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
SUMMARY

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: antiextraterritoriality, 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-sp... (see full summary)

 
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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. PREEMPTIONS 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

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