Look to the States: How the State-Specific Interpretation Clarifies BAPCPA's § 522 Ambiguity and Protects State Exemption Laws

• Author: Kay E. Oskvig
• Pages: 867-892

867

Look to the States: How the State-Specific

Interpretation Clarifies BAPCPA’s § 522

Ambiguity and Protects State Exemption

Laws

Kay E. Oskvig

ABSTRACT: After Congress revised the Bankruptcy Code in 2005, courts

have taken divergent views about how to apply 11 U.S.C. § 522 in relation

to state exemptions. Three main interpretations have developed: anti-

extraterritoriality, preemption, and state-specific. This Note advocates the

state-specific approach, as it prevents forum shopping without rendering

state exemption laws void or futile. The state-specific view requires courts to

consider both state case law and public policy. When state statutes remain

silent, courts applying the state-specific interpretation should liberally

construe the exemption statutes in favor of the debtor and allow

extraterritorial application.

I. INTRODUCTION ...................................................................................... 869

II. DEVELOPMENT OF DIVERGENT INTERPRETATIONS AFTER BAPCPA ...... 870

A. GOALS OF BANKRUPTCY EXEMPTIONS ................................................ 871

B. EXEMPTION PLANNING ..................................................................... 873

C. BAPCPA’S EFFORT TO DISCOURAGE FORUM SHOPPING ...................... 874

III. EXTRATERRITORIAL APPLICATION OF EXEMPTIONS .............................. 875

A. AVAILABILITY OF FEDERAL EXEMPTIONS TO NON-RESIDENT

DEBTORS ......................................................................................... 876

B. EXTRATERRITORIAL APPLICATION OF STATE EXEMPTION LAWS .......... 877

1. Anti-Extraterritoriality Interpretation: Exemptions

Cannot Apply Across State Boundaries ................................ 878

 J.D. Candidate, The University of Iowa College of Law, 2014; B.A., Iowa State

University, 2010. The author would like to thank Professor Patrick Bauer for his advice on

selecting this topic, and Phil Garland, Eric Lam, Kyle Oskvig, and Seth Tracy for their

comments.

868 IOWA LAW REVIEW [Vol. 99:867

2. Preemption Interpretation: Federal Laws Supersede

State Exemption Laws ............................................................ 878

3. State-Specific Interpretation: Individualized Analysis ......... 879

IV. INTERPRETING STATE AND FEDERAL EXEMPTIONS UNDER § 522 .......... 879

A. PREEMPTION’S PREFERENCE FOR BROAD FEDERAL PURPOSES OVER

STATE COURT HOLDINGS AND STATUTES ........................................... 879

1. The Iowa Cases: How In re Stephens and In re Williams

Preempted Iowa’s Precedent ................................................. 880

2. Extensions of the Preemptive View: In re Shell and In re

Adams ....................................................................................... 882

B. STATE-SPECIFIC TREATMENT OF STATE PRECEDENT ........................... 883

1. Deference to State Statutory Language ................................ 884

2. Deference to State Court Holdings Denying

Extraterritorial Exemptions .................................................. 884

3. Liberal Application in Favor of the Debtor .......................... 886

V. COURTS SHOULD USE THE STATE-SPECIFIC INTERPRETATION IN

ORDER TO LIBERALLY CONSTRUE EXEMPTIONS IN FAVOR OF

DEBTORS AND PROVIDE MARKET STABILITY .......................................... 887

A. THE STATE-SPECIFIC INTERPRETATION ENCOURAGES COURTS TO

CONSTRUE EXEMPTIONS LIBERALLY IN FAVOR OF DEBTORS ................ 888

B. THE STATE-SPECIFIC INTERPRETATION OFFERS GREATER STABILITY

AND PREDICTABILITY ........................................................................ 889

C. FURTHER RECOMMENDATIONS TO INCREASE CLARITY ........................ 891

VI. CONCLUSION ......................................................................................... 892