Roadmap to Collection How to Navigate Debtor Exemptions in South Carolina, 0918 SCBJ, SC Lawyer, September 2018, #24

Author:Bruce Wallace and Kyle Brannon, J.
Position:Vol. 30 Issue 2 Pg. 24
 
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Roadmap to Collection How to Navigate Debtor Exemptions in South Carolina

Vol. 30 Issue 2 Pg. 24

South Carolina BAR Journal

September, 2018

Bruce Wallace and Kyle Brannon, J.

Introduction

You represent a judgment creditor with a sizeable, unsatisfied judgment. What do you do now? What assets can you ask the court to attach, levy, execute and sell? This article will explore the property owned by debtors that is exempt from a judgment creditor's attempts at attachment, levy, execution and seizure. Specifically, this article will address (a) the purpose and rationale of the statutory exemptions, (b) the homestead exemption and the debtor's required ownership interest in the property he is seeking to exempt, (c) exemptions related to retirement accounts and (d) exemptions related to personal injury awards. This article focuses on exemptions in the context of judgment collection under state law and does not address how to preserve a judgment lien when the judgment debtor files for bankruptcy protection.

The purpose and rationale of the exemption statute

While South Carolina's exemption statute, S.C. Code Ann. § 15-41-30, is a matter of state law,1 it may come as little surprise that the vast majority of the case law interpretations of this code section is from our bankruptcy court. This is because debtors in bankruptcy must list in their schedules and statements what property they claim as exempt and in what amount. Creditors do not always agree with those claimed exemptions, particularly if it detrimentally affects their ability to recover on their claim. What has resulted from these contests over the years are several bankruptcy court opinions in the District of South Carolina that illustrate to practitioners when exemptions can be used by debtors, and when they cannot.

Section 15-41-30 lists 15 separate exemptions that a debtor may utilize if they own the particular type of property listed therein and if they hold equity in such property up to the maximum exemption amount stated therein.2 The first, and typically most valuable, exemption is the homestead exemption, applicable to any real or personal property the debtor, or his dependent, uses as a residence.[3] Until 2006, South Carolina's homestead exemption was one of the lowest in the United States, at merely $5,000.[4] However, the South Carolina Legislature' s 2006 Home Security Act raised the homestead exemption to a maximum of $50,000 for a single debtor, or $100,000 for joint debtors both seeking to exercise the exemption.5 Critically, these exemption amounts are adjusted bi-annually by the Economic Research Division of the Revenue and Fiscal Affairs Office to take into account inflation and increases to the cost of living.[6] Through June 30, 2018, the adjusted homestead exemption for a single debtor is $59,100, and $118,200 for joint debtors.7 The inflation adjustments effective for July 1, 2018 through June 30, 2020 are $60,975 for a single debtor and $121,950 for a joint debtor.[8]

The other 14 exemptions stated in the statute (using the adjusted July 1, 2018 to June 30, 2020 figures) are: (1) the debtor's interest, not to exceed $6,100, in one motor vehicle; (2) the debtor's interest, not to exceed $4,875, in household furnishings and goods; (3) the debtor's aggregate interest, not to exceed $1,225, in jewelry; (4) if the debtor does not claim a homestead exemption, the debtor's aggregate interest in cash and other liquid assets, not to exceed $6,100; (5) the debtor's aggregate interest, not to exceed $1,825, in professional books and tools of the trade of the debtor or his dependent; (6) known as the "wildcard" exemption, the debtor's aggregate interest in any property, not to exceed $6,100 in value of any unused exemption referenced hereinabove; (7) any unmatured life insurance contract, other than a credit life insurance contract; (8) the debtor's aggregate interest, not to exceed $4,875 and less any amounts transferred under Section 542(d) of the Bankruptcy Code, in any accrued dividend, interest under or loan value of an unmatured life insurance contract owned by the debtor, in which the insured is the debtor or a dependent; (9) professionally prescribed health aids for the debtor or a dependent of the debtor; (10) the debtor's right to receive, or property traceable to, certain benefits (e.g. social security, unemployment, veteran's, disability, alimony or child support); (11) the debtor's right to receive, or property traceable to, certain awards in connection with the debtor being a victim of a crime or bodily injury to the debtor or a person whom the debtor is a dependent; (12) the debtor's right to receive individual retirement accounts and annuities described in Section 408 of the Internal Revenue Code; (13) the debtor's interest in an ERISA-qualified pension plan; and (14) the debtor's aggregate interest, not to exceed $3,000, in firearms.9

"The rationale behind the exemptions set forth in § 15-41-30 is 'to protect from creditors a certain portion of the debtor's property' ... Exemptions find a genesis in the public policy of preserving for debtors certain property that is free from creditor claims, levy, and attachment. "The historical purpose of exemption laws has been to protect a debtor from his creditors, to provide him with the basic necessities of life so that even if his creditors levy on all of his nonexempt property, the debtor will not be left destitute and a public charge.'"[10]

Based on these important public policy considerations, the court construes the exemptions liberally in favor of debtors.11 Accordingly, an "objecting party has the burden of proving that the exemptions are not properly claimed" by the debtor.12

The homestead exemption

Given the critical importance of the debtor's interest in his homestead, and the fact that a person's home is typically the most valuable asset he owns, it is not surprising that the homestead exemption is one of the most commonly litigated exemptions. While the question of whether a debtor resides in a certain piece of property may seem relatively straightforward, our courts have had the opportunity to examine certain fact scenarios that have clarified what it means to "reside" in property.

Does the debtor "reside" in the property?

Holden v. Cribb

In Holden v. Cribb, the S.C. Court of Appeals held that an incarcerated debtor was entitled to a homestead exemption in the property he resided in immediately prior to his incarceration.13 The court looked to the S.C. Supreme Court's decision in Nagy v. Nagy-Horvath for assistance in defining "reside" or "residence": "By what is apparently the majority rule, the word 'reside' or 'residence' as used in statutes denotes the place of one's fixed abode, not for a temporary purpose alone, but with the intention of making such place a permanent home. "The term residence means the place where a person has his true, fixed and permanent home and principal establishment to which he has, whenever he is absent, an intention of returning.' It is well established that a person's place of residence is largely one of intent to be determined under the facts and circumstances of each case. No specified length of time is required to fix the residence contemplated by our statute; the act and intent and not the duration of the residence is determinative."14

Therefore, this "intent" analysis means that the court will look at facts beyond whether the debtor sleeps at the property in determining if he truly "resides" there. In Holden, the court of appeals noted that it did not believe the judgment debtor had any intention of making the detention center his permanent residence.[15] In addition, there was no evidence the judgment debtor intended to transfer his residence from the property he lived in immediately prior to incarceration.16 "To effect a change of residence or domicile, there must be an actual abandonment of the first domicile, coupled with an intention not to return to it, and there must be a new domicile acquired by actual residence in another place or jurisdiction, with the intention of making the last acquired residence a permanent home."17

In re Vance

In In re Vance, the Bankrupt- c y Court for the District of South Carolina held that the debtor was not entitled to claim a homestead exemption in property where he claimed to have merely slept on an air mattress for a period of time shortly before filing his bankruptcy case.[18] In support of this holding, the court noted: (a) the subject property did not have electricity running water or furniture; (b) the rest of the debtor's family unit resided at another property in Rock Hill, where he also resided before trying to claim the subject property as his homestead; (c) the debtor testified that he did not intend to live at the subject property permanently because it was...

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