 76. For example, in Stellwagen v. Clum, 245 U.S. 605 (1918), a case concerning the application of state fraudulent conveyance laws, the Supreme Court held that the 1898 Act's application of such state laws did not violate the Bankruptcy Clause. Also, in Perez v. Campbell, 402 U.S. 637 (1971), Arizona's Motor Vehicle Safety Responsibility Act (ARIZ. REV. STAT. ANN. §§ 28-1161 to 1178 (1956)) was under attack as conflicting with the discharge provided under the Bankruptcy Act of 1898. The Supreme Court, referring to the fresh start concept, held that Arizona's license suspension statute was unenforceable as to debtors in bankruptcy whose discharge would be impaired. Perez, 402 U.S. at 649 (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)). While not directly discussing uniformity, the majority opinion contains dicta suggesting that uniformity requirements would prohibit a different discharge in each state which depended on state law. See Schulman, supra note 23, at 110-11 (quoting Perez, 402 U.S. at 656). Perez may, therefore, be viewed as an endorsement of a federal fresh start policy. Rendleman, supra note 137, at 741.
224. See, e.g., Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 172-73 (1946), reh'g denied, 329 U.S. 833 (1947) ("The Constitution did not intend that transactions that have different legal consequences because they took place in different States shall come out with the same result because they passed through a bankruptcy court.") (Frankfurter, J., concurring). In Blanchette v. Connecticut General Insurance Corp., 419 U.S. 102 (1974), the
225. See cases discussed infra notes 209-226 and accompanying text. See also Mordy et al., supra note 177, at 635-40.
226. 58 F.3d 1125 (6th Cir. 1995), cert. denied, 116 S. Ct. 520 (1995).
227. U.S. CONST. amend. XIV, § 1.
228. 58 F.3d at 1128. The court relied on Shapiro v. Thompson, 394 U.S. 618, 667-68 (1969) (holding that the Privileges and Immunities Clause of the Fourteenth Amendment did not protect against congressional definitions of "the relationship between citizens and the Federal Government.").
229. U.S. CONST. art. VI, cl. 2.
230. 58 F.3d at 1128 (quoting Rhodes v. Stewart, 705 F.2d 159 (6th Cir. 1983), cert. denied, 464 U.S. 983 (1983) (emphasis in original)). But see Joseph Lamport, Note, The Preemption of Bankruptcy-Only Exemptions, 6 CARDOZO L. REV. 583 (1985) (criticizing those states that had adopted exemptions claimable only in bankruptcy).
231. 58 F.3d at 1129 (citing United States v. Kras, 409 U.S. 434 (1973)).
232. Id. at 1129 (quoting Giles v. Credithrift of America, Inc. (In re Pine), 717 F.2d 281, 282 (6th Cir. 1983), cert. denied, 466 U.S. 928 (1984)). The court also observed that it would have been rational for Congress to mandate one list of federal exemptions, and a compromise that contained elements of both approaches was equally rational. Id. at 1130.
233. Id. (citing Kras, 409 U.S. at 446; United States v. Carolene Prods. Co., 304 U.S. 144 (1938)).
234. Id.
235. Id. at 1130 (citing Rhodes, 705 F.2d at 162; Hanover Nat'l Bank v. Moyses, 186 U.S. 181, 190 (1902)).
236. In re Sullivan, 680 F.2d 1131, 1133 (7th Cir. 1982), cert. denied, 459 U.S. 992 (1982) (quoting Anthony L. Martin, Comment, Bankruptcy Exemptions: Whether Illinois's Use of the Federal "Opt Out" Provision Is Constitutional, 1981 S. ILL. U. L.J. 65, 72).
237. Id. at 1136 (citing 124 CONG. REC. S17,412 (daily ed. Oct. 6, 1978)).
238. Id. The Seventh Circuit also dismissed preemption and unconstitutional delegation arguments. Id. at 1136-37.
239. In re Butcher, 189 B.R. 357, 370-71 (Bankr. D. Md. 1995).
240. Id. at 372 (quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976)).
241. Id. at 373.
242. Though exemption laws have been considered within the province of State law under the current Bankruptcy Act, H.R. 8200 adopts the position that there is a Federal interest in seeing that a debtor that goes through bankruptcy comes out with adequate possessions to begin his fresh start. Recognizing, however, that circumstances do vary in different parts of the country, the bill permits the states to set exemption levels appropriate to the locale and allows debtors to choose between the State exemptions and the Federal exemptions provided in the bill. Id. (quoting H.R. REP. NO. 95-595, at 126 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6087).
243. See infra Part IV for discussion of state exemption laws.
244. Schulman, supra note 23, at 105.
245. Id.
246. Id. at 107. See 11 U.S.C. §§ 502, 503, 726 (1994).
247. Bosomworth, supra note 190, at 148. Cf. Vukowich, supra note 135, at 771 (stating that creditors extend credit with an awareness that exemption laws exist).
248. Bosomworth, supra note 190, at 150.
249. NORTON, supra note 4, § 46:3, at 46-6.
250. Schulman, supra note 23, at 107.
251. See, e.g., Rendleman, supra note 137, at 723-27 (discussing the effects of a consumer economy).
252. The contractual exceptions argument, in this sense, supports an argument for a proposed Uniform Exemption Act that has received little support. See Gary M. Keenan, Bankruptcy - A Comparison of State and Federal Exemptions, 10 N.M. L. REV. 431, 432 (1980) (§ 522(d) exemptions were derived from the Uniform Exemption Act); 2 NORTON, supra note 4, § 46:6, at 46-11 (§ 522(d) exemptions resemble the Uniform Exemption Act). See also UNIFORM EXEMPTION ACT (1976).
253. Koffler, supra note 17, at 90-91 (describing § 522 as the "ghost of Moyses at work in Congress").
254. See, e.g., Bosomworth, supra note 190, at 148-49.
255. Schulman, supra note 23, at 108.
256. Id. See also Hertz, supra note 6, at 344 (suggesting that the states could under [or over]-cut the effects of bankruptcy relief). This issue is addressed more fully infra Part IV.
257. Bosomworth, supra note 190, at 148.
258. Id. at 150; Countryman, supra note 12, at 817-19; Koffler, supra note 17, at 89; Mordy et al., supra note 177, at 632-33.
259. Bosomworth, supra note 190, at 153.
260. Hertz, supra note 6, at 342 (discussing three ways Congress may defer properly to state law, but concluding that the opt-out is not a proper method).
261. Bosomworth, supra note 190, at 153.
262. Id. at 154.
263. Id. See Hertz, supra note 6, at 343 (The opt-out is "no less a delegation than leaving to each state the decision whether or not to permit bankruptcy relief at all to its domiciliaries.").
264. Bosomworth, supra note 190, at 154. See Hertz, supra note 6, at 344 (discussing "the interplay between state exemptions and the concept of property of the estate").
265. 3 NORTON, supra note 4, § 51:4, at 51-16 ("Inclusion in the estate does not change the nature of property of the debtor . . . .").
266. Mordy et al., supra note 177, at 634.
267. Koffler, supra note 17, at 105.
268. Vukowich, supra note 135, at 814.
269. See supra note 22 and accompanying text.
270. Cf. Vukowich, supra note 135, at 803-04 (observing that the states' rights victory "was won only at [the] expense of" the federal fresh start).
