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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 03-6095NI

________________

In re: *

*

Samuel Irish and *

Stephanie J. Irish *

*

Debtors. *

*

*

Wil L. Forker, Trustee *

* Appeal from the United States

Plaintiff - Appellant, * Bankruptcy Court for the Northern

* District of Iowa

v. *

*

Stephanie J. Irish *

*

Defendant - Appellee. *

_____

Submitted: April 12, 2004

Filed: May 20, 2004

_____

Before DREHER, MAHONEY, and VENTERS, Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

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 The Honorable William L. Edmonds, United States Bankruptcy Court for

the Northern District of Iowa.

2

This is an appeal from an order of the bankruptcy court1 holding that $3,300.00

in accrued and unpaid wages owing to Stephanie Irish are totally exempt from

property of her bankruptcy estate. The singular issue on appeal hinges on whether

the language of Iowa Code § 627.6(9)(c) allows a debtor in bankruptcy to claim a

general exemption of up to $1,000.00 in accrued, unpaid wages that are owing on the

petition date in addition to any amounts the debtor would be able to exempt against

a garnishing creditor. For the reasons stated below, we affirm the order of the

bankruptcy court.

I. STANDARD OF REVIEW

In appeals from the bankruptcy court, legal conclusions are reviewed de novo.

 Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764, 765 (8th Cir. 2000); Official

Committee of Unsecured Creditors v. Farmland Industries, Inc., 296 B.R. 188, 192

(B.A.P. 8th Cir. 2003).

II. BACKGROUND

Stephanie Irish (“Stephanie” or “Irish”) works as a school teacher. Under her

employment contract, she is paid on a twelve-month basis, but she does not work a

twelve-month year. For the 2002-2003 school year, her teaching responsibilities

ended on July 2, 2003, and on July 11, 2003, Stephanie and her husband filed a joint

petition under Chapter 7 of the Bankruptcy Code. At the time of filing, Stephanie had

accrued, unpaid, net wages of $3,300.00 for the months of July and August, and her

expected calendar year earnings for 2003 were between $16,000.00 and $24,000.00.

Only consumer debts were listed in the Debtors’ schedules. 

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In her bankruptcy schedules, Stephanie claimed the entire amount of her

accrued, unpaid, summer wages as an asset exempt from the bankruptcy estate. The

bankruptcy court approved Stephanie’s entitlement to claim the exemption over the

objection of the Chapter 7 panel trustee, and this appeal followed. 

III. DISCUSSION

The Trustee argues that under the language of Iowa Code § 627.6(9)(c), and

the cases interpreting it, Irish impermissibly used both a general wage exemption

statute and an exemption from garnishment statute to keep her accrued, unpaid wages

from the reach of creditors in her bankruptcy case. Irish, on the other hand, contends

that she is entitled to exempt her accrued, unpaid wages under § 627.6(9)(c), which

provides:

 A debtor who is a resident of this state may hold exempt from execution

the following property

....

9. Any combination of the following, not to exceed a value of

five thousand dollars in the aggregate:

a. Musical instruments, not including radios, television

sets, or record or tape playing machines, held primarily for

the personal, family, or household use of the debtor or a

dependent of the debtor.

b. One motor vehicle.

c. In the event of a bankruptcy proceeding, the debtor's

interest in accrued wages and in state and federal tax

refunds as of the date of filing of the petition in

bankruptcy, not to exceed one thousand dollars in the

aggregate. This exemption is in addition to the limitations

contained in sections 642.21 and 537.5105.

Iowa Code § 627.6(9)(c).

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 The Federal garnishment statutes apply unless Iowa law provides for

greater restrictions. 15 U.S.C. § 1677.

3

 Irish and her husband did not claim any tax refund amounts as exempt.

