UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re: John Herbert Foster, Jr., Case No. 15-33626-KLP 

 Debtor. Chapter 13 

MEMORANDUM OPINION 

 Before the Court are two objections to the exemption claimed by 

Debtor John Herbert Foster, Jr. The Debtor filed a petition initiating this 

chapter 13 case on July 20, 2015. Along with the petition, he filed schedules 

as well as the required statement of financial affairs and statement of 

monthly income and calculation of commitment period. 

The Debtor amended his schedules on November 23, 2015. On line 10 

of Amended Schedule B, which requires a debtor to disclose annuities, the 

Debtor listed $103,893.04 in the “Outback Steakhouse, Inc., Partner Equity 

Plan, Partner Equity Deferred Compensation Diversified Plan” (the “Partner 

Equity Plan”) and stated in part that “Debtor’s interest [in the Partner 

Equity Plan] is excluded from property of the estate pursuant to 11 U.S.C. 

§ 541(c)(2).” In Amended Schedule C, the Debtor claimed a 75% exemption in 

“aggregate disposable income” from an anticipated August 2017 distribution 

of $103,893.04 from the Partner Equity Plan, basing the exemption on Va. 

Code § 34-29.1 

 1 Also referred to herein as Va. Code § 34-29 or § 34-29. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 1 of 29
2 

Both the chapter 13 trustee and Margaret S. Foster2 have objected to 

the Debtor’s claimed exemption of his interest in the Partner Equity Plan. 

The Court held a hearing on the objections on April 26, 2016, at which the 

Court received evidence and heard the argument of the parties. At the 

conclusion of the hearing, the Court took the two objections under 

advisement. 

FACTS 

 The Debtor was formerly a managing partner of Outback Steakhouse, 

Inc. He entered into the Partner Equity Plan in March of 2006. In 

connection therewith, he executed a document entitled “Partner Equity 

Deferred Compensation Diversified Plan Document” (the “Plan Document”). 

The Plan Document provides in its preamble that the Partner Equity Plan is 

part of an Outback Steakhouse, Inc. effort to “provide nonqualified deferred 

compensation benefits to Partners to supplement their retirement savings.” 

 2 The Debtor’s former spouse, Margaret S. Foster, timely filed two proofs of claim in 

the Debtor’s case. In the first proof of claim, she asserts an unsecured nonpriority claim in 

the amount of $2,500 and an unsecured priority claim in the amount of $72,500, including a 

claimed half interest in the Partner Equity Plan. The proof of claim lists the basis for the 

claim as “Debt incurred in connection with Divorce.” The basis for Ms. Foster’s assertion 

that $72,500 is entitled to priority was listed as “Domestic support obligations under 11 

U.S.C. § 507(a)(1)(A) or (a)(1)(B).” An attachment to the proof of claim stated that the 

priority portion of the claim represents a half interest in the Partner Equity Plan, and the 

nonpriority portion of the claim represents attorney’s fees, costs and expenses incurred by 

Ms. Foster in enforcing a prepetition property settlement agreement between the parties, as 

provided for in that agreement. The validity of Ms. Foster’s proof of claim is not before the 

Court at this time. 

The Court notes that in part 4 of the proof of claim, Ms. Foster states that she holds 

an unsecured nonpriority claim in the amount of $75,000 and a priority claim of $72,500, but 

on line 5 of the proof of claim, Ms. Foster lists the total amount of her claim as $75,000, with 

$72,500 being a priority claim and $2,500 a nonpriority claim. The Court assumes that line 5 

reflects the actual amounts claimed by Ms. Foster. 

In her second proof of claim, Ms. Foster asserts an unsecured nonpriority claim for 

$18,000. The basis for this claim is an alleged default under the prepetition property 

settlement agreement between the parties. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 2 of 29
3 

The Plan Document also states that the Partner Equity Plan should be 

“interpreted to comply in all respects with Internal Revenue Code . . . Section 

409A and those provisions of the Employee Retirement Income Security Act 

of 1974 . . . applicable to an unfunded plan maintained primarily to provide 

deferred compensation benefits for a select group of ‘management or highly 

compensated employees.’” Additional provisions of the Partner Equity Plan 

include the following: 

 10.1 Nonassignability. The benefits provided under the 

Plan may not be alienated, assigned, transferred, pledged or 

hypothecated by any person, at any time, or to any person 

whatsoever. Those benefits shall be exempt from the claims of 

creditors or other claimants of the Participant or Beneficiary 

and from all orders, decrees, levies, garnishment or executions 

to the fullest extent allowed by law. Notwithstanding the 

foregoing, the Administrator shall have full power and authority 

to the extent consistent with Code Section 409A and other 

applicable laws to comply with all liens by the Internal Revenue 

Service and any bona fide domestic relations orders and to 

adjust any amounts otherwise payable under the Plan 

accordingly. 

 10.2 No Right to Company Assets. The benefits paid 

under the Plan shall be paid from the general funds of the 

Company, and the Participant and any Beneficiary shall be no 

more than unsecured general creditors of the Company with no 

special or prior right to any assets of the Company for payment 

of any obligations hereunder. 

 Article 2 of the Plan Document states that, “[f]rom time to time, the 

Company shall make a Company Contribution to the Plan on behalf of an 

Eligible Employee or existing Participant in the amount specified in a 

Participation Agreement with such Participant. Company Contributions 

shall be made in the complete and sole discretion of the Company based on 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 3 of 29
4 

the individually negotiated terms of the Participant’s employment agreement 

with the Company.” Under Article 4 of the Plan Document, participants in 

the Partner Equity Plan receive distributions in three installments pursuant 

to a prescribed schedule. The Debtor received two distributions prepetition, 

and a final distribution is due to him in August 2017. In Schedule B, the 

Debtor listed the value of funds remaining in his account established under 

the Partner Equity Plan to be $103,893.04, which amount is also reflected in 

the July 31, 2015, statement issued by the Partner Equity Plan. 

