Hawaii State Exemptions from Attachment and Execution: Time for an Overhaul?

• Jurisdiction: Hawaii,United States
• Citation: Vol. 19 No. 05
• Publication year: 2015

Hawaii State Exemptions from Attachment and Execution: Time for an Overhaul?

David C. Farmer

The Proposed Legislation

During Hawaii's 28th legislative session in 2015, two measures (HB 375 H.D. 1 and SB 993) titled "Relating to Property" proposed to (1) amend the threshold amount for the exemption of real property from attachment or execu-tion¹ initially to the fair market value of the property (essentially giving debtors an unlimited exemption as do Florida and Texas exemption statutes); (2) completely exempt a debtor who is not delinquent in income taxes, real property taxes, or mortgages; (3) amend the personal property exemption for an automobile be based on fair market values;²and (4) exempt child support, EITC refunds, and child support tax credit from attachment and execution.

The purpose of the bills was stated to be "to create a safety net of assets for Hawaii families who struggle to earn a living under heavy debt obligations."

After receiving only one supporting testimony in favor³ and opposition from several others in both House and Senate hearings, including the Department of Taxation and the Attorney General, the House bill was amended to provide a blank amount to presumably raise the real property exemption from $30,000, the amount in effect since 1978.

Both measures died in committee but remain to be considered next session.

Definitions

Black's Law Dictionary defines an exemption as a "privilege allowed by law to a judgment debtor, by which he may retain property to a certain amount or certain classes of property, free from all liability to levy and sale on execution, attachment, or bankruptcy." For over a century, exemption laws have protected debtors and their dependents, and afforded them significant rights.

Execution can refer to any method of enforcing a money judgment. However, in debt collection, execution usually refers to the specific method of getting a writ of execution from the court clerk to give to the sheriff authorizing the seizure of the debtor's property and sell it so that the net proceeds can be given to the creditor in satisfaction of its debt.

After the sale, the money collected is first used to pay the expenses of the sale. In some states, including Hawaii, if there are any liens on the property that are senior to the judgment creditor, then the buyers must accept the property with the senior liens. Junior liens are effectively extinguished; junior creditors do not receive anything from the distribution, nor do their liens survive the sale of that particular property. The judgment creditor is paid up to the amount of the judgment with the balance, if any, going to the debtor as an exemption.⁴

Although the modern law of execution derives from the common law writ of fieri facias, today it is largely determined by state law.⁵ Only a creditor with an unpaid, unsecured debt needs to resort to execution. A secured creditor can, in most cases that do not include mortgages, take or foreclose on the collateral without going to court or using the sheriff.

Although the purpose of exemption laws is to provide a minimum means of survival for an individual or a family, the relationship between what is exempt and what is necessary for survival is a very tenuous one. Indeed, especially considering that everyone has the same basic needs for survival, exemption laws vary greatly among the states. Part of this variation and the meager exemptions allowed by many states stem from the fact that many of the laws were enacted in the 1800s and have not been updated since. State exemptions are not adjusted for inflation.

However, exempt property does make it more difficult for the sheriff to levy property, because the debtor could be entitled to damages if exempt property is levied. In most cases, the creditor must post a bond or indemnify the sheriff for the possibility of taking exempt property, or the creditor may even get a court order to declare that certain property is nonexempt, if the property's status is unclear.

Exemption Laws History

All states have laws that exempt certain property from being levied by unsecured creditors. Exemption laws do not apply to the collateral of a secured creditor. These are the same exemptions used in Chapter 7 under the Bankruptcy Code, although 18 states allow the use of federal exemptions for bankruptcy.

Exemption laws arose in the United States for various reasons. Canons of decency in early English common law initially provided debtors an exemption for necessary clothing. English common law eventually evolved to include exemptions for bare essentials, clothing, bedding, and tools of trade. However, these laws reflected little tolerance for debtors and recognized exemptions for bare essentials and only those minimal assets necessary for the debtors' survival.

In the United States, the northeastern states adopted similar restrictive exemption laws, while the southern and western states responded to the economic depressions of the eighteenth and nineteenth centuries by enacting exemption laws that provided debtors with greater protection.

Early exemption laws were also enacted as a way to encourage settlement. For instance, the Federal Homestead Act of 1862 exempted newly acquired land from debts accrued prior to the debtor's acquisition of the land. Additionally, many states enacted their own homestead laws that exempted the homestead and, in some states, a certain amount of personal property.

Purposes of Exemption Laws

Exemption laws serve a variety of purposes. First, exemption laws promote societal interests. Courts have held public policy supports affording debtors with exemption rights.⁶ One primary policy reason for exemption laws is to "protect the family unit from impoverishment, relieve society of the burden of supplying subsidized housing, and provide debtors with a means to survive . . . ."⁷Exemption laws have also been found to promote the following social functions, including to:

(1) provide the debtor with property necessary for his or her physical survival;

(2) protect the dignity, culture, and religious identity of the debtor;

(3) enable the debtor to rehabilitate himself or herself financially and earn income in the future;

(4) protect the debtor's family from adverse consequences of impoverishment; and

(5) shift the burden of providing the debtor and his or her family with minimal financial support from society to the debtor's creditors.⁸

Another purpose of exemption laws is to rehabilitate the debtor and to encourage the repayment of debts. Exemption laws emphasize rehabilitation of the debtor by...