4

In turn, § 642.21(1)(b) states that “[t]he disposable earnings of an individual

are exempt from garnishment to the extent provided by the Consumer Protection

Act,” 15 U.S.C. §§ 1671-77, and for employees earning between $16,000.00 and

$24,000.00 the maximum amount of earnings that may be garnished by a single

creditor is $800.00 in a calendar year. Under 15 U.S.C. § 1673, the maximum amount

of weekly disposable earnings subject to a creditor’s garnishment is 25%. Like §

1673, Iowa Code § 537.5105 limits the amount of a garnishment arising from a

consumer credit transaction to 25% of the employee’s weekly earnings.2

Interpreting these statutes, Irish argues: (1) that she is entitled to exempt from

property of the estate 75% of her net disposable earnings pursuant to Iowa Code §

537.5105 and 15 U.S.C. § 1673, thereby exempting $2,475.00 of her $3,300.00 of

accrued, unpaid wages; (2) that only $800.00 of her accrued, unpaid wages are

subject to the claims of the Trustee as a single creditor under Iowa Code §

642.21(1)(b), resulting in a further exemption of $25.00; and (3) that she is entitled

to an exemption of $1,000.00 in the total amount of accrued, unpaid wages subject

to a creditor’s garnishment rights under § 627.6(9)(c).3

 Thus, Irish contends, she has

$3,500.00 in total wage exemptions to cover her $3,300.00 in accrued, unpaid wages.

In reaching the merits of this appeal, we must determine that accrued, unpaid wages

are property of the bankruptcy estate, that a debtor is entitled to use Iowa garnishment

protection statutes in bankruptcy, and interpret § 627.6(9)(c) to determine the total

amount of accrued, unpaid wages that a debtor may exempt.

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A. Accrued Wages as Property of the Estate

Wages that are earned pre-petition but that have not yet been paid are property

of the estate. 11 U.S.C. § 541(a)(1) (providing that the bankruptcy estate is

comprised of “all legal or equitable interests of the debtor in property as of the

commencement of the case”); Aveni v. Richman, 458 F.2d 972, 973 (6th Cir. 1972)

(holding that wages that have accrued but are unpaid as of the date of the filing of a

petition are property of the estate), cert. denied, 409 U.S. 877, 93 S. Ct. 129, 34 L. Ed.

2d 131 (1972); Thomas v. Beneficial of Missouri (In re Thomas), 215 B.R. 873, 875

(Bankr. E.D. Mo. 1997) (same). Cf. 11 U.S.C. § 541(a)(6) (excepting earnings from

property of the estate for services performed by an individual debtor after the

commencement of the case); Kokoszka v. Belford, 417 U.S. 642, 648, 94 S. Ct. 2431;

41 L. Ed. 2d 374 (1974) (holding that a debtor’s entitlement to an income tax refund,

accrued and unpaid when the debtor filed the petition, was property of the estate

because it was not an entitlement to future wages). Accrued, unpaid wages are

property of the estate because the debtor has both a legal and an equitable interest in

receiving payment as of the commencement of the case and those accrued wages do

not represent monies earned post-petition.

B. Garnishment Protections as an Iowa Exemption

Irish argues that under 15 U.S.C. § 1672(c) – specifically incorporated into

Iowa law by Iowa Code § 642.21 – a bankruptcy trustee’s use of her accrued, unpaid

wages constitutes a garnishment within the meaning of the statute inasmuch as

bankruptcy is a “legal or equitable procedure through which the earnings of any

individual are required to be withheld for payment of any debt.” Thus, Irish contends,

she is entitled to use the garnishment protection statutes in her bankruptcy

proceeding.

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The Supreme Court – dealing with a claimed exemption of a tax refund – held

that the Consumer Credit Protection Act, 15 U.S.C. § 1671-77, was intended to

prevent consumers from entering bankruptcy, and that the Act was never intended to

“alter the delicate balance of a debtor’s protections and obligations during bankruptcy

procedure.” Kokoszka, 417 U.S. at 651-52. Like Irish, the debtor in Kokoszka argued

that the taking of custody by the trustee of a tax refund was a "garnishment." Id. at

649. Significantly, that decision was predicated on the Court's finding that income

tax refunds were not "earnings" of the bankrupt within the meaning of 15 U.S.C. §

1672(c). Id. at 651. Nevertheless, courts have expressly refused to construe the

Consumer Credit Protection Act as providing an additional exemption in bankruptcy.