CONCLUSIONS OF LAW 

 There are two issues before the Court relative to the Debtor’s interest 

in the Partner Equity Plan. First, Ms. Foster3 contends that the Debtor’s 

remaining funds in the Partner Equity Plan should be included as property of 

his bankruptcy estate, despite the Debtor’s assertion to the contrary in 

Schedule B. Second, Ms. Foster contends that the provisions of Va. Code 

§ 34-29 do not support the Debtor’s claim in Schedule C that the Partner 

Equity Plan is partially exempt. As there would be no reason to address the 

Debtor’s claim of exemption if the Partner Equity Plan is not property of his 

bankruptcy estate, the Court will first address that issue. 

 3 At the hearing, the chapter 13 trustee relied on the arguments made by Ms. Foster. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 4 of 29
5 

The Debtor’s Interest in the Partner Equity Plan Constitutes 

Property of the Debtor’s Bankruptcy Estate. 

Section 541(a)(1) of the Bankruptcy Code, 11 U.S.C. § 541(a)(1),4

defines one of the fundamental concepts of bankruptcy law, the existence of 

the “bankruptcy estate:” 

(a) The commencement of a case under section 301, 302, or 303 

of this title creates an estate. Such estate is comprised of all the 

following property, wherever located and by whomever held: 

(1) Except as provided in subsections (b) and (c)(2) of this 

section, all legal or equitable interests of the debtor in property 

as of the commencement of the case. 

The general rule is thus that all property owned by a debtor at the time a 

case is commenced becomes property of the bankruptcy estate. However, 

§ 541(c)(2) qualifies that definition by addressing anti-alienation or 

nonassignability clauses such as the one contained in § 10.1 of the Partner 

Equity Plan: 

(2) A restriction on the transfer of a beneficial interest of the 

debtor in a trust that is enforceable under applicable 

nonbankruptcy law is enforceable in a case under this title. 

In other words, an anti-alienation clause that satisfies the conditions of 

§ 541(c)(2) may operate to prevent certain trust property from becoming 

property of the bankruptcy estate. The burden is on the Debtor to prove that 

the funds at issue are excluded from his bankruptcy estate pursuant to the 

provisions of § 541(c)(2). See Rhiel v. Adams (In re Adams), 302 B.R. 535, 540 

(B.A.P. 6th Cir. 2003); RES-GA Dawson, LLC v. Rogers (In re Rogers), 538 

 4 All subsequent references to the Bankruptcy Code are to Title 11 of the United 

States Code, 11 U.S.C. §§ 101-1532, unless otherwise noted. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 5 of 29
6 

B.R. 158, 161 (Bankr. N.D. Ga. 2015); In re Wendt, 320 B.R. 904, 909 (Bankr. 

D. Minn. 2005); Pineo v. Fulton (In re Fulton), 240 B.R. 854, 862 n.4 (Bankr. 

W.D. Pa. 1999). 

Ms. Foster argues that § 541(c)(2) is inapplicable in the present case 

because 1) the Partner Equity Plan is not a trust, and 2) the anti-alienation 

clause of § 10.1 is not “enforceable under applicable nonbankruptcy law.” In 

support of her argument, she cites this Court’s recent case of In re Gnadt, No. 

11-10378-BFK, 2015 WL 2194475 (Bankr. E.D. Va. May 7, 2015). The Debtor 

counters that under the 2011 decision of Racetrac Petroleum, Inc. v. Khan (In 

re Khan), 461 B.R. 343 (E.D. Va. 2011), the Partner Equity Plan does qualify 

as a trust. 

The facts in Gnadt are strikingly similar to those in the instant case. 

There, the debtor was a participant in a § 409A deferred benefit plan (the 

“409A Plan”) with terms similar to those in the Partner Equity Plan. The 

409A Plan in Gnadt also contained an anti-alienation clause similar to that 

in the instant case. 

In Gnadt, the Court set forth a three-part test to determine whether 

§ 541(c)(2) applies to exclude property from the bankruptcy estate. First, the 

debtor must have “a beneficial interest in a trust.” Second, there must be a 

“restriction on alienation of the debtor’s beneficial interest.” Third, “the 

restriction on alienation [must be] enforceable under applicable nonCase 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 6 of 29
7 

bankruptcy law.” 2015 WL 2194475, at *6.5 This test is not stated in the 

alternative, and in order to satisfy it and successfully exclude property from 

the bankruptcy estate under § 541(c)(2), a debtor must satisfy each of the 

three elements. 

The Court in Gnadt found that its 409A Plan was not a trust; thus, the 

debtor had not satisfied the first element of the three-part test and § 541(c)(2) 

was inapplicable. In reaching this conclusion, the Court applied the Fourth 

Circuit’s test to determine whether a trust has been established. In Kubota 

Tractor Corp. v. Strack, the Fourth Circuit held that: 

Under Virginia law, “[a]n express trust is based on the 

declared intention of the trustor,” manifested either in writing 

or through the parties' actions. Leonard v. Counts, 221 Va. 582, 

272 S.E.2d 190, 194 (1980); see also Woods v. Stull, 182 Va. 888, 

30 S.E.2d 675, 682 (1944) (“In order to constitute an express 

trust there must be either explicit language to that effect or 

circumstances which show with reasonable certainty that a trust 

was intended to be created.”). Although the parties' use of the 

word “trust” is to be given great weight, it is not determinative. 