271. Of course, the lack of success of individual debtors in their attacks on the constitutionality of the opt-out may encourage an effort to change the federal law; however, individual debtors are not an easily organized group for such purposes. Moreover, many debtors would find their state's exemptions to be more liberal than comparable federal exemptions. Countryman, supra note 12, at 819.
272. Tennessee's legislature used the following language in electing its opt-out: Exemptions for the purpose of bankruptcy - The personal property exemptions as provided for in this part, and the other exemptions as provided in other sections of the Tennessee Code Annotated for the citizens of Tennessee, are hereby declared adequate and the citizens of Tennessee, pursuant to § 522(b)(1), Public Law 95-598 known as the Bankruptcy Reform Act of 1978, Title 11 U.S.C., § 522(b)(1), are not authorized to claim as exempt the property described in the Bankruptcy Reform Act of 1978, 11 U.S.C. § 522(d). TENN. CODE ANN. § 26-2-112 (1996). Except for Tennessee, all other opt-out states have language that simply prohibits election of federal bankruptcy exemptions. See Lee Robert Bogdanoff, Exemptions Under the Bankruptcy Code: Using California's New Homestead Law as a Medium for Analysis, 72 CALIF. L. REV. 922, 926 (1984) (discussing the patterns of state opt-out laws). Arizona, for example, provides that its residents "are not entitled to the federal exemptions provided in 11 U.S.C. § 522(d)." ARIZ. REV. STAT. § 33-1133(B) (Supp. 1996). See also Woodward, supra note 133, at 336 ("Because opting out may be accomplished by a one-sentence provision, there is a danger that the full policy implications of the result may be ignored or unseen."). For a compilation of other state opt-out statutes, see 14 KING ET AL., supra note 3.
273. Tennessee's legislature used the following language in electing its opt-out: Exemptions for the purpose of bankruptcy - The personal property exemptions as provided for in this part, and the other exemptions as provided in other sections of the Tennessee Code Annotated for the citizens of Tennessee, are hereby declared adequate and the citizens of Tennessee, pursuant to § 522(b)(1), Public Law 95-598 known as the Bankruptcy Reform Act of 1978, Title 11 U.S.C., § 522(b)(1), are not authorized to claim as exempt the property described in the Bankruptcy Reform Act of 1978, 11 U.S.C. § 522(d). TENN. CODE ANN. § 26-2-112 (1996). Except for Tennessee, all other opt-out states have language that simply prohibits election of federal bankruptcy exemptions. See Lee Robert Bogdanoff, Exemptions Under the Bankruptcy Code: Using California's New Homestead Law as a Medium for Analysis, 72 CALIF. L. REV. 922, 926 (1984) (discussing the patterns of state opt-out laws). Arizona, for example, provides that its residents "are not entitled to the federal exemptions provided in 11 U.S.C. § 522(d)." ARIZ. REV. STAT. § 33-1133(B) (Supp. 1996). See also Woodward, supra note 133, at 336 ("Because opting out may be accomplished by a one-sentence provision, there is a danger that the full policy implications of the result may be ignored or unseen."). For a compilation of other state opt-out statutes, see 14 KING ET AL., supra note 3.
274. Tennessee's legislature used the following language in electing its opt-out: Exemptions for the purpose of bankruptcy - The personal property exemptions as provided for in this part, and the other exemptions as provided in other sections of the Tennessee Code Annotated for the citizens of Tennessee, are hereby declared adequate and the citizens of Tennessee, pursuant to § 522(b)(1), Public Law 95-598 known as the Bankruptcy Reform Act of 1978, Title 11 U.S.C., § 522(b)(1), are not authorized to claim as exempt the property described in the Bankruptcy Reform Act of 1978, 11 U.S.C. § 522(d). TENN. CODE ANN. § 26-2-112 (1996). Except for Tennessee, all other opt-out states have language that simply prohibits election of federal bankruptcy exemptions. See Lee Robert Bogdanoff, Exemptions Under the Bankruptcy Code: Using California's New Homestead Law as a Medium for Analysis, 72 CALIF. L. REV. 922, 926 (1984) (discussing the patterns of state opt-out laws). Arizona, for example, provides that its residents "are not entitled to the federal exemptions provided in 11 U.S.C. § 522(d)." ARIZ. REV. STAT. § 33-1133(B) (Supp. 1996). See also Woodward, supra note 133, at 336 ("Because opting out may be accomplished by a one-sentence provision, there is a danger that the full policy implications of the result may be ignored or unseen."). For a compilation of other state opt-out statutes, see 14 KING ET AL., supra note 3.
275. See, e.g., KY. REV. STAT. ANN. § 427.160 (Michie 1992); Lamport, supra note 213, at 584; 2 NORTON, supra note 4, § 46:3, at 46-6 n.17 (citing cases holding that an opt-out does not permit states to enact bankruptcy-only exemptions).
276. TENN. CODE ANN. § 26-2-301 (1996).
277. FLA. CONST. art. X, § 4.
278. See Appendix II for a comparison of different exemption statutes in the various states.
279. In reality, the variations in the states' exemption laws reflect historical influences. For example, Northeastern states have relatively conservative exemptions, reflecting the influence of English laws, while some Southern and Western states have more liberal exemptions, reflecting an incentive to settlers. Wolfe, supra note 137, at 193. See also Julie B. Schroeder, Perspectives On Urban Homestead Exemptions - Texas Amends Article XVI, Section 51, 15 ST. MARY'S L.J. 606, 607 (1984).
280. See, e.g. Mordy et al., supra note 177, at 633.
281. Schulman, supra note 23, at 110.
282. See, e.g., Haines, supra note 92, at 16 (suggesting that, after the opt-out, state exemption amendments have shown concern with bankruptcy). This is not the first suggestion that more should be done "to explore why different legal regimes govern the availability of different kinds of assets for the debtor's fresh start." See Jackson, supra note 137, at 1397.
283. Boshkoff, supra note 135, at 551.
284. Vukowich, supra note 135, at 802 (describing differences in state and bankruptcy exemption functions).
285. Id. (discussing the long-term protection from a bankruptcy discharge compared to the more isolated asset protection provided by mere exemption claims).
286. See, e.g., Thomas J. Reed, Over the Hill to the Poor House - The Failure of Section 522 Bankruptcy Exemptions Under the Bankruptcy Reform Act of 1978, 61 DENV. L.J. 705, 711-15 (1984) (describing various state exemptions).
287. See, e.g., In re Butcher, 189 B.R. 357, 365 (Bankr. D. Md. 1995) (discussing the purposes and objectives of granting exemptions).
288. See, e.g., J. T. Hardin, Bankruptcy Planning: Risks of Converting Nonexempt Property to Exempt Property on the Eve of Bankruptcy, 12 OKLA. CITY U. L. REV. 279, 282 (1987) (discussing Oklahoma's liberal construction of its exemption laws).
289. Bottrell, supra note 120, at 90.
290. See id. at 86 (suggesting that exemptions should be reexamined "to conform to changes and variances of society").
291. See Haines, supra note 92, at 6-7.
292. Id. at 13-15.
293. Id. at 11.
294. Woodward, supra note 133, at 344-45 (discussing legislative responses to the opt-out).
295. See Appendix I.
296. See id. See also Michael G. Williamsen & Benjamin P. Butterfield, Florida Exemptions Laws - Haven for Debtors or Protection from Destitution?, XV STETSON L. REV. 437, 443-47 (1986) (discussing Florida's constitutional amendment in 1985 that extended Florida's homestead exemption to any "natural person").