See In re Brissette, 561 F.2d 779, 784-85 (9th Cir. 1977) (“While the Kokoszka Court

did not directly hold that the [Consumer Credit Protection Act] is not a federal

bankruptcy exemption statute, such a conclusion is compelled by its reasoning and

the legislative history ... there discussed.”); Riendeau v. Canney (In re Riendeau),

293 B.R. 832, 838 (D. Vt. 2002) (“[I]t is clear to this Court that the CCPA's purpose

is to keep debtors out of bankruptcy, and not to expand their protections once they

have filed their bankruptcy petition.”), aff’d, 336 F.3d 78 (2nd Cir. 2003). However,

a state may incorporate its own garnishment protection statute into its own exemption

list – and even adopt the Federal Consumer Credit Protection Act as a state law

exemption. Brissette, 561 F.2d at 786 (stating that while the Consumer Credit

Protection Act is not an exemption statute to which the Bankruptcy Code referred,

through the process of “double adoption” the Consumer Credit Protection Act could

be adopted into California law as an exemption, which is then adopted by the

Bankruptcy Code through 11 U.S.C. § 522(b)(2)(A)). 

Iowa has opted out of the federal exemptions in 11 U.S.C. § 522(d). Iowa

Code § 627.10. Thus, the validity of bankruptcy exemptions in Iowa stems from 11

U.S.C. § 522(b)(2)(A), which provides that a debtor may exempt from property of the

estate any property “that is exempt under Federal law, other than under subsection (d)

of this section, or State or local law.” Thus, even if the Federal Consumer Credit

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Protection Act is not applicable in bankruptcy – an issue which we need not decide

today – Iowa law may provide the basis for claiming an exemption based on

garnishment protection statutes. 

Two earlier cases from Iowa held that a debtor is not entitled to claim an

exemption in accrued, unpaid wages by utilizing the garnishment exemptions unless

there is actually a garnishing creditor. In re Davis, 136 B.R. 203, 208 (Bankr. S.D.

Iowa 1991) (holding that Iowa’s exemptions in garnishment proceedings do not apply

to the trustee in bankruptcy because pre-petition wages become property of the estate

upon filing and requiring the debtor to turn over property of the estate does not

constitute a garnishment); In re Madia, No. 86-00453S (Bankr. N.D. Iowa Dec. 4,

1987) (same). According to Davis and Madia, in the absence of a garnishing creditor,

the necessary prerequisite for invoking the garnishment exemptions provided in Iowa

Code §§ 537.5105 and 642.21 is simply absent. 

Davis and Madia, however, misread the statutes. We are convinced that Iowa’s

garnishment protection statutes are available for a debtor’s use in bankruptcy for the

simple reason that the Iowa Code expressly makes Iowa’s garnishment protection

statutes applicable in bankruptcy. Iowa Code § 627.6(9)(c) (stating that a portion of

accrued wages is exempt from the bankruptcy estate and that the exemption is in

addition to the limitations contained in Iowa’s garnishment protection statutes).

Moreover, the Iowa General Assembly specifically entitled § 642.21, “Exemptions

from net earnings,” and all state law exemptions are made applicable to bankruptcy

proceedings under 11 U.S.C. § 522(b)(2)(A). Cf. 15 U.S.C. § 1673 (entitled

“Restriction on garnishment”). “Exempt property” means that property in possession

of a debtor which, by law, a creditor cannot attach to satisfy a debt, and the purpose

of an exemption is to prevent a debtor from becoming destitute. Black’s Law

Dictionary 593 (7th ed. 1999). Additionally, a bankruptcy proceeding easily falls

within the ambit of Iowa’s adopted definition of “garnishment,” which is any “legal

or equitable procedure through which the earnings of any individual are required to

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be withheld for payment of any debt.” 15 U.S.C. § 1672(c); Iowa Code § 642.21

(incorporating 15 U.S.C. § 1672 into Iowa law). The lack of a garnishing creditor in

the traditional sense, as advocated by Davis and Madia, has no bearing on whether

a debtor in bankruptcy can utilize a state law exemption for net wages because the

Iowa General Assembly specifically determined that a debtor could exempt a portion

of his or her net wages from creditors, and the General Assembly made that

exemption applicable to any procedure whereby a worker’s earnings would be used

to satisfy a debt. Bankruptcy is precisely such a procedure. Therefore, even though

the federal garnishment protection statutes may not be available as an exemption in

bankruptcy under Kokoszka and its interpreting cases, as a matter of Iowa law, and

under 11 U.S.C. § 522(b)(2)(A), Iowa’s garnishment protection statutes are applicable

to bankruptcy proceedings.

C. Interpretation of Iowa Code § 627.6(9)(c).

The crux of this matter concerns the statutory interpretation of § 627.6(9)(c)

of the Iowa Code. 