See Exec. Comm. v. Shaver, 146 Va. 73, 135 S.E. 714, 716 (1926); 

see also Broaddus, 26 S.E.2d at 36 (Va.1943) (recognizing that 

an express trust can be established without use of any “technical 

words”). All that is necessary is the “unequivocal” intent “ ‘that 

the legal estate [be] vested in one person, to be held in some 

manner or for some purpose on behalf of another.’ ” Old Republic 

Nat'l Title Ins. Co. (In re Dameron), 155 F.3d 718, 722 (4th 

Cir.1998) (quoting Broaddus, 26 S.E.2d at 35). At bottom, “[i]f 

the intention is that the money shall be kept or used as a 

separate fund for the benefit of the payor or a third person, a 

 5 “The courts generally agree that the inquiry is a three-part test: (1) whether the 

debtor has a beneficial interest in a trust; (2) whether there is a restriction on alienation of 

the debtor's beneficial interest; and (3) whether the restriction on alienation is enforceable 

under applicable non-bankruptcy law. Taunt v. Gen. Ret. Sys. of the City of Detroit (In re 

Wilcox), 233 F.3d 899, 904 (6th Cir. 2000); Rhiel v. Adams (In re Adams), 302 B.R. 535, 539 

(B.A.P. 6th Cir. 2003); In re Hunter, 380 B.R. 753, 764 (Bankr. S.D. Ohio 2008); Hill v. Dobin,

358 B.R. 130, 134 (D.N.J. 2006).” In re Gnadt, No. 11-10378-BFK, 2015 WL 2194475, at *6 

(Bankr. E.D. Va. May 7, 2015). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 7 of 29
8 

trust is created. If[, however,] the intention is that the person 

receiving the money shall have the unrestricted use thereof, 

being liable to pay a similar amount whether with or without 

interest to the payor or to a third person, a debt is created.” 

Broaddus, 26 S.E.2d at 37. 

Kubota Tractor Corp. v. Strack (In re Strack), 524 F.3d 493, 498-99 (4th Cir. 

2008). Applying the Strack test to the facts before it, the Court observed that 

the 409A Plan provided that any obligations thereunder were a contractual 

liability and that payments were to be made from the general funds of the 

company. The Court found this provision to be inconsistent with the 

establishment of a trust. Therefore, the Court found § 541(c)(2) to be 

inapplicable, since a mandatory element of the three-part test had not been 

satisfied. 

 Despite having determined that § 541(c)(2) was inapplicable because 

409A Plan was not a trust, the Court in Gnadt dealt a further blow to the 

debtor’s attempt to exclude the 409A Plan from property of the estate. The 

Court found that the anti-alienation clause in the document establishing the 

409A Plan was “not an enforceable provision under applicable nonbankruptcy law,” 2015 WL 2194475, at *8, observing that “the Debtor has not 

pointed the Court to any language . . . that would make the anti-alienation 

language in this plan enforceable.”6. 

 6 In reaching its conclusion, the Court noted that while ERISA requires antialienation language in a qualified trust, as required by §401(a)(13) of the Internal Revenue 

Code, 26 U.S.C. § 401(a)(13), there is no such requirement for plans established under § 409A 

of the Internal Revenue Code, 26 U.S.C. § 409A, the governing section for the deferred 

compensation plan before it. Id. Thus, an anti-alienation clause in an ERISA-qualified trust 

would be “an enforceable provision under applicable non-bankruptcy law,” while the same 

provision in a § 409A trust would not be. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 8 of 29
9 

This Court adopts the analysis employed in Gnadt. Applying that 

analysis to the facts of this case leads to the conclusion that in the present 

case, as in Gnadt, § 541(c)(2) is inapplicable, and the Partner Equity Plan is 

therefore property of the Debtor’s bankruptcy estate. The 409A Plan and the 

Partner Equity Plan are practically identical in all relevant aspects. The 

409A Plan provided that any obligations thereunder were a contractual 

liability and that payments were to be made from the general funds of the 

company. The Partner Equity Plan, which is self-described as a 409A plan, 

contains an almost identical provision. Further, the Partner Equity Plan and 

the 409A Plan contain substantially similar anti-alienation provisions. This 

Court finds no reason to depart from the analysis of Gnadt and finds that the 

Partner Equity Plan does not constitute a trust7 and that the nonassignability provision of § 10.1 of the Partner Equity Plan is not “enforceable 

under applicable nonbankruptcy law.”8 

 7 The Court notes that the Court in In re Gnadt, 2015 WL 2194475, at *7, cited 

approvingly the test set forth in Racetrac Petroleum, Inc. v. Khan (In re Khan), 461 B.R. 343 

(E.D. Va. 2011), but nonetheless reached the conclusion that the 409A Plan was not a trust 

and thus constituted property of the estate. Similarly, this Court rejects the Debtor’s 

assertion that In re Khan supports the conclusion that the Partner Equity Plan is not 

property of the estate. 

8 The debtor in Gnadt also argued that even if § 521(c)(2) did not apply to keep the 

deferred compensation plan’s funds out of his bankruptcy estate, the funds were nonetheless 

exempt as a spendthrift trust under Virginia law. The Court, in rejecting this argument, 

reiterated that the deferred compensation plan was not a trust of any sort under Virginia 

law. Further, the Court held that even if the 409A Plan could be described as a trust, it 

“would be a self-settled trust and therefore, unenforceable as against the Debtor’s creditors” 

and the bankruptcy trustee. 2015 WL 2194475, at *9. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 9 of 29
10 

The Exemption under Va. Code Ann. § 34-29 is Applicable.

Having determined that the funds to be distributed to the Debtor in 

August of 2017 pursuant to the Partner Equity Plan constitute property of 

the Debtor’s bankruptcy estate, the Court now turns to Ms. Foster’s objection 

to the Debtor’s claim that 75% of those funds are exempt under Va. Code 

§ 34-29. The burden is on Ms. Foster to prove that the Debtor’s claim of 

exemption is improper. Fed. R. Bankr. P. 4003(c). See also In re Bradby, 455 

B.R. 476, 481 (Bankr. E.D. Va. 2011); In re Crump, No. 06-33410-KRH, 2007 

WL 1029325, at *1 (Bankr. E.D. Va. Apr. 3, 2007). 