297. See, e.g., Bosomworth, supra note 190, at 157-58 (discussing argument that § 522 establishes a federal fresh start policy, and that state exemptions cannot go below the federal floor even if they opt out).
298. Koffler, supra note 17, at 89. See also Hertz, supra note 6, at 339 (suggesting that § 522 was designed originally to establish a minimum federal level of relief).
299. Koffler, supra note 17, at 89-90 (pointing out that the states may construct a "trap door" in any federal floor by use of the opt-out).
300. See Appendix II.
301. See Bottrell, supra note 120, at 94-97 (advocating a single wild card exemption scheme).
302. See Apendix II's summary of state homestead exemptions, most of which allow an exemption tied to ownership of the residence. For example, see ALA. CODE § 6-10-2 (1975). See also Bottrell, supra note 120, at 92-94, for a critique of most states' "pigeon holed exemptions" that require specific exemptions rather than a general dollar limit on all exemptions.
303. See, e.g., In re Butcher, 189 B.R. 357, 373 (Bankr. D. Md. 1995).
304. See Appendices I & II for a listing of nonopt-out states.
305. See, e.g., Schulman, supra note 23, at 107.
306. See infra Part V.
307. See infra notes 462-469 and accompanying text.
308. See, e.g., Hardin, supra note 269, at 296-97 (discussing the fraud exceptions to Oklahoma exemptions).
309. ALA. CODE § 6-10-8 (1975).
310. ARIZ. REV. STAT. § 20-1131 (Supp. 1996).
311. HAW. REV. STAT. § 431:10-232 (1993).
312. 215 ILL. COMP. STAT. § 5/238 (West 1993).
313. MO. REV. STAT. § 513.430(10) (Supp. 1997).
314. OKLA. STAT. tit. 36 § 3631.1 (Supp. 1997).
315. OKLA. STAT. tit. 68 § 2900 (1992).
316. Id.
317. MICH. COMP. LAWS ANN. § 211.120 (West Supp. 1996).
318. GA. CODE ANN. § 44-13-6 (Supp. 1996).
319. Id.
320. N.J. STAT. ANN. § 25:2-1 (Supp. 1996).
321. MINN. CONST. art. § 12.
322. MISS. CODE ANN. § 27-33-63 (1972).
323. NEB. REV. STAT. § 77-3522 (1990).
324. See David E. Peterson et al., Is the Homestead Subject to the Statute on Fraudulent Asset Conversions?, 68 FLA. BAR J. 12, 14 (1994).
325. FLA. STAT. ANN. § 222.30(2) (West Supp. 1997). See In re Thomas, 172 B.R. 673, 675 (Bankr. M.D. Fla. 1994) (finding the debtor's asset conversion in anticipation of bankruptcy to be "an intentional hindrance or delay of the creditors," and therefore disallowing the exemption). See also Peterson, supra note 305, at 19 (suggesting that a debtor's right to convert assets may be broader under Florida's Constitution than under § 222.30).
326. FLA. STAT. ANN. § 222.30(3) (West Supp. 1997).
327. Id. § 222.30(5).
328. WIS. STAT. ANN. § 815.18(10) (1994).
329. Id.
330. Section 522(c) would protect any exemption allowed in a bankruptcy case from later liability for a prepetition debt. See Woodward, supra note 133, at 358.
331. See discussion infra note 438-446 and accompanying text.
332. See SULLIVAN ET AL., supra note 109, at 14 n.8 (citing statistical studies "purporting to show that bankruptcy filings rose when the 1978 Bankruptcy Code went into effect.").
333. See, e.g., Philip Shuchman & Thomas L. Rhorer, Personal Bankruptcy Data for Opt-Out Hearings and Other Purposes, 56 AM. BANKR. L.J. 1, 3 (1982).
334. William J. Woodward, Jr. & Richard S. Woodward, Exemptions As an Incentive to Voluntary Bankruptcy: An Empirical Study, 57 AM. BANKR. L.J. 53, 68 (1983).
335. See, e.g., Majorie L. Girth, The Role of Empirical Data In Developing Bankruptcy Legislation for Individuals, 65 IND. L.J. 17, 23 (1989).
336. SULLIVAN ET AL., supra note 109, at 242.
337. See, e.g., Deborah Yetter, Tank Battle - Man Accused of Trying to Hide Military Vehicle from Court, THE COURIER-JOURNAL (Louisville), Nov. 11, 1995, at O1A.
338. The type of conversion discussed here does not involve the common law conversion of taking assets from another. Rather, throughout this Article asset conversion refers solely to the mutation of the debtor's property from nonexempt to exempt status. Such conversions have received much attention in the press and in written commentary, but asset conversions were not new events at the time the Bankruptcy Code was passed. The practice of bankruptcy conversions was "widespread in certain parts of the country." See Vukowich, supra note 135, at 808.
339. See Resnick, supra note 178, at 617.
340. 11 U.S.C. § 522 (1994). See id. § 103(a).
341. Id. § 522(b)(1)-(2).
342. See id. § 502 (providing for the allowance of claims).
343. Id. § 522(c)(1),(3). See Davis v. Davis, 105 F.3d 1017 (5th Cir. 1997).
344. 11 U.S.C. § 522(c)(2) (1994).
345. Id. § 522(k).
346. Id. § 522(b)(2)(A). See, e.g., In re Stockburger, 192 B.R. 908, 910 (E.D. Tenn. 1996) (holding that the debtor's domicile governs applicable state exemptions).
347. 11 U.S.C. § 522(b)(2)(B) (1994). See also Lawrence Kalevitch, Some Thoughts on Entireties in Bankruptcy, 60 AM. BANKR. L.J. 141 (1986).
348. See 11 U.S.C. § 522(f)-(j) (1994); Hertz, supra note 6, at 340. See also Scott Everett, Debtors' Delight? Bankruptcy Reform Act of 1994: How Revisions to 11 U.S.C. § 522(f) Affect Debtors' Ability to Avoid Liens Which Impair Texas Personal Property Exemptions, 26 TEX. TECH. L. REV. 1331 (1995); Margaret Howard, Avoiding Powers and the 1994 Amendments to the Bankruptcy Code, 69 AM. BANKR. L.J. 259 (1995).
349. See 11 U.S.C. § 522(f)-(j) (1994); Hertz, supra note 6, at 340. See also Scott Everett, Debtors' Delight? Bankruptcy Reform Act of 1994: How Revisions to 11 U.S.C. § 522(f) Affect Debtors' Ability to Avoid Liens Which Impair Texas Personal Property Exemptions, 26 TEX. TECH. L. REV. 1331 (1995); Margaret Howard, Avoiding Powers and the 1994 Amendments to the Bankruptcy Code, 69 AM. BANKR. L.J. 259 (1995).
350. 2 NORTON, supra note 4, § 46-4, at 46-7.
351. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 306(a), 98 Stat. 333, 353 (codified at 11 U.S.C. § 522(b) (1994)).
