Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01739/USCOURTS-ca10-88-01739-0/pdf.json

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

---

( 

.. ·:. •. ,:_:. . . ,. , .~. ', .... 

IN RE: 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

) 

) 

CURTIS NEAL HEAPE and BILLIE ) 

JEAN HEAPE, ) 

) 

Debtors. ) 

) 

) 

FIL ED 

United States Court of Appeals 

Tenth Circuit 

SEP 2 2 1989 

ROBERT L. HOECKER 

Clerk 

CURTIS NEAL HEAPE and BILLIE JEAN HEAPE,) No. 88-1739 

) 

Debtors-Appellants, ) 

) 

v. ) 

) 

CITADEL BANK OF INDEPENDENCE, ) 

) 

Appellee. ) 

Appeal from the United States District Court 

for the District of Kansas 

(D.C. No. 86-1794) 

Submitted on the briefs: 

Donald B. Clark, Wichita, Kansas, for Debtors-Appellants. 

James R. Gilhousen of Crockett, Keeley & Gilhousen, Wichita, 

Kansas, for Appellee. 

Anne L. Baker of Eidson, Lewis, Porter & Haynes, Topeka, Kansas, 

filed an amicus brief for the Kansas Bankers Association. 

Before LOGAN, SEYMOUR, and BALDOCK, Circuit Judges. 

PER CURIAM. 

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 1 
The issue on appeal in this case is whether the bankruptcy 

debtors' breeding livestock, exempt from the bankruptcy estate by 

virtue of state statute, is also protected by the lien avoidance 

provisions of 11 u.s.c. § 522(f}(2}(B} (1982} as a "tool of the 

trade.« We conclude that§ 522(f) permits the lien on this 

debtor's breeding stock to be avqided to the $5000 limit of the 

state exemption. 1 

Debtors in bankruptcy, Curtis Neal Heape and Billie Jean 

Heape, filed for relief under Chapter 7 of the Bankruptcy Code. 

Pursuant to Kan. Stat. Ann. § 60-2304(5)(1983), they claimed 

exemption of nineteen head of breeding stock. 2 No objection was 

filed to debtors' assertions that they were farmers or to their 

claim of this exemption, and thus the exemption was automatically 

allowed. The bankruptcy court went on to find that the breeding 

stock constituted security for a nonpurchase money, nonpossessory 

1 After examining the briefs and appellate 

has determined unanimously that oral argument 

assist the determination of this appeal. See 

34(a); 10th Cir. R. 34.1.9. The cause is 

submitted without oral argument. 

record, this panel 

would not materially 

Fed. R. App. P. 

therefore ordered 

2 Kan. Stat. Ann. § 60-2304 (1983) provides: 

"Personal property; articles exempt. Every person 

residing 1n this state shall have exempt from seizure 

and sale upon any attachment, execution or other process 

issued from any court in this state, the following 

articles of personal property: 

(5) The books, documents, furniture, instruments, 

tools, implements and equipment, the breeding stock, 

seed grain or growing plants stock, or the other 

tangible means of production regularly and reasonably 

necessary in carrying on the person's profession, trade, 

business or occupation in an aggregate value not to 

exceed five thousand dollars." 

-2-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 2 
lien held by Citadel Bank of Independence (Kansas). The court 

held that the lien was not avoidable under 11 u.s.c. 

§ 522(f)(2)(B) as a lien on "tools of the trade." The Heapes 

appealed the denial of lien avoidance to the federal district 

court, which affirmed the bankruptcy court's decision. 

Heape, 85 Bankr. 577 (D. Kan. 1988). 

In re 

The district court found that the common meaning of the terms 

"tools" or "implements" does not include livestock, and that to 

construe livestock as a tool would be an unjustified deviation 

from normal usage of the term. Id. at 578. In addition, the 

court noted that Cbngress included the term "animals" in the 

section of the code avoiding liens on exempt household goods and 

furnishings, § 522(f)(2)(A), but did not include it as a separate, 

specific category under§ 522(f)(2)(B). Id. The district court 

stated that the lien avoidance provisions were intended to prevent 

creditors from forcing debtors to reaffirm consumer debts while 

preserving the possibility of a fresh start for the debtor, but 

that every item exempt under state law is not necessarily 

protected by the federal lien avoidance provisions. Id. at 

578-79. The district court agreed with the analysis of the 

Seventh Circuit in In re Patterson, 825 F.2d 1140, 1146 (7th Cir. 