Under Iowa law, when the express terms of a statute provide a plain meaning,

a court should not look beyond those express terms. Benjegerdes v. Reindl (In re

Reindl), 671 N.W.2d 466, 469 (Iowa 2003). In interpreting a statute, courts attempt

to give effect to the general assembly's intent in enacting the law, which is generally

gleaned from the language of the statute. Griffin Pipe Products Co. v. Guarino, 663

N.W.2d 862, 864-65 (Iowa 2003). “The court is not at liberty to read into the statute

provisions which the legislature did not see fit to incorporate, nor may it enlarge the

scope of its provisions by an unwarranted interpretation of the language used.”

Moulton v. Iowa Employment Sec. Comm'n, 34 N.W.2d 211, 216 (1948), superceded

by statute on other grounds, Iowa Code § 96.5(1)(d). Only when a statute is

ambiguous does a court examine the legislative history to ascertain legislative intent.

Midwest Auto. III, L.L.C. v. Iowa DOT, 646 N.W.2d 417, 425 (Iowa 2002).

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Ambiguity in a statute arises if reasonable persons can disagree as to its application.

State ex rel. Miller v. Midwest Pork, L.C., 625 N.W.2d 694, 700 (Iowa 2001). 

Both Davis and Madia, supra, interpret the language of the statute –

specifically the part reading, “This exemption is in addition to the limitations

contained in sections 642.21 and 537.5105" – as being limited by the $1,000.00

aggregate cap for accrued wages and tax refunds. That is, “§ 627.6(9)(c) should be

read to mean a debtor may claim up to $1000 in accrued wages and income tax

refunds as exempt and that exemption is not limited by [any lesser amounts that the

debtor could exempt under] § 642.21 and 537.5105.” Davis, 136 B.R. at 208. Davis

and Madia argue that reading the statute as only allowing the trustee to attach 25%

of any garnishment recovery exceeding $1,000.00 – subject to the maximum dollar

amounts as stated in § 537.5105 – would render the first sentence of § 627.6(9)(c)

meaningless inasmuch as the combined aggregate could exceed the $1,000.00 limit.

In short, under the dictates of Davis and Madia, a debtor could never claim more than

an exemption of $1,000.00 in accrued, unpaid wages regardless of the amount a

debtor could exempt under the garnishment statutes.

Irish, however, argues that Davis and Madia rewrite the statute, to ostensibly

comport with the intent of the General Assembly, so that the statute reads that a

debtor may exempt up to $1,000.00 in accrued wages – not in addition to amounts

retained under the garnishment protections – but as a limitation on any amounts in

excess of $1,000.00 that a debtor could otherwise protect under Iowa non-bankruptcy

law. Unlike Davis and Madia, Irish interprets the “in addition to” language of §

627.6(9)(c) according to its common meaning – that is, something added that

increases the value of the general exemption.

Because the statute is ambiguous, inasmuch as reasonable persons could

disagree on the total amount of wages a debtor is able to exempt from property of the

estate, the amount of that exemption depends on the intent of the legislature. When

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a statute is ambiguous, the Iowa General Assembly specifically details factors for a

court to consider:

If a statute is ambiguous, the court, in determining the intention of the

legislature, may consider among other matters:

1. The object sought to be attained.

2. The circumstances under which the statute was enacted.

3. The legislative history.

4. The common law or former statutory provisions, including

laws upon the same or similar subjects.

5. The consequences of a particular construction.

6. The administrative construction of the statute.

7. The preamble or statement of policy.

Iowa Code § 4.6.

 Under the rules of statutory interpretation, we think Davis and Madia have

tortured the plain language and the intent of § 627.6(9)(c). Before 1981, no general

exemption existed in Iowa for accrued and unpaid wages, but a debtor could exempt

from property of the estate monies received from pensions and workers’

compensation benefits. §§ 627.8 (1979); 627.13 (1979). In 1981 the Iowa General

Assembly passed an act “relating to the properties that are exempt from judicial

process,” adding new provisions to the general exemption statutes. 81 Acts, ch. 182,

§§ 2-3. The new provisions were added specifically so that Iowa could opt out of the

federal exemptions in 11 U.S.C. § 522(d), and the new general exemption statutes

were enacted for the purpose of complying with § 522(b)(1) of the Bankruptcy Code.