352. Id.
353. See 11 U.S.C. § 522 (1994); FED. R. BANKR. P. 1007-1009, 4003.
354. FED. R. BANKR. P. 1007(c), 4003(a).
355. 11 U.S.C. § 522(1) (1994); FED. R. BANKR. P. 4003(a).
356. FED. R. BANKR. P. 4003(b).
357. FED. R. BANKR. P. 1009(a).
358. Id.
359. FED. R. BANKR. P. 4003(b).
360. FED. R. BANKR. P. 4003(c). See, e.g., In re Shurley, 163 B.R. 286, 291 (Bankr. W.D. Tex. 1993) (concluding that the burden of proof is preponderance of the evidence).
361. 11 U.S.C. § 522(a)(2) (1994). See NORTON, supra note 4, § 46:7.
362. 11 U.S.C. § 522(1) (1994).
363. See Bogdanoff, supra note 255, at 934.
364. 11 U.S.C. § 522(f), (g) (1994). Prior to the Supreme Court case of Owen v. Owen, 500 U.S. 305 (1991), courts had disagreed about the availability of § 522(f) in opt-out states. See, e.g., Giles v. Credithrift of Am., Inc. (In re Pine), 717 F.2d 281, 284 (6th Cir. 1983), cert. denied, 466 U.S. 928 (1984) (holding that the debtor may not avoid liens through § 522(f)(2) when the domiciliary state had opted out of the federal exemptions). See also Veryl Victoria Mills, A Debtor's Right to Avoid Liens Against Exempt Property Under Section 522 of the Bankruptcy Code: Meaningless or Meaningful?, 65 AM. BANKR. L.J. 117 (1991) (concluding that states should not be able to opt out of the lien avoidance provisions of § 522(f)). In Owen, the Supreme Court resolved the issue by holding that a state's opt-out did not nullify the debtor's § 522(f) power. Owen, 500 U.S. at 313.
365. FED. R. BANKR. P. 4003(d).
366. See, e.g., In re Sumerell, 194 B.R. 818, 825-27 (Bankr. E.D. Tenn. 1996) (rejecting a liquidation value and concluding that Tennessee law treated value as synonymous with fair market value).
367. Id. at 824.
368. Id.
369. 503 U.S. 638, 642 (1992).
370. 11 U.S.C. § 522(1) (1994). This method of exemption claiming has been called "exemption by declaration." Kenneth DeCourcy Ferguson, Discourse and Discharge: Linguistic Analysis and Abuse of the "Exemption By Declaration" Process In Bankruptcy, 70 AM. BANKR. L.J. 55, 59 (quoting Halverson v. Peterson (In re Peterson), 920 F.2d 1389, 1393 (8th Cir. 1990)).
371. 351 FED. R. BANKR. P. 1008.
372. In Taylor, the Supreme Court did not apply a good faith or validity requirement to the allowance of exemptions; instead, it stressed the passage of the deadline for objections. See Ferguson, supra note 350, at 59-60. The Taylor Court stated that remedies other than disallowance of the claimed exemption existed to deter false or bad faith claims, including denial of discharge for filing fraudulent claims, see 11 U.S.C. § 727(a)(4)(B) (1994); penalties for perjury, see FED. R. BANKR. P. 1008; sanctions for signing unsupportable documents, see FED. R. BANKR. P. 9011; and criminal penalties for bankruptcy fraud, see 18 U.S.C. § 152 (1994). Taylor, 503 U.S. at 644. Whether these possible penalties will deter an individual debtor may depend upon the individual's personal sense of ethics, and there is some question whether these penalties are truly effective. See generally Ferguson, supra note 350 (discussing the remedies described by the Supreme Court and questioning whether a false exemption claim is the type of claim that is subject to the false claim provisions of § 727(a)(3)(B)). Nevertheless, the litany of possible penalties included debtors' attorneys as potential targets for penalties. Taylor, 503 U.S. at 644. Before engaging in overly aggressive bankruptcy planning, therefore, the risks to debtors and their attorneys must be considered.
373. Oliver B. Pollak & David G. Hicks, "Please Sir, I Want Some More," - Loopholes, Austerity and the Cost of Living - Nebraska Exemption Policy Revisited, 73 NEB. L. REV. 298, 310 (1994).
374. See, e.g., Allen v. Green (In re Green), 31 F.3d 1098, 1101 (11th Cir. 1994) (holding that $1 value put the trustee on notice).
375. See, e.g., R. Wade Wetherington, Eleventh Hour Conversions: A Journey Into the Labyrinth of Prebankruptcy Planning, 69-JAN. FLA. B.J. 18, 20-22 (1995) (discussing differing judicial approaches).
376. The House and Senate Reports stated, "As under current law, the debtor will be permitted to convert non-exempt property into exempt property before filing a bankruptcy petition. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law." S. REP. NO. 95-989, at 76 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5860; H.R. REP. NO. 95-595, at 361 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6317.
377. In fact, the congressional comment on a general rule that preexisted the 1978 Code may have overstated that general rule, by the omission of qualifying language to the effect that such a mere conversion, without more, would not prove that the debtor acted fraudulently as to creditors. See, e.g., Hardin, supra note 269, at 287-88 (quoting Crawford v. Sternberg, 220 F. 73, 76 (8th Cir. 1915), as a more accurate statement of the general rule); Resnick, supra note 178, at 630 ("[T]he conversion of nonexempt to exempt property by an insolvent debtor is not, in and of itself, a fraud on creditors."). See also In re Schwarb, 150 B.R. 470, 472 (Bankr. M.D. Fla. 1992) (discussing "scant, if any, support for the notion that bankruptcy planning was approved without reservation by Congress."). Cf. Vukowich, supra note 135, at 809 (attributing the language "As under current law" to indicate congressional adoption of the pre-Code "judicially developed rules" for the limits on asset conversion).
378. Ponoroff & Knippenberg, supra note 114, at 318 (advocating "[r]econceptualizing asset conversion . . . as one of a set of interests that comprise a debtor's Exemption Property.").
379. Robin E. Phelan & John D. Penn, Professional Responsibility and the Bankruptcy Lawyer, 32-JUN. BULL. BUS. L. SEC. ST. B. TEX., 11 n.16 (1995).
380. Swift v. Bank of San Antonio (In re Swift), 3 F.3d 929, 931 (5th Cir. 1993) (citation omitted).
381. Wolfe, supra note 137, at 190-91.
382. John D. Ayer, Professional Responsibility in Bankruptcy Cases 2 (June, 1996) (copy on file with author and available from the Norton Institutes on Bankruptcy Law, Gainesville, Georgia). See also Wolfe, supra note 137, at 196.
383. Phelan & Penn, supra note 359, at 2.
384. Id.
385. Id. at 1-21. See Gustavson, supra note 139, at 668.
386. See Gustavson, supra note 139, at 668.
387. See, e.g., id. at 666. For a thoughtful examination of ethics in the bankruptcy context, see generally John D. Ayer, How to Think About Bankruptcy Ethics, 60 AM. BANKR. L.J. 355 (1986).
388. Phelan & Penn, supra note 359, at 1. See also Gustavson, supra note 139, at 666.
389. See discussion infra notes 472-477 and accompanying text.
390. See Ponoroff & Knippenberg, supra note 114, at 299-308 (discussing the issues of conceptualizing prebankruptcy asset conversions in a transfer metaphor). See also Weissing v. Levine (In re Levine), 139 B.R. 551 (Bankr. M.D. Fla. 1992).