1987), that livestock are in the nature of capital assets rather 

than tools of the trade. Heape, 85 Bankr. at 579. 

We review the legal determinations of the district court de 

novo, although we accept the factual findings of the bankruptcy 

court unless they are clearly erroneous. Branding Iron Motel, 

-3-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 3 
,- ••• • ~ ..•. e.· • .:,,. • ' .• ' ··:·· "--. ' ., ·:. -'. •• . .• • ..• 

Inc. v. Sandlian Equity, Inc. (In re Branding Iron Motel, Inc.), 

798 F.2d 396, 399-400 (10th Cir. 1986). 

Section 522(f) of the Bankruptcy Code 3 permits debtors to 

avoid the fixing of certain liens to the extent they impair an 

exemption existing under either federal or state law. Patterson, 

825 F.2d at 1146; 3 Collier on Bankruptcy ~ 522.29[1] (L. 

King 15th ed. 1989). It is undisputed that debtors' claimed 

breeding stock is exempt under state statute, 

Kan. Stat. Ann. § 60-2304(5) (1983). While state law governs the 

question of the debtors' exemption on their breeding cattle, 

federal law determines the availability of lien avoidance under 

§ 522(f). In re Thompson, 750 F.2d 628, 630 (8th Cir. 1984); 

Eakes v. Farmers Home Admin. (In re Eakes), 69 Bankr. 497, 498 

(Bankr. W.D. Mo. 1987). But cf. In re Thompson, 867 F.2d 416, 

3 11 u.s.c. § 522 provides in pertinent part: 

"(f) Notwithstanding any waiver of exemptions, the 

debtor may avoid the fixing of a lien on an interest of 

the debtor in property to the extent that such lien 

impairs an exemption to which the debtor would have been 

entitled under subsection (b) of this section, if such 

lien is --

(2) a nonpossessory, nonpurchase-money security 

interest in any --

(A) household furnishings, household goods, 

wearing apparel, appliances, books, animals, 

crops, musical instruments, or jewelry that 

are held primarily for the personal, family, 

or household use of the debtor or a dependent 

of the debtor; 

(B) implements, professional books, or tools, 

of the trade of the debtor or the trade of a 

dependent of the debtor •••. " 

-4-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 4 
420-21 (7th Cir. 1989) (using state law definition of "tools of 

the trade" for§ 522(f)(2)(B) when debtor elected state law 

exemptions); In re Newbury, 70 Bankr. l, l (Bankr. D. Kan. 1985) 

(same). Liens on property exempt under Kansas law are avoidable 

only if enumerated in 11 u.s.c. § 522(f)(2). Newbury, 70 Bankr. 

at l. 

The statute's legislative history can be of assistance to 

us. 4 Production Credit Association v. LaFond (In re LaFond), 791 

F.2d 623, 627 (8th Cir. 1986) (quoting In re Duchesne, 21 Bankr. 

390, 391 (N.D.N.Y. 1982)), explains that§ 522(f)(2)(A) was 

intended to protect household goods with low resale value from 

being the subject of creditor coercion of the debtor, while 

§ 522(f)(2)(B) was intended to allow a debtor '"to make a fresh 

start after bankruptcy by the use of tools or implements necessary 

to enable him to pursue and make a living at his trade. 111 

Because the term ''tools of the trade" is not defined by 

statute or legislative history, decisions among bankruptcy courts 

are inconsistent. Courts have based their analyses on such 

diverse rationales as the plain meaning of the word ''tool," the 

value of the property in question, the interaction between the 

federal exemption and lien avoidance statutes, and the ratio of 

the property to the total capital assets of the debtor. 

Bulger, 91 Bankr. 129, 131-32 (Bankr. M.D. Ala. 1988). 

In re 

The Bulger court rejected all these tests in favor of the 

''use" test set forth in Walkington v. Production Credit 

4 For an exhaustive recapitulation of the legislative history 

of the federal lien avoidance statute, see In re Neiheisel, 32 

Bankr. 146, 148-62 (Bankr. D. Utah 1983). 