 The ability of a debtor in bankruptcy to claim an exemption in earned 

but unpaid wages pursuant to Va. Code § 34-299 has long been recognized in 

 9 Va. Code Ann. § 34-29 provides: 

 (a) Except as provided in subsections (b) and (b1), the maximum part 

of the aggregate disposable earnings of an individual for any workweek which 

is subjected to garnishment may not exceed the lesser of the following 

amounts: 

(1) Twenty-five percent of his disposable earnings for that 

week, or 

(2) The amount by which his disposable earnings for that 

week exceed 40 times the federal minimum hourly wage 

prescribed by § 206 (a) (1) of Title 29 of the United States 

Code in effect at the time earnings are payable. In the case of 

earnings for any pay period other than a week, the State 

Commissioner of Labor and Industry shall by regulation 

prescribe a multiple of the federal minimum hourly wage 

equivalent in effect to that set forth in this section. 

 (b) The restrictions of subsection (a) do not apply in the case of: 

 (1) Any order for the support of any person issued by a court 

of competent jurisdiction or in accordance with an administrative 

procedure, which is established by state law, which affords 

substantial due process, and which is subject to judicial review. 

 (2) Any order of any court of bankruptcy under Chapter XIII 

of the Bankruptcy Act. 

 (3) Any debt due for any state or federal tax. 

 (b1) The maximum part of the aggregate disposable earnings of an 

individual for any workweek which is subject to garnishment to enforce any 

order for the support of any person shall not exceed: 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 10 of 29
11 

this District. See, e.g., In re Rivenbark, No. 10-11055-SSM, 2010 WL 

2643323, at *2 (Bankr. E.D. Va. June 29, 2010) (“By limiting garnishments to 

25% of income . . . the statute effectively creates an exemption for the 

remaining 75%. In bankruptcy, the exemption is most commonly invoked to 

protect 75% of compensation that has been earned but not yet paid as of the 

 

 (1) Sixty percent of such individual's disposable earnings for 

that week; or 

 (2) If such individual is supporting a spouse or dependent 

child other than the spouse or child with respect to whose support 

such order was issued, 50 percent of such individual's disposable 

earnings for that week. The 50 percent specified in subdivision (b1) 

(2) shall be 55 percent and the 60 percent specified in subdivision (b1) 

(1) shall be 65 percent if and to the extent that such earnings are 

subject to garnishment to enforce an order for support for a period 

which is more than 12 weeks prior to the beginning of such 

workweek. 

 (c) No court of the Commonwealth and no state agency or officer may 

make, execute, or enforce any order or process in violation of this section. The 

exemptions allowed herein shall be granted to any person so entitled without 

any further proceedings. 

 (d) For the purposes of this section: 

 (1) The term "earnings" means compensation paid or payable 

for personal services, whether denominated as wages, salary, 

commission, bonus, payments to an independent contractor, or 

otherwise, whether paid directly to the individual or deposited with 

another entity or person on behalf of and traceable to the individual, 

and includes periodic payments pursuant to a pension or retirement 

program, 

 (2) The term "disposable earnings" means that part of the 

earnings of any individual remaining after the deduction from those 

earnings of any amounts required by law to be withheld, and 

 (3) The term "garnishment" means any legal or equitable 

procedure through which the earnings of any individual are required 

to be withheld for payment of any debt. 

 (e) Every assignment, sale, transfer, pledge or mortgage of the wages 

or salary of an individual which is exempted by this section, to the extent of 

the exemption provided by this section, shall be void and unenforceable by 

any process of law. 

 (f) No employer may discharge any employee by reason of the fact 

that his earnings have been subjected to garnishment for any one 

indebtedness. 

 (g) A depository wherein earnings have been deposited on behalf of 

and traceable to an individual shall not be required to determine the portion 

of such earnings which are subject to garnishment.

(emphasis added). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 11 of 29
12 

filing date of the petition, as when a debtor files in the middle of a pay 

period.”); In re Sheeran, 369 B.R. 910 (Bankr. E.D. Va. 2007) (pursuant to Va. 

Code § 34-29(a), bankrupt debtor was entitled to exempt 75% of accrued 

wages earned in exchange for personal services); In re Hanes, 162 B.R. 733, 

742 (Bankr. E.D. Va. 1994) (debtor entitled to exempt the portion of income 

allowable under Va. Code § 34-29); Baum v. United Va. Bank (In re Baum), 

15 B.R. 538, 539 (Bankr. E.D. Va. 1981) (plaintiff debtor “properly exempted 

wages pursuant to . . . Va Code Ann. § 34-29”). This recognition, 

acknowledged in case law and generally accepted by trustees and counsel for 

both debtors and creditors,10 has not been specifically challenged in this 

jurisdiction; consequently, this Court has not previously found it necessary to 

directly rule on whether a debtor in Virginia may exempt prebankruptcy 

earnings from property of the estate pursuant to Va. Code § 34-29. 

 10 In two of the cases cited above, the party objecting to the claimed exemption did 

not question the existence of an exemption in compensation earned by a debtor but not paid 

at the time of a bankruptcy filing pursuant to Va. Code § 34-29, but instead asserted that the 

particular disputed funds in those cases did not meet the definition of “earnings” or 

“disposable earnings” under the statute. See In re Rivenbark, No. 10-11055-SSM, 2010 WL 

2643323, at *3 (Bankr. E.D. Va. June 29, 2010) (exemption created by § 34-29 did not extend 

to tax refunds); In re Sheeran, 369 B.R. 910, 914 (Bankr. E.D. Va. 2007) (creditor asserted 

that profits from a business may not be claimed as wages because exemptible compensation 

must be paid for personal service rather than as a return on investment). In In re Hanes, 

162 B.R. 733 (Bankr. E.D. Va. 1994), the creditor challenged a debtor’s exemption in three 

retirement plans. The Court found that one of the plans was excluded from the estate 

pursuant to § 541(c)(2) but found that the debtor was entitled to exempt the portion of the 

income allowable under § 34-29 from the other two plans. 