391. See Norwest Bank Neb., N.A. v. Tveten (In re Tveten), 848 F.2d 871, 879 (8th Cir. 1988) (Arnold, J., dissenting).
392. Cf. Vukowich, supra note 135, at 770 ("Another general defect of exemption laws is that they tend to perpetuate our economic class structure. Those who have are allowed to keep; those who do not have are given nothing.").
393. See supra note 170 and accompanying text.
394. See, e.g., 11 U.S.C. § 1322(b)(2) (1994) (prohibiting modification of certain home mortgages).
395. See SULLIVAN ET AL., supra note 109, at 33-34.
396. Cf. Ponoroff & Knippenberg, supra note 114, at 299 ("[T]he phenomenon of prebankruptcy asset conversion lacks a defining concept.").
397. 11 U.S.C. § 727(a)(2) (1994).
398. Id. § 707(a).
399. Id. § 707(b).
400. FED. R. BANKR. P. 9011. See, e.g., In re Slentz, 157 B.R. 418 (Bankr. N.D. Ind. 1993).
401. In re Coplan, 156 B.R. 88 (Bankr. M.D. Fla. 1993).
402. 18 U.S.C. §§ 151-157 (1994).
403. See, e.g., Hanson v. First Nat'l Bank, 848 F.2d 866 (8th Cir. 1988); Marine Midland Bus. Loans, Inc. v. Carey (In re Carey), 938 F.2d 1073 (10th Cir. 1991); In re Swecker, 157 B.R. 694 (Bankr. M.D. Fla. 1993); Douglas County Bank v. Fine (In re Fine), 89 B.R. 167 (Bankr. D. Kan. 1988).
404. See, e.g, In re Bandkau, 187 B.R. 373 (Bankr. M.D. Fla. 1995); In re Hill, 163 B.R. 598 (Bankr. N.D. Fla. 1994); In re Curry, 160 B.R. 813 (Bankr. D. Minn. 1993); In re Larson, 143 B.R. 543 (Bankr. D. N.D. 1992).
405. See, e.g., Swift v. Bank of San Antonio (In re Swift), 3 F.3d 929 (5th Cir. 1993); Abbott Bank-Hemingford v. Armstrong (In re Armstrong), 931 F.2d 1233 (8th Cir. 1991), reh'g denied (May 30, 1991), reh'g denied (June 10, 1991); Smiley v. First Nat'l Bank (In re Smiley), 864 F.2d 562 (7th Cir. 1989); Norwest Bank Neb., N.A. v. Tveten (In re Tveten), 848 F.2d 871 (8th Cir. 1988); First Tex. Sav. Assoc., Inc. v. Reed (In re Reed), 700 F.2d 986 (5th Cir. 1983); Crews v. First Colony Life Ins. Co. (In re Barker), 168 B.R. 773 (Bankr. M.D. Fla. 1993).
406. FED. R. BANKR. P. 9011.
407. See Ponoroff & Knippenberg, supra note 114, at 302 n.290 (citations omitted).
408. Although some commentators have suggested the establishment of such conversion bar dates, there is no established prebankruptcy period akin to the ninety-day preference period that precludes conversion. See, e.g., Resnick, supra note 178.
409. See, e.g., In re Spoor-Weston, Inc., 139 B.R. 1009 (Bankr. N.D. Okla. 1992), aff'd, 13 F. 3d 407 (10th Cir. 1993); Dehmer Distrib., Inc. v. Temple, 826 F.2d 1463 (5th Cir. 1987); Crews v. First Colony Life Ins. Co. (In re Barker), 168 B.R. 773 (Bankr. M.D. Fla. 1994).
410. See Ponoroff & Knippenberg, supra note 114, at 318.
411. 11 U.S.C. § 548(a)(1) (1994).
412. Id. § 548(a)(2).
413. See Ponoroff & Knippenberg, supra note 114, at 306 (discussing asset conversion as fraudulent transfer).
414. Each statute refers to a transfer made "with intent to hinder, delay, or defraud" a creditor. 11 U.S.C. §§ 548(a)(1); 727(a)(2) (1994). See also Ponoroff & Knippenberg, supra note 114, at 305.
415. S. REP. NO. 95-989, at 76 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5862; H.R. REP. NO. 95-595, at 361 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6317.
416. See Howard, supra note 1, at 1078 ("A debtor who did not, until immediately before bankruptcy, own assets that would be exempt obviously did not need those particular assets for a minimum level of survival").
417. Albuquerque Nat'l Bank v. Zouhar (In re Zouhar), 10 B.R. 154, 156 (Bankr. D.N.M. 1981).
418. 848 F.2d 871 (8th Cir. 1988).
419. Id. at 876.
420. Id.
421. Id.
422. Lawrence Ponoroff, The Limits of Pre-Bankruptcy Planning: Denial of Discharge and Other Remedies (1993) (citing Panuska v. Johnson (In re Johnson), 880 F.2d 78, 83 (8th Cir. 1989), on remand, 124 B.R. 290 (Bankr. D. Minn. 1991); NCNB Tex. Nat'l Bank v. Bowyer (In re Bowyer), 932 F.2d 1100 (5th Cir. 1991), reh'g denied, 940 F. 2d 657 (5th Cir. 1991)) (copies on file with the Southeastern Bankruptcy Law Institute and with the author).
423. See, e.g., First Tex. Sav. Ass'n, Inc. v. Reed (In re Reed), 700 F.2d 986 (5th Cir. 1983).
424. Tveten, 848 F.2d at 878 (Arnold, J., dissenting).
425. 848 F.2d 866 (8th Cir. 1988).
426. Id. at 870 (Arnold, J., concurring).
427. Id. at 867.
428. Tveten, 848 F.2d at 879 (Arnold, J., dissenting). See also Kevin A. Schacter, Bankruptcy Estate Planning: Grounds for Denial of Discharge Under Section 727(a)(2)(A), 7 BANKR. DEV. J. 199, 224 (1990) (suggesting that asset conversion remedies reflect judicial activism).
429. 7 U.L.A. 427, 643 (1985). See Frank R. Kennedy, Reception of the Uniform Fraudulent Transfer Act, 43 S.C. L. REV. 655 (1992).
430. A list of these badges of fraud is found in In re Curry, 160 B.R. 813 (Bankr. D. Minn. 1993). The factors to be considered include whether: (1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was [not] reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the amount of the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. Id. at 818 (quoting MINN. STAT. § 513.44(b) (1992)).
431. In re Schwarb, 150 B.R. 470, 473 (Bankr. M.D. Fla. 1992).
432. First Tex. Sav. Ass'n, Inc. v. Reed (In re Reed), 700 F.2d 986 (5th Cir. 1983).
433. Taunt v. Wojtala (In re Wojtala), 113 B.R. 332 (Bankr. E.D. Mich. 1990).
434. Norwest Bank Neb., N.A. v. Tveten, 848 F.2d 871 (8th Cir. 1988).
435. Smiley v. First Nat'l Bank (In re Smiley), 864 F.2d 562 (7th Cir. 1989); Marine Midland Bus. Loans, Inc. v. Carey (In re Carey), 938 F.2d 1073 (10th Cir. 1991).
