In re Benn
491 F.3d 811, 2007 U.S. App. LEXIS 16248 (2007)
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Rule of Law:
Missouri Revised Statutes § 513.427 is an "opt-out" statute that restricts debtors to exemptions specifically enumerated in state or other federal law; it does not create a substantive exemption for all property that is merely not subject to attachment and execution.
Facts:
- Steven and Jennifer Mohrhard had an interest in a state and federal income tax refund attributable to the period before their bankruptcy filing.
- On November 14, 2003, the Mohrhards filed a petition for relief under Chapter 7 of the Bankruptcy Code.
- Charles Benn, Jr. had an interest in a state and federal income tax refund attributable to the period before his bankruptcy filing.
- On December 31, 2003, Benn filed a petition for relief under Chapter 7 of the Bankruptcy Code.
Procedural Posture:
- Steven and Jennifer Mohrhard and Charles Benn, Jr. ('Debtors') filed separate Chapter 7 bankruptcy petitions in the U.S. Bankruptcy Court for the Eastern District of Missouri.
- In their filings, the Debtors claimed their anticipated state and federal income tax refunds were exempt from the bankruptcy estate.
- James S. Cole, the Trustee, objected, arguing the refunds were property of the estate.
- The bankruptcy court ruled in favor of the Trustee, ordering the Debtors to turn over the refunds.
- The Debtors appealed to the Bankruptcy Appellate Panel (BAP) for the Eighth Circuit.
- The BAP reversed the bankruptcy court's decision, holding that the tax refunds were exempt under Missouri law.
- The Trustee, James S. Cole, as appellant, appealed the BAP's decision to the U.S. Court of Appeals for the Eighth Circuit.
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Issue:
Does Missouri Revised Statutes § 513.427 create a substantive exemption for any property not subject to attachment and execution, such as tax refunds, thereby excluding them from a debtor's bankruptcy estate?
Opinions:
Majority - Colloton, Circuit Judge
No. Missouri Revised Statutes § 513.427 is an 'opt-out' statute and not a statute that creates a new, independent exemption. The court rejected the Debtors' argument that any property 'not subject to' attachment is 'exempt,' reasoning that 'exemption' is a term of art referring to property explicitly protected by a legislative act for public policy reasons. The court found that the Debtors' interpretation would lead to anomalous results, such as exempting partnership interests and causes of action, which is inconsistent with the broader statutory scheme for creditor remedies. By analyzing the statute's text, structure, and relationship with other Missouri exemption laws (like § 513.430), the court concluded that § 513.427 merely directs debtors to use Missouri's specific list of exemptions instead of the federal list in § 522(d).
Analysis:
This decision clarifies that Missouri's bankruptcy opt-out statute, § 513.427, does not create a broad, catch-all exemption for property that is procedurally difficult for creditors to seize. It solidifies the principle that bankruptcy exemptions must be explicitly granted by statute, not inferred from limitations on pre-bankruptcy creditor remedies. The ruling prevents debtors from using the statute as a loophole to shield assets like tax refunds, partnership interests, or unliquidated legal claims that are not specifically enumerated as exempt, thereby ensuring a larger potential estate for distribution to creditors.