In In re Gnadt, the Chapter 7 trustee conceded “that the sum of $30,154.99 in the 

Debtor’s 409A Plan on the date of the bankruptcy filing represents the product of the 

Debtor’s wages, bonuses and commissions and that, therefore, the Debtor is entitled to 

amend his State exemptions to claim that 75% of this amount is exempt pursuant to Va.Code 

§ 34-29 (Maximum portion of disposable earnings subject to garnishment).” 2015 WL 

2194475, at *3. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 12 of 29
13 

 Recent decisions from the Western District of Virginia interpreting Va. 

Code § 34-29,11 along with decisions of other courts finding that similar 

statutes do not provide a general wage exemption to debtors in bankruptcy, 

have created some uncertainty regarding Virginia’s wage exemption and 

compel the Court to more thoroughly examine this issue. After considering 

the legislative history, the statutory scheme, and relevant case law, the Court 

concludes that Va. Code § 34-29 enables a debtor to exempt 75% of accrued 

but unpaid earnings from the bankruptcy estate. 

 Exemption statutes, including those in Virginia, serve a number of 

important societal purposes by enabling debtors to protect certain property 

from the reach of creditors. One commentator has summarized the goals of 

the exemption statutes as follows: 

The basic themes of exemption laws might be summarized as 

follows: The debtor must be protected against total poverty 

without undue prejudice towards claims of creditors through 

legislation which will not become obsolete quickly. Society has a 

clear interest in preventing any person from becoming a public 

charge. By permitting a debtor to retain sufficiency (sic) 

property to maintain a minimum standard of living, he retains 

his status as an independent economic unit thereby increasing 

the chances of rehabilitation. . . . A more prominent policy 

underlying the exemption laws is the desire to protect the 

debtor’s dependents, ordinarily the members of his family, from 

undue hardships. 

 11 See text accompanying note 27 infra. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 13 of 29
14 

Joseph E. Ulrich, Virginia’s Exemption Statutes-The Need for Reform 

and a Proposed Revision, 37 Wash. & Lee L. Rev. 127, 129-30 (1980).12

Even though exemption laws seek to balance the needs of debtors and 

their dependents with the rights of creditors, they inherently reflect a public 

policy in favor of having debtors retain essential property over the 

satisfaction of creditors’ claims. Id. at 130.13 For that reason, Virginia courts 

have stated that exemption statutes are to be interpreted liberally in favor of 

debtors.14

 The Bankruptcy Reform Act of 1978 created federal exemptions for 

bankrupt individuals but granted states the authority to preclude their 

residents from claiming the federal exemptions by authorizing them to opt 

out of the federal exemptions in favor of state law exemptions.15 Virginia is 

an “opt out” state.16 Therefore, a Virginia debtor in bankruptcy may 

 12In Joseph E. Ulrich, Virginia’s Exemption Statutes-The Need for Reform and a 

Proposed Revision, 37 Wash. & Lee L. Rev. 127, 129-30 (1980), the author cites with approval 

William T. Vukowich, Debtors’ Exemption Rights, 62 Geo. L.J. 779, 781-88 (1974). 

13See also Michael P. Cotter, The Failure of the Virginia Exemption Plan, 21 Wm. & 

Mary L. Rev. 851 (1980). 14 “Virginia's policy is to apply bankruptcy exemptions liberally in favor of debtors, 

Roberts v. County of Henrico Fed. Credit Union, 709 F.2d 275 (4th Cir. 1983), Wilkinson v. 

Merrill, 87 Va. 513, 12 S.E. 1015, 1016 (1891), and where there is doubt as to whether 

property is exempt, it should be resolved in favor of the exemption. In re Perry, 6 B.R. 263 

(W.D. Va. 1980).” Bass v. Hall, 79 B.R. 653, 656 (W.D. Va. 1987). See also S. Hill Prod. 

Credit Ass’n v. Hudson, 174 Va. 284, 287, 6 S.E.2d 668, 669 (1940). 

15 Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 522, 92 Stat. 2549 (1978), 

codified at 11 U.S.C. § 522(b) (1979). 

16 “No individual may exempt from the property of the estate in any bankruptcy 

proceeding the property specified in subsection (d) of § 522 of the Bankruptcy Reform Act 

(Public Law 95-598), except as may otherwise be expressly permitted under this title.” Va. 

Code § 34-3.1. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 14 of 29
15 

generally only claim as exempt what is allowed under Virginia and federal 

nonbankruptcy law.17 

 Title 34 of the Code of Virginia, entitled “Homestead and Other 

Exemptions,” sets forth most of the exemptions available to Virginia debtors. 

Section 34-29, commonly referred to as the “wage exemption,” is included in 

Title 34. This statute establishes a limit to the amount of an individual’s 

“disposable earnings,” as defined by § 34-29(d)(2), that shall be “subjected to 

garnishment.” The term “garnishment” is defined as “any legal or equitable 

procedure through which the earnings of any individual are required to be 

withheld for payment of any debt.” Va. Code § 34-29(d)(3). 

 The current version of § 34-29 was enacted in 1970 after Congress 

passed the Consumer Credit Protection Act, Pub. L. 90-321, 82 Stat. 146 

(1968) (the “CCPA”). The CCPA preempts state law in the area of wage 

garnishments, requiring all states to recognize a minimum restriction on 

garnishment, limiting the withholding of earnings in most cases to the lesser 

of 25% of disposable earnings per week or the amount by which disposable 

earnings for a week exceed 30 times the minimum hourly wage.18 In § 34-29, 

Virginia adopted the language of the CCPA almost verbatim.19

 17 In re Zaidi, 293 B.R. 861, 862 (Bankr. E.D. Va. 2002) (“debtors may claim only 

those exemptions allowed under § 522(b)(2) [redesignated as § 522(b)(3) in 2005]. These 

include those allowable under state exemptions.”); In re Scott, 199 B.R. 586, 588 (Bankr. E.D. 

Va. 1996) (“residents of Virginia filing bankruptcy petitions may claim only those exemptions 

allowable under state law and general Federal law”). 