436. Tveten, 848 F.2d at 876.
437. See, e.g., Ford v. Poston, 773 F.2d 52 (4th Cir. 1985).
438. Albuquerque Nat'l Bank v. Zouhar (In re Zouhar), 10 B.R. 154 (Bankr. D.N.M. 1981).
439. Id. 420 Gepfrich v. Gepfrich (In re Gepfrich), 118 B.R. 135 (Bankr. S.D. Fla. 1990).
440. City Nat'l Bank v. Bateman, 646 F.2d 1220 (8th Cir. 1981).
441. Panuska v. Johnson, 880 F.2d 78 (8th Cir. 1989).
442. Loeber v. Loeber (In re Loeber), 12 B.R. 669 (Bankr. D. N.J. 1981).
443. Smiley v. First Nat'l Bank (In re Smiley), 864 F.2d 562 (7th Cir. 1989).
444. For a suggestion on legislative change, see infra note 525 and accompanying text.
445. 11 U.S.C. § 707(a) (1994).
446. Id. § 1307(c).
447. See, e.g., In re Zwick, 931 F.2d 1124 (6th Cir. 1991). See also Carlos J. Cuevas, Public Values and the Bankruptcy Code, 12 BANKR. DEV. J. 645, 699 (1996) ("The good faith test provides an example of how public values are incorporated into the bankruptcy process.").
448. 11 U.S.C. § 707(b) (1994).
449. In re Schwarb, 150 B.R. 470, 472 (Bankr. M.D. Fla. 1992); In re Higginbotham, 111 B.R. 955, 964 (Bankr. N.D. Okla. 1990).
450. See Schwarb, 150 B.R. at 472.
451. Taylor v. Freeland & Kronz, 503 U.S. 638, 644 (1992).
452. In re Smith, 143 B.R. 912, 914 (Bankr. D. Neb. 1992).
453. In re Ridner, 102 B.R. 247 (Bankr. W.D. Okla. 1989).
454. In re Slentz, 157 B.R. 418, 420 (Bankr. N.D. Ind. 1993).
455. Smith, 143 B.R. at 914.
456. Jackson, supra note 137 at 1445-46. See also Ponoroff & Knippenberg, supra note 114, at 283 n.277.
457. 11 U.S.C. § 522 (1994). See 2 NORTON, supra note 4, § 46:31.
458. See discussion supra Part IV.D.
459. Of course, the bankruptcy court may never have to reach the issue. Instead, it may deny the claimed exemption on the facts. For example, if state law allows an exemption for certain types of property used primarily for personal or family purposes, a court may find that the debtor's actual use does not fall within the prescript. See Hardin, supra note 269, at 290-91 (discussing First Bank v. Reid (In re Reid), 757 F.2d 230 (10th Cir. 1985)). Disallowance of an exemption on such a statutory and factual construction has nothing to do with the debtor's bad acts or bad motive. Rather, it is a factual inquiry to determine if the actual use of the property serves the intended purpose of the exemption. One commentator has called this a "balancing approach." Id. at 292.
460. See 11 U.S.C. § 541(a)(1) (1994); Morris Stern, State Exemption Law In Bankruptcy: The Excepted Creditor As a Medium for Appraising Aspects of Bankruptcy Reform, 33 RUTGERS L. REV. 70, 101 (1980).
461. See Hertz, supra note 6, at 340; Vukowich, supra note 135, at 775.
462. Hertz, supra note 6, at 340. See also Vukowich, supra note 135, at 775 n.52 (citing Lockwood v. Exchange Bank, 190 U.S. 294 (1903)).
463. Hertz, supra note 6, at 340. See also Ferguson, supra note 350, at 58 ("Property of the estate that is claimed exempt does not lose its status as property of the estate, so long as there remains an opportunity to object to the claim of exemption.").
464. Hertz, supra note 6, at 344.
465. 11 U.S.C. § 362(a) (1994).
466. 194 B.R. 818 (Bankr. E.D. Tenn. 1996).
467. 184 B.R. 935 (Bankr. E.D. Tenn. 1995).
468. 194 B.R. at 821.
469. Id. at 832 (citations omitted).
470. Id. at 835.
471. Id. See 11 U.S.C. § 522(g) (1994).
472. 194 B.R. at 835.
473. Id. (quoting In re Clemmer, 184 B.R. 935, 942 (Bankr. E.D. Tenn. 1995)).
474. Id. at 835 (citations omitted).
475. Id. 457 Id. at 836.
476. Id. (citing 3 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY ¶ 522.08 (15th ed. 1995)). See also Hardin, supra note 269, at 296; Wetherington, supra note 355, at 20.
477. Id. (citing 3 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY ¶ 522.08 (15th ed. 1995)). See also Hardin, supra note 269, at 296; Wetherington, supra note 355, at 20.
478. Id. (citing 3 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY ¶ 522.08 (15th ed. 1995)). See also Hardin, supra note 269, at 296; Wetherington, supra note 355, at 20.
479. 194 B.R. at 836-37.
480. In re Clemmer, 184 B.R. 935, 945 (Bankr. E.D. Tenn. 1995) (quoting TENN. CODE ANN. § 26-2-115(b) (1980)).
481. Id.
482. Sumerell, 194 B.R. at 836-37 (citations omitted).
483. Id. at 837 (citations omitted). See Crews v. First Colony Life Ins. Co. (In re Barker), 168 B.R. 773 (Bankr. M.D. Fla. 1993).
484. See, e.g., In re Slentz, 157 B.R. 418 (Bankr. N.D. Ind. 1993) (denying exemptions entirely); In re Spoor-Weston, Inc., 139 B.R. 1009 (Bankr. N.D. Okla. 1992) (denying exemption partially by granting trustee an equitable lien to secure repayment of funds wrongfully diverted by debtors); In re Gaudet, 109 B.R. 548 (Bankr. D.R.I. 1989) (concluding reluctantly that no discretion existed to deny exemptions in absence of clear bad faith).
485. See, e.g., In re Slentz, 157 B.R. 418 (Bankr. N.D. Ind. 1993) (denying exemptions entirely); In re Spoor-Weston, Inc., 139 B.R. 1009 (Bankr. N.D. Okla. 1992) (denying exemption partially by granting trustee an equitable lien to secure repayment of funds wrongfully diverted by debtors); In re Gaudet, 109 B.R. 548 (Bankr. D.R.I. 1989) (concluding reluctantly that no discretion existed to deny exemptions in absence of clear bad faith).
486. See, e.g., In re Slentz, 157 B.R. 418 (Bankr. N.D. Ind. 1993) (denying exemptions entirely); In re Spoor-Weston, Inc., 139 B.R. 1009 (Bankr. N.D. Okla. 1992) (denying exemption partially by granting trustee an equitable lien to secure repayment of funds wrongfully diverted by debtors); In re Gaudet, 109 B.R. 548 (Bankr. D.R.I. 1989) (concluding reluctantly that no discretion existed to deny exemptions in absence of clear bad faith).
487. In re Swarb, 150 B.R. 470 (Bankr. M.D. Fla. 1992). But see Crews v. First Colony Life Ins. Co. (In re Barker), 168 B.R. 773 (Bankr. M.D. Fla. 1993).
488. In re Swarb, 150 B.R. 470 (Bankr. M.D. Fla. 1992). But see Crews v. First Colony Life Ins. Co. (In re Barker), 168 B.R. 773 (Bankr. M.D. Fla. 1993).