-5-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 5 
_;' ·-··'··· .• ····.·-·"--',··~ ,,.• •: .. -:·-~_,,.. __ ,H,.,· •• '• .J. ~,,,..,., ...... :.:. ·- ' ..... ~- '' ·, .::! -~, .:::--~·.··,--~, ., . 

Association (In re Walkington), 42 Bankr. 67, 72 (Bankr. W.D. 

Mich. 1984); see also Credithrift of Am., Inc. v. Dubrock (In re 

Dubrock), 5 Bankr. 353, 354-55 (Bankr. W.D. Ky. 1980) (a tool is 

an item which is necessary and used by the debtor in his 

business). This "use" test is compatible with Kansas exemption 

law. Eight decades ago, the Kansas Supreme Court accepted the 

"use" test when it defined "tools of the trade" as found in the 

Kansas exemption statute: "[Forl tools and implements ... [to 

come within] the operation of the statute. [i]t is enough 

that they belong to the ••• [debtor], that they are necessary 

and are personally used for the purpose of carrying on his trade 

or business." Reeves & Co. v. Bascue, 76 Kan. 333, 91 P. 77, 77 

(1907); see also In re Currie, 34 Bankr. 745, 748 (D. Kan. 1983) 

("The test in Kansas has long been that the property must be 

reasonably necessary, convenient or suitable for the production of 

work [in order to qualify as tools of the trade under Kan. Stat. 

Ann. § 60-2304(5)]."). 

The Heapes rely on Walkington, a decision holding that dairy 

cattle are tools of the trade for a dairy farmer. The Walkington 

court's analysis is persuasive: 

"It is the view of this Court that Congress intended 

[§ 522(f)(2)(B)] to have a common sense interpretation 

on a case-by-case basis with the key inquiry focusing on 

the necessity of an item to the individual debtor's 

particular business or employment . 

• • • While cattle are not generally considered a 'tool' 

in common parlance, nevertheless 'the description of an 

object as a "tool" necessarily implies a classification 

based upon that object's functional and utilitarian 

purpose in the hands of its owner or user.' ••• 

Congress did not place any limit on the kinds of 

-6-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 6 
property that may constitute a 'tool' since to do so 

would unfairly discriminate against particular 

professions and undermine the fresh start policy that 

the Code seeks to promote." 

42 Bankr. at 71-72 (quoting Dubrock, 5 Bankr. at 355). 

LaFond, 791 F.2d at 626, quotes Middleton v. Farmers State 

Bank, 41 Bankr. 953, 955 (D. Minn. 1984): "As a practical matter, 

a narrow construction [of the definition of 'implements' and 

'tools of the trade' under§ 522(f)(2)] punishes the farmer for 

being inadvertently dependent on expensive tools of the trade as 

compared to other trades more dependent on smaller hand tools." 

See also 3 Collier on Bankruptcy ,1 522.15, at 522-57 to 522-58 n.l 

(L. King 15th ed. 1989) (stove of candy-maker, conveyances of 

poultry dealer, canoe of registered guide, presses of printer, and 

law library of debtor-attorney are each exempt as "tools of the 

trade" under various state statutes). 

Farming is a unique business, implying self-employment and 

economic independence and self-determination. To give the farmer 

the wherewithal for a fresh start includes not only hand tools, 

but also the equipment, implements, breeding stock and other basic 

necessities for beginning anew on a modest scale as a modern food 

producer. The Kansas legislature exempted breeding livestock from 

a debtor's estate, recognizing that if the debtor were stripped of 

these basic resources, he or she would be unable to begin anew in 

farming. But cf. Newbury, 70 Bankr. at 2 (fact that Kansas 

legislature separately enumerated breeding stock indicates their 

belief that b~eeding stock is not a "tool of the trade''). 

Tenth Circuit case law utilizes a practical application of 

the federal lien avoidance statutes. This court in First Bank v. 