18 15 U.S.C. § 1673. 

19 15 USC § 1672 includes definitions of “earnings,” “disposable earnings” and 

“garnishment.” These terms are similarly defined in Va. Code § 34-29(d). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 15 of 29
16 

 Prior to the Virginia legislature’s adoption of the language of the 

CCPA, Va. Code § 34-29 had included a schedule setting forth minimum and 

maximum amounts of “wages or salary” that would be “exempt from distress, 

levy, garnishment or other process . . . .” Va. Code Ann. § 34-29 (1960). An 

even earlier version of the statute provided that “wages or salary owing or to 

be owing to a . . . householder or head of a family, shall be exempt from 

distress, levy, garnishment or other process to the extent of seventy-five 

percentum of such wages or salary . . . .” Va. Code § 34-29 (1948). Before the 

adoption of the 1970 version of the statute, which replaced the language 

exempting earnings from “distress, levy, garnishment or other process” with 

a limitation on the amount “which is subjected to garnishment,” the language 

in the statute made it clear that a portion of an individual’s wages were 

protected from all forms of creditor process. Such language would, in turn, 

allow a debtor in bankruptcy to claim this “wage exemption” pursuant to 

§ 522(b)(3)(A) of the Bankruptcy Code.20 The question, therefore, is whether 

by replacing the pre-1970 version of the statute with the language “subjected 

to garnishment,” the Virginia legislature eliminated the availability of this 

exemption to a debtor in bankruptcy. 

 20 “Notwithstanding § 541 of this title, an individual debtor may exempt from 

property of the estate the . . . property that is specified under subsection (d), unless the State 

law that is applicable to the debtor . . . specifically does not so authorize.” 11 U.S.C. § 522(b). 

Generally, the exemption statutes, including those most often claimed in bankruptcy, do not 

specifically refer to their applicability in bankruptcy but instead include language providing 

that the householder shall be entitled to “hold [property] exempt from creditor process.” See, 

e.g., Va. Code Ann. § 34-4 (“homestead exemption”) and Va. Code Ann. § 34-26 (“poor debtor’s 

exemption”). Pursuant to 11 U.S.C. § 522(b)(3)(A), “any property that is exempt under . . . 

State or local law” is excluded from the bankruptcy estate. See Mayer v. Nguyen (In re 

Nguyen), 211 F.3d 105, 107 (4th Cir. 2000) (applying prior version of § 34-29(b)(3)). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 16 of 29
17 

 The circumstances leading to the revision of § 34-29, along with the 

content and context of the revised statute, indicate that the Virginia General 

Assembly did not intend to proscriptively limit the “wage exemption” to 

nonbankrupt debtors. Virginia’s “wage exemption” statute was amended 

solely in order to comply with the CCPA’s mandatory limitations on wage 

garnishments; it does so by mirroring the language of 15 U.S.C. § 1673. The 

conclusion that the legislature did not further intend to prevent the 

application of § 34-29 in bankruptcy is evident when one considers that the 

revision was enacted in the legislative session occurring shortly after the 

CCPA’s effective date, tracks the language of 15 U.S.C. § 1673 nearly word 

for word and, according to a report commissioned by Virginia’s General 

Assembly, was prompted only by the mandates of the CCPA.21 

 21 In 1968, the Virginia General Assembly directed the Virginia Code Commission to 

prepare a report of recommendations to revise certain titles of the Code of Virginia, including 

Title 34, together with suggested legislation necessary to carry such recommendation into 

effect. The report, entitled “Revisions of Titles 34, 35, 36, 42 and 43 of the Code of Virginia, 

Report of the Virginia Code Commission to the Governor and the General Assembly of 

Virginia,” dated October 1, 1970 (the “1970 Commission Report”), “reflect[s] the 

Commission’s careful consideration of all recommendations and suggestions either brought to 

its attention or resulting from its own observations, inquiries and deliberations.” Id. at 2. 

The Commission referred to existing restrictions in the Constitution of Virginia affecting 

Title 34 but noted that “[t]he proposed new constitution would . . . [grant] the General 

Assembly broader powers . . . and [permit] timely statutory changes to reflect economic and 

social change.” Id. The Commission indicated that extensive revisions to Title 34 would 

need to await adoption of the proposed new constitution and offered only limited 

amendments to Title 34, one of which was to change § 34-29 “to conform its provisions with 

the requirements of the Federal Truth-In-Lending Act.” Id. (The Truth in Lending Act 

(“TILA”), codified at 15 U.S.C. 1601 et seq., was enacted on May 29, 1968, as title I of the 

Consumer Credit Protection Act, Pub. L. 90-321. TILA, implemented by Regulation Z, 12 

C.F.R. Pt. 1026, became effective July 1, 1969.) The proposed Virginia legislation included a 

bill to amend and reenact § 34-29, a provision that the Commission said related to “wages or 

salaries exempted from distress, levy, garnishment or other process.” 1970 Commission 

Report at 4 (emphasis added). The Commission offered language tracking that of 15 U.S.C. 

§ 1673. Pursuant to the recommendation of the Commission, the proposed legislation was 

adopted and became effective on October 1, 1970. Nothing in the 1970 Commission Report 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 17 of 29
18 

Although some courts have held that the CCPA was not intended to 

create an exemption in bankruptcy,22 it does not follow that by that by 

adopting the language of 15 U.S.C. § 1673, the Virginia General Assembly 

intended to eliminate the availability of the wage exemption in bankruptcy.23 

In fact, all indications are that this was not the intent of the legislature. 

 Not only does the legislative history weigh in favor of allowing the 

wage exemption in bankruptcy, but further support is also found in the 

language of the statute itself. When the Virginia legislature enacted what is 

 

evidences the intent to do anything other than amend § 34-29 to comply with the 

requirements of the CCPA, and the preamble to the proposed revision stated that the 

amendments related to “wages or salaries exempted from distress, levy, garnishment or 

other process.” 1970 Commission Report at 4. The Commission emphasized that significant 

substantive changes to Title 34 would need to await adoption of the new state constitution. 