489. Clemmer, 184 B.R. at 942 (citing 3 KING ET AL., supra note 458, at ¶ 522.08).
490. Wetherington, supra note 355, at 18 (describing the attorney's difficulty in giving planning advice when the outcome is dependent on a balance of federal and state laws as well as the particular judge's interpretation).
491. Id. at 20. See also Jackson, supra note 137, at 1445 (the "propriety" of a state exemption is a nonbankruptcy issue).
492. Wetherington, supra note 355, at 21 (citing In re Thomas, 172 B.R. 673 (Bankr. M.D. Fla. 1994)).
493. See, e.g., In re Schwarb, 150 B.R. at 472 (concluding that the legislative history, Code language and general equity principles place limits on asset conversion).
494. See, e.g., In re Primack, 89 B.R. 954, 958 n.5 (Bankr. S.D. Fla. 1988).
495. 156 B.R. 88 (Bankr. M.D. Fla. 1993).
496. Id.
497. Id. at 90 (citing In re Schwarb, 150 B.R. 470 (Bankr. M.D. Fla. 1992)).
498. This is a venue issue separate from that presented by debtors who file in an improper venue but where the filings usually occur for reasons unrelated to exemptions. For example, it may be more convenient for a debtor to file in the state where he is employed rather than the state in which he resides, or the case may be filed in the state where the debtor's attorney practices. See. e.g., In re Berryhill, 182 B.R. 29 (Bankr. W.D. Tenn. 1995). A debtor's move just before bankruptcy may present venue issues, as the Code requires a filing in a proper venue. See 28 U.S.C. § 1408 (1994).
499. This is a venue issue separate from that presented by debtors who file in an improper venue but where the filings usually occur for reasons unrelated to exemptions. For example, it may be more convenient for a debtor to file in the state where he is employed rather than the state in which he resides, or the case may be filed in the state where the debtor's attorney practices. See. e.g., In re Berryhill, 182 B.R. 29 (Bankr. W.D. Tenn. 1995). A debtor's move just before bankruptcy may present venue issues, as the Code requires a filing in a proper venue. See 28 U.S.C. § 1408 (1994).
500. An early critic of the opt-out pointed out that "popular opinion [held] that debtors do not change domicile in order to obtain the benefit of exemptions, because they cannot afford to do so." Hertz, supra note 6, at 349.
501. See Ponoroff and Knippenberg, supra note 114, at 289 for a critique of Coplan.
502. Bankruptcy Act of 1800, ch. 19, § 1, 2 Stat. 19, 20-21 (repealed 1803). See Koffler, supra note 17, at 78.
503. Bankruptcy Act of 1898, Pub. L. No. 55-171, § 3(1), 30 Stat. 544, 547 (repealed 1978).
504. 11 U.S.C. § 727(a)(2) (1994). See also Tabb, supra note 156, at 63 (discussing the historical shifts from acts of discharge to exceptions from discharge).
505. 18 U.S.C. § 152 (1994).
506. Id. § 153.
507. Id. § 157. Apparently, this new statute is modeled on the long-used mail, wire and bank fraud statutes that are familiar to federal law enforcement personnel, and "racketeering activity" now includes bankruptcy fraud. Id. § 1961(1).
508. See, e.g., Adrienne O'Connell McNamara & Carl A. Eklund, Ethical Quandaries of a Debtor's Lawyer, in REAL ESTATE WORKOUTS AND BANKRUPTCIES, at 11 (PLI Real Estate Law & Practice Course Handbook Series, 1993).
509. Id.
510. 18 U.S.C. § 3057(a) (1994). Prosecutions under § 157 are in unreported stages at the time of this writing and the Attorney General of the United States has focused on prosecution of bankruptcy crimes as a priority. Craig Peyton Gaumer, "Operation Total Disclosure" - A Commentary on the U.S. Department of Justice and the Prosecution of Bankruptcy Crimes, 15 AM. BANKR. INST. J. 10 (1996).
511. 18 U.S.C. § 3057(a) (1994). Prosecutions under § 157 are in unreported stages at the time of this writing and the Attorney General of the United States has focused on prosecution of bankruptcy crimes as a priority. Craig Peyton Gaumer, "Operation Total Disclosure" - A Commentary on the U.S. Department of Justice and the Prosecution of Bankruptcy Crimes, 15 AM. BANKR. INST. J. 10 (1996).
512. Gregory E. Maggs, Consumer Bankruptcy Fraud and the "Reliance on Advice of Counsel" Argument, 69 AM. BANKR. L.J. 1, 19-20 (1995). Section 152 of the Criminal Code essentially makes a crime of some acts that would be civilly fraudulent under Bankruptcy Code § 727(a), and recent opinions vary also as to the application of a reliance on advice of counsel defense in § 727(a) proceedings. Id. at 6-7, 15.
513. Pollak & Hicks, supra note 353, at 308 (citing the United States Sentencing Guidelines).
514. 11 U.S.C. § 1307(a) (1994) provides: "The debtor may convert a case under this chapter to a case under Chapter 7 of this title at any time. Any waiver of the right to convert under this subsection is unenforceable."
515. 178 B.R. 722 (Bankr. E.D. Tenn. 1995).
516. Id. at 730.
517. Id. at 725.
518. 146 B.R. 185 (Bankr. W.D. Tex. 1992).
519. 178 B.R. at 726-27.
520. Id. at 728-29.
521. 175 B.R. 920 (Bankr. N.D. Ohio 1994).
522. Id. at 921.
523. Id. at 922-23.
524. See FED. R. BANKR. P. 4003(b) (requiring objections to be filed within 30 days after "the conclusion of the meeting of creditors").
525. 175 B.R. at 924.
526. Id.
527. See, e.g., Carr v. Weissman (In re Weissman), 173 B.R. 235, 236-37 (M.D. Fla. 1994); In re Kleinman, 172 B.R. 764, 769 (Bankr. S.D.N.Y. 1994); In re Bergen, 163 B.R. 377, 379-80 (Bankr. M.D. Fla. 1994).
528. See, e.g., Alderman v. Martinson (In re Alderman), 195 B.R. 106, 109 (B.A.P. 9th Cir. 1996) (observing that exemptions serve a limited purpose in Chapter 13).
529. But see Arnold H. Wuhrman, "Mining For Gold" In Debtors' Claims of Exemptions, NACTT QUARTERLY, July 1996, at 23 (indicating one Chapter 13 trustee's scrutiny of exemptions).
530. See cases cited supra notes 383-385.
531. At least one commentator, somewhat "tongue-in-cheek," has questioned whether such debtors and their attorneys are entitled to clear guidance so that they can plan more effectively and has suggested that it may be appropriate that bankruptcy planning for affluent debtors remain a "pure crap shoot, with the outcome depending solely on the judge's reaction to the situation and the debtor." Gerald K. Smith, The Attorney's Ethical and Civil Liability Considerations for Pre-bankruptcy Planning 40 (June 6, 1996) (quoting but not endorsing the views expressed by Joseph E. Ulrich, Conversions on the Eve of Bankruptcy - There Ought To Be a Law, 1961 FAULKNER & GRAY'S BANKR. L. REV. 18, 24) (copy on file with the author). Going further, that commentator observed that, in the absence of corrective action by state or federal legislation, the courts must correct abusive exemption efforts.