-7-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 7 
Reid (In re Reid), 757 F.2d 230 (10th Cir. 1985), considered the 

denial of lien avoidance on paintings worth more than $180,000 as 

items held primarily for household use, upholding the bankruptcy 

court's determination that the paintings were not held primarily 

for household use. The Reid court espoused a policy of evaluating 

each case "on its merits with regard to its own particular facts 

and circumstances to prevent abuses by either creditors or 

debtors." Id. at.236 (quoting Fisher v. Credithrift of Am., Inc. 

(In re Fisher), 11 Bankr. 666, 669 (Bankr. W.D. Okla. 1981)). 

Later, in the case of Central National Bank & Trust Co. v. Liming 

(In re Liming), 797 F.2d 895 (10th Cir. 1986), we examined whether 

a $30,000 tractor, exempt as an "implement" under a state 

exemption statute, was an "implement" for the purpose of federal 

lien avoidance. We there held that "a tractor is a necessary 

'implement' of a farmer's trade under any historical or common 

sense understanding of the term." Id. at 901. 

Breeding stock to the livestock farmer is the functional 

equivalent of the crop farmer's tractor--a means of producing 

physically distinct agricultural products. That breeding stock is 

composed of live animals does not change its essential function in 

the hands of the farmer. We are satisfied that the Liming 

rationale encompasses a farmer's breeding stock. 

We are not persuaded by two arguments used to support a more 

restrictive reading of§ 522(f}(2}(B). The Seventh Circuit's view 

that "capital" assets cannot constitute ''tools of the trade," see 

Patterson, 825 F.2d at 1146, is a slippery slope. The term 

"capital asset" may have different meanings to economists, 

-8-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 8 
accountants, financial analysts, and the Internal Revenue Service. 

Almost all tools and implements would be classified as capital 

assets for taxation purposes. Our task is to more clearly 

understand the term "tools of the trade," not to add another layer 

of definition and interpretation. See also Bulger, 91 Bankr. at 

132. 

Some also urge a restrictive interpretation of§ 522(f)(2)(B) 

out of concern that credit for the farmer will dry up if lenders 

are less secure about their capability of foreclosing liens on 

livestock. We note, however, that the LaFond court rejected the 

creditor's contention that allowing avoidance of liens on large 

farm implements would damage farmers by reducing the amount of 

collateral available to use to obtain loans, in these words: 

"Whether or not these considerations outweigh the value 

of providing a fresh start for the bankrupt is not for 

us to decide •••. 'It is not the function of this 

court to question why Congress chose to permit debtors 

to avoid the particular liens enumerated in Subsection 

(f).'" 

791 F.2d at 627 (quoting Augustine v. United States, 675 F.2d 582, 

586 (3d Cir. 1982)). In Liming, we addressed the question of 

whether expansive reading of the federal lien avoidance section 

would lead to tighter credit for farmers. We described the 

balancing factors to be considered and then deferred the question 

to the legislature: "This policy decision is for Congress, not 

the courts." 797 F.2d at 901. 

We conclude that under the circumstances presented here, in 

which the state exemption statute limits the value of the 

-9-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 9 
livestock to $5000 5 and limits the exemption itself to breeding 

stock (as opposed to feedlot cattle), 6 this livestock is within 

the scope of§ 522(f). The Heapes' modest herd of breeding cattle 

is a necessary tool of their trade as farmers. As such, it is 

subject to the protection of the federal lien avoidance statute. 

The judgment of the United States District Court for the 

District of Kansas is REVERSED, and the matter is REMANDED to the 

Bankruptcy Court for the District of Kansas for further 

proceedings consistent with this opinion. 

5 Because§ 522(f) allows the debtors to avoid this lien only "to 

the extent" it impairs their exemption, no more than $5000 of this 

lien can be avoided. See 3 Collier on Bankruptcy ,1 522.29(1] at 

522-89 to 522-90 (L. King 15th ed. 1989). 

6 We do not hold that the lien exemption of § 522(f)(2)(B) 

necessarily applies to all livestock. Breeding stock can be 

distinguished from livestock held for sale, the latter being more 

in the nature of inventory or raw materials. See In re Cook, 66 

Bankr. 3, 4 (Bankr. W.D. Wis. 1985). 

-10-

Appellate Case: 88-1739 Document: 01019911391 Date Filed: 09/22/1989 Page: 10