After the 1981 changes, a debtor in Iowa could specifically exempt social security

benefits, unemployment compensation, local public assistance benefits, veterans

benefits, disability or illness benefits, and payments under a pension plan. Iowa Code

§ 627.6(9)(a-e) (1985). In addition, a debtor could exempt up to $5,000.00 in musical

instruments, one motor vehicle, professional tools of the trade, a wagon team, and

significantly, “in the event of a bankruptcy proceeding, the debtor’s interest in

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accrued wages and in state and federal tax refunds as of the date of filing of the

petition in bankruptcy, not exceeding one thousand dollars in the aggregate.” §

627.10(a-e) (1985). Like its modern counterpart, § 627.10(e) specifically stated that

the wage exemption “is in addition to the limitations contained in sections 642.21 and

537.5105.” Section 642.21 is specifically entitled “Exemption from net earnings,”

and it is entirely consistent that the general exemption statute of § 627.6(9)(c) would

incorporate the more specialized exemption statute of § 642.21 as one of several

alternative methods for reaching a $5,000.00 aggregate cap on the amount a debtor

may exempt from property of the estate. 

Additionally, Irish argues that the construction given to the general exemption

statute by Davis and Madia contravenes the overall purpose of the general exemption

statute because under that construction she would be afforded lesser rights in

bankruptcy than if she had never filed bankruptcy. For example, a person having

$4,000.00 in accrued, unpaid wages outside of bankruptcy could exempt at least

$3,000.00 from a garnishment action – if not more – whereas if that same person were

in bankruptcy the amount of the exemption would only be $1,000.00 – resulting in

a $2,000.00 penalty for filing bankruptcy. This construction is contrary to the

mandate that Iowa’s general exemptions are to be liberally construed to effectuate the

purpose of “support[ing] and protect[ing] the family, the spouse and children, and to

educate and train the young.” In re Grilk's Will, 231 N.W. 327, 328 (Iowa 1930).

The Trustee argues that, as a practical matter, Irish’s construction of the statute

makes no sense. In essence, adding the $1,000.00 exemption with a garnishment

exemption of 75% of aggregate disposable weekly earnings would mean that a debtor

would have to accrue more than $4,000.00 in unpaid wages before a trustee could

garnish anything – and that is not even accounting for the maximum garnishment

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 The Trustee argues that a debtor would have to earn more than

$24,000.00 per year before a single creditor could garnish up to $1,000.00. Iowa

Code § 642.21(1)(c) (stating that the maximum amount subject to garnishment for

each judgment creditor is $800.00 if an employee earns between $16,000.00 and

$24,000.00 per year and $1,500.00 if an employee earns between $24,000.00 and

$35,000.00 per year). These limits are for single creditors. If more than one

creditor exists, then the maximum amount subject to garnishment – from the

debtor’s perspective – multiplies, but in no event may multiple creditors garnish

more than 25% of an individual’s aggregate disposable earnings. § 537.5105 and

15 U.S.C. § 1673. 

12

limits for a single creditor.4 Pursuant to the Trustee’s argument, Irish’s interpretation

of the statute goes too far in protecting a debtor at the expense of the creditors of the

estate. We are, however, not convinced by this argument. Iowa Code § 627.6(9)

specifically limits the aggregate cap for the amount of total exemptions claimed under

subsections (a-c) to $5,000.00. A creditor claiming a $4,000.00 wage exemption

would only be able to exempt an additional $1,000.00 in a single automobile and in

musical instruments, which would potentially free up additional funds for creditors.

Furthermore, the Trustee’s interpretation is not consonant with the liberalizing nature

of the 1981 amendments to Iowa’s general exemption statute, which were specifically

enacted for the purpose of exempting property from judicial process – not for the

purpose of restricting the amount and nature of a debtor’s exemptions.

In summary, the Court holds that Irish may exempt from property of the estate

her accrued, unpaid wages of $3,300.00 by utilizing both the $1,000.00 exemption

for wages and tax refunds of § 627.6(9)(c) in addition to any amount Irish could

protect from creditors under the garnishment protections statutes of §§ 642.21 and

527.5105. The total amount of Irish’s exemptions under all subsections of § 627.6(9)

is limited to $5,000.00. 

The order of the bankruptcy court is affirmed.

 

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