532. At least one commentator, somewhat "tongue-in-cheek," has questioned whether such debtors and their attorneys are entitled to clear guidance so that they can plan more effectively and has suggested that it may be appropriate that bankruptcy planning for affluent debtors remain a "pure crap shoot, with the outcome depending solely on the judge's reaction to the situation and the debtor." Gerald K. Smith, The Attorney's Ethical and Civil Liability Considerations for Pre-bankruptcy Planning 40 (June 6, 1996) (quoting but not endorsing the views expressed by Joseph E. Ulrich, Conversions on the Eve of Bankruptcy - There Ought To Be a Law, 1961 FAULKNER & GRAY'S BANKR. L. REV. 18, 24) (copy on file with the author). Going further, that commentator observed that, in the absence of corrective action by state or federal legislation, the courts must correct abusive exemption efforts.
533. See, e.g., Ponoroff and Knippenberg, supra note 114, at 260 (quoting Resnick, supra note 178, at 642-46 for the "chilling effect" that the status of bankruptcy planning has on counsel's advice).
534. See, e.g, Jackson, supra note 137, at 1446 ("One must in each case weigh the benefits of the fresh-start policy against the harm deterred by the denial of discharge.").
535. See, e.g., Paul M. Baisier & David G. Epstein, Resolving Still Unresolved Issues of Bankruptcy Law: A Fence or an Ambulance, 69 AM. BANKR. L.J. 525 (1995). Cf. Lisa Lamkin Broome, Bankruptcy Appeals: The Wheel is Come Full Circle, 69 AM. BANKR. L.J. 541 (1995).
536. See, e.g., Paul M. Baisier & David G. Epstein, Resolving Still Unresolved Issues of Bankruptcy Law: A Fence or an Ambulance, 69 AM. BANKR. L.J. 525 (1995). Cf. Lisa Lamkin Broome, Bankruptcy Appeals: The Wheel is Come Full Circle, 69 AM. BANKR. L.J. 541 (1995).
537. See, e.g., Marshall D. Gringauz, Section 522 Exemptions: A Look at the Individual Debtor's Reduction of the Bankruptcy Estate, 5 BANKR. DEV. J. 131, 149 (1987) (suggesting no uniform resolution of the conversion problem until "Congress determines which of the competing underlying principles of the Code is superior with respect to converting property in the prebankruptcy period.").
538. For example, the National Bankruptcy Conference has taken a position supporting the abolishment of the opt-out and the restoration of a choice by the debtor between federal and state exemptions. See NATIONAL BANKRUPTCY CONFERENCE REPORT, supra note 127, at 9. See also Haines, supra note 92, at 41-42 (recommending elimination of the opt-out and establishment of the federal exemptions as a floor).
539. See, e.g., Ponoroff and Knippenberg, supra note 114, at 259-68 (discussing recommended changes). Most commentators do not, however, express confidence that it is politically feasible to expect such congressional action. Id. at 261.
540. Resnick, supra note 178, at 651.
541. Id.
542. Ponoroff and Knippenberg, supra note 114, at 262-63 (citing Theodore Eisenberg, Bankruptcy Law in Perspective, 28 UCLA L. REV. 953, 995 (1981)).
543. Id.
544. Id. at 268.
545. Some federal exemptions now include a reasonableness requirement. See, e.g., 11 U.S.C. § 522(d)(10)(D) (1994); id. § 522(d)(11)(B), (C), (E).
546. Douglas E. Deutsch, Exemption Reform: Examining the Proposals, 3 AM. BANKR. INST. L. REV. 207, 224-25 (1995).
547. See supra note 518.
548. Ponoroff and Knippenberg, supra note 114, at 261-62.
549. Professor Alan Resnick proposed in his 1978 article an amendment to § 548 of the Bankruptcy Code to provide that mere asset conversion would "never be sufficiently fraudulent to bar the debtor from discharge, regardless of intent." Resnick, supra note 178, at 652-53. See also NATIONAL BANKRUPTCY CONFERENCE REPORT, supra note 127, at 117-18 (making a similar recommendation).
550. Ponoroff & Knippenberg, supra note 114, at 261.
551. See Deutsch, supra note 519, at 562.
552. Ponoroff & Knippenberg, supra, note 114, at 265 (citing THOMAS JACKSON, THE LOGIC AND LIMITS OF BANKRUPTCY LAW 276-77 (1986)).
553. See, for example, Davis v. Davis, 105 F.3d 1017 (5th Cir. 1997), a case involving a § 523(a)(5) nondischargeable creditor's attempt to execute upon the debtor's homestead. The court held that § 522(c)(1) provided an exception that preempted the state's homestead laws and the court allowed execution upon the homestead, while the dissenting opinion found the Bankruptcy Code's adoption of state law exemptions to be determinative that the state exemption procedure should control. See id. at 1022, 1023.
554. Deutsch, supra note 519, at 219. Cf. Reed, supra note 267, at 742 (proposing an exemption trust fund). The concept of a conditional Chapter 7 discharge and its effects upon bankruptcy as we know it in America are subjects beyond the scope of this Article. See, e.g., Boshkoff, supra note 159.
555. See, e.g., Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1 (1988). See also Freeman v. Schulman (In re Freeman), 86 F.3d 478 (6th Cir. 1996) (holding that disposable income may include otherwise exempt property).
556. Deutsch, supra note 519, at 219-21.
557. Jean McGreevy, Proposed Reforms in Iowa Bankruptcy Exemptions Laws: A Solution to the Fraudulent Conveyance Dilemma, 74 IOWA L. REV. 1219 (1989).
558. See Bottrell, supra note 120, at 94-97; Georgianne L. Huckfeldt, Conversion of Nonexempt Assets to Exempt Assets Prior to Bankruptcy - A Question of Fraud?, 56 Mo. L. REV. 857 (1991).
559. Such debtors may have a need for all of the income attributable to an injury. The present statute limits a personal injury exemption to $15,000 "not including pain and suffering or compensation for actual pecuniary loss." 11 U.S.C. § 522(d)(11)(D) (1994).
560. Such a proposal to limit homesteads under state or federal law to an aggregate maximum of 5500,000 was approved by the Senate in 1996. See S. 1559, 104th Cong. (1996). The proposed legislation was not acted on in the House and, thus, failed to pass into law. See Lawrence Ponoroff, Exemption Limitations: A Tale of Two Solutions, 71 AM. BANKR. L.J. 221, 225 n.22 (1997).
561. Deutsch, supra note 519, at 225-26.
562. White, supra note 528, at 82.
563. Maggs, supra note 487, at 29-30.
564. Id. at 31.
565. See Deutsch, supra note 519, at 226 (citing Vern Countryman, Improvident Credit Extension: A New Legal Concept Aborning?, 27 ME. L. REV. 1, 18-19 (1975)).
566. JACKSON, supra note 525, at 277. For a critique of Professor Jackson's view, see Ponoroff and Knippenberg, supra note 114, at 264.
567. JACKSON, supra note 525, at 277.
568. Ponoroff and Knippenberg, supra note 114, at 265.
569. See supra notes 287-295 and accompanying text.
570. For a discussion of this problem, see supra notes 489-504 and accompanying text.
571. See Deutsch, supra note 519, at 222.