Id. at 2. Accordingly, the 1970 Commission Report indicates that the purpose of the revision 

was simply to comply with the mandates of the CCPA but not to restrict the exemption to a 

nonbankrupt debtor or effectuate any other substantive change. 22 See, e.g., In re Sanders, 69 B.R. 569, 571 (Bankr. E.D. Mo. 1987) (citing cases 

construing the Supreme Court’s comments in Kokoszka v. Belford, 417 U.S. 642 (1974) to 

mean that the CCPA’s restrictions on garnishment were not intended to establish a wage 

exemption in bankruptcy); see also Lawrence v. Jahn (In re Lawrence), 219 B.R. 786, 796 

(E.D. Tenn. 1998) (“Kokoszka holds that the restrictions on garnishment of disposable 

earnings in 15 U.S.C.§1673 of the CCPA do not constitute an exemption of such earnings 

cognizable in bankruptcy.”). Kokoszka was decided after the revision to Va. Code 

§ 34-29 and involved the question of whether 15 U.S.C. § 1673 created a bankruptcy 

exemption in a debtor’s tax refund. 

23 See In re Sanders, 69 B.R. at 571 (“[B]ecause Congress made title III [of the CCPA] 

preemptive of all state laws that were less protective of debtors, see 15 U.S.C. §§ 1673(c), 

1675, 1677 (1976), many states amended their laws to conform to title III. If these state 

laws—which supplanted wage exemptions—are now held to be something less than 

exemptions, in line with recent court interpretations of Kokoszka, protection of debtors’ 

wages will be lost in bankruptcy although state legislatures clearly had no such intent.”) 

(citing William T. Vukowich, Debtors’ Exemption Rights Under The Bankruptcy Reform Act,

58 N.C. L. Rev. 769, 791 n.192 (1980)). 

The Supreme Court has resisted finding a significant departure from historical 

bankruptcy practice without a clear legislative directive, noting in Dewsnup v. Timm, 502 

U.S. 410, 419 (1992), that it would be “reluctant to accept arguments that would interpret 

the Code, however vague the particular language under consideration might be, to effect a 

major change in pre-Code practice that is not the subject of at least some discussion in the 

legislative history.” Interpreting the 1970 revisions of § 34-29 to no longer provide an 

exemption of wages to a bankrupt debtor would create a major departure from the practice 

that existed prior to that time, yet there is no record of any related discussion in Virginia’s 

legislative history. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 18 of 29
19 

essentially the current version of § 34-29, it included the following sentence: 

“The exemptions allowed herein shall be granted to any person so entitled 

without any further proceedings.” Va. Code § 34-29(c) (emphasis added).24 

By contrast, the word “exemption” does not appear in the garnishment 

restriction language of the CCPA. The inclusion of the term “exemption” in 

Virginia’s statute is noteworthy in light of how the word is defined under 

§ 34-1 of Title 34: 

“Creditor process” means all methods used by creditors to collect 

unsecured debts. . . . “Exempt” means protected from all forms of 

creditor process. “Exemption” means protection from all forms 

of creditor process. . . . . 

Va. Code § 34-1 (emphasis added). Therefore, the language of § 34-29, 

considered in the context of § 34-1, evidences the intent to protect disposable 

earnings from all forms of creditor process. 

 Similarly, other exemption provisions in Title 34 of the Virginia Code 

reflect that the Virginia legislature gave no consideration to the thought that 

revising § 34-29 would thereafter limit its applicability to garnishment 

proceedings occurring outside of bankruptcy. Despite the revisions to § 34-

29, other statutes continue to specifically acknowledge that § 34-29 protects 

wages generally from any form of creditor process.25 Had the Virginia 

 24 Although there is scant legislative history available that would shed light upon the 

intentions of the legislature, other than the need to comply with the mandates of the CCPA, 

the inclusion of this language was likely due to the simultaneous repeal of Va. Code Ann. 

§ 34-30, which had provided a procedure by which a judge would issue a certificate 

authorizing declaring a debtor’s wages exempt and authorizing the debtor’s employer to 

adhere to the limitations set forth in Va. Code § 34-29. 

25 See, e.g., Va. Code Ann. § 34-4 (“Every householder shall be entitled, in addition to 

the property or estate exempt under . . . § 34-29 . . . , to hold exempt from creditor process . . . 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 19 of 29
20 

General Assembly intended to do anything more than adopt the CCPA’s 

monetary limitations, it would have correspondingly amended these 

statutes.26 

 Courts in “opt out” states deciding whether a bankrupt debtor may 

exempt earnings from property of the estate pursuant to statutes similar to 

Va. Code § 34-29 have split. A number of courts have found the garnishment 

statutes of their states do provide exemptions in bankruptcy. See, e.g., Forker 

v. Irish (In re Irish), 311 B.R. 63, 67 (B.A.P. 8th Cir. 2004) (“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 be withheld for payment of any 

debt.’”); In re Haraughty, 403 B.R. 607, 613-614 (Bankr. S.D. Ind. 2009) 

 

.”); Va. Code Ann. § 34-2 (“An injunction may be awarded to . . . prevent the wages exempted

by § 34-29 from being garnisheed or otherwise collected by an execution creditor.”) (emphasis 

added); Va. Code Ann. § 34-4.2 (“Where a parent supports a dependent minor child . . . that 

parent can hold exempt from wage garnishment, in addition to the property or estate that he 

is entitled to hold exempt from creditor process under . . . 34-29 . . . an additional amount for 

the support of the child . . . .”) (emphasis added); Va. Code Ann. § 34-32 (“No person shall 

institute . . . proceedings . . . or shall assign or transfer . . . any claim for debt . . . held by him 

against a resident of the Commonwealth . . . for the purpose of having payment of the same . 

. . enforced out of the wages exempted by § 34-29 . . . in courts . . . in any other state than the 

Commonwealth, or to send out of the Commonwealth . . . any claim or debt against any 

resident thereof . . . with the intent of depriving such person of the right to have his wages 

exempt from distress, levy or garnishment according to the provisions of § 34-29.”) (emphasis 

added). 

26 The 1970 Commission Report (see supra note 21), included a mandate that the 

Commission not only suggest legislation necessary to carry out its recommendations but also 

to suggest “substantive changes in each title being revised and submit separately legislation 

purposed to carry out each such recommendation”. Id. at 1. Despite this mandate, the 

Commission suggested no changes to any other of the provisions of Title 34 containing 

references to § 34-29. 

Under the “harmonious-reading canon,” provisions included in a text “should be 

interpreted in a way that renders them compatible, not contradictory.” Antonin Scalia & 

Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 180 (2012) (cited in Gray 

v. Martin, No. 13-73-ART, 2013 WL 6019335 (E.D. Ky. Nov. 13, 2013)). A more harmonious 

interpretation of the current provisions of Title 34 would be to recognize the continued 

existence of the “wage exemption” in bankruptcy. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 20 of 29
21 

(Indiana statute modeled after CCPA permits bankrupt debtors to claim an 

exemption in earned but unpaid wages); In re Urban, 262 B.R. 865, 867 

(Bankr. D. Kan. 2001) (“A review of the [Kansas exemption statute] . . . 

makes clear that Kansas has a tradition of wage exemption and that the 

legislature intended to carry that tradition forward with the enactment of the 

present statute in 1970.”); In re Sanders, 69 B.R. 569, 576 (Bankr. E.D. Mo. 

1987) (“the ‘opt-out’ statute itself clearly implies that bankrupt and nonbankrupt debtors are to be treated alike in terms of the exemptions available 

to them. Since the non-bankrupt debtor is able to exempt wages under the 

Missouri garnishment statute, so should the bankrupt debtor be able to do 

so.”); In re Smith, 23 B.R. 708, 709 (Bankr. D. Md. 1982) (“When accrued but 

unpaid wages are due to the Debtor at the time of the filing of the bankruptcy 

petition, it is only appropriate to apply the garnishment exemptions since 

they are designed for such relatively ephemeral and transitory property.”). 

Other courts have interpreted state garnishment statutes modeled after 15 

U.S.C. § 1673 as establishing only a restriction on wage garnishment outside 

of bankruptcy and not an exemption available in bankruptcy. See, e.g., 

Lawrence v. Jahn (In re Lawrence), 219 B.R. 786 (E.D. Tenn. 1998); Riendeau 

v. Canney (In re Riendeau), 293 B.R. 832 (D. Vt. 2002), aff’d, 336 F.3d 78 (2d 

Cir. 2003). 

 Recent decisions of the bankruptcy court in the Western District of 

Virginia have found that in the absence of a pending garnishment, Va. Code 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 21 of 29
22 

§ 34-29 does not provide a wage exemption in bankruptcy. In In re Kluge, No. 

11-61517 (Bankr. W.D. Va. Oct. 3, 2011), the court denied an exemption in 

“[w]ages due but not received” pursuant to § 34-29 because no “order [had] 

been issued pursuant to a judicial procedure ordering a third party to 

withhold payment of the Wages to the Debtors.” Id. at 5. Subsequently, the 

court in In re Pierce, No. 15-71047 (Bankr. W.D. Va. Dec. 30, 2015), citing 

Kluge, concurred that § 34-29 applies only to earnings that are subject to 

garnishment, stating that because there was “no garnishment at issue in this 

case, Section 34-29 simply does not apply to afford the Debtor the relief 

claimed in her exemption.” Id. at 4.27

Kluge and Pierce notwithstanding, this Court rejects the proposition 

that in the absence of a pending garnishment at the time of a bankruptcy 

filing a debtor may not exempt wages pursuant to Va. Code § 34-29. Such an 

interpretation, which would allow the wage exemption only if the debtor 

happened to be experiencing a wage garnishment at the time of his 

bankruptcy filing, makes no sense as a practical matter.28 Denying the wage 

exemption to a debtor in bankruptcy results in a disparity between 

individuals not filing bankruptcy and those who do file by affording lesser 

 27 The court was not persuaded by the language in a number of earlier Virginia cases 

that recognized the authority of debtors to exempt unpaid wages in bankruptcy under § 34-29, 

including In re Musgrove, 7 B.R. 892 (Bankr. W.D. Va. 1981), noting that they offered only 

“conclusory statements without any analysis or elaboration of the issue of the impact of a lack 

of garnishment, and they provide little guidance to the case at hand.” In re Pierce, No. 15-

71047, p. 3 (Bankr. W.D. Va. Dec. 30, 2015). 

28 See In re Urban, 262 B.R. 865, 869 (Bankr. D. Kan. 2001) (“Just as a writ of 

execution need not be pending against a debtor’s homestead to enable him to claim the 

homestead exemption in bankruptcy, pre-existing process should not be a prerequisite to a 

bankruptcy debtor’s right to claim the . . . wage exemption . . . .”). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 22 of 29
23 

rights to those in bankruptcy, which seems contrary to the purpose of the 

statute.29 A disparity between individuals filing bankruptcy based solely on 

whether or not garnishment proceedings were pending at the time of filing 

seems even more untenable.30

 Furthermore, the presence of language in Va. Code § 34-29 limiting the 

amount of wages “subject to garnishment” without specifically providing 

additional protections against all forms of creditor process does not support 

the conclusion that the restriction is not an exemption applicable in 

bankruptcy since a judgment creditor may generally recover a debtor’s 

unpaid wages only by instituting garnishment proceedings pursuant to Va. 

Code § 8.01-511. See In re Haraughty, 403 B.R. at 611 (“In the Court’s 

opinion, it would make little sense to protect unpaid wages from forms of 

process that are simply inapplicable.”); In re Urban, 262 B.R.at 868 (“[T]his 

Court considers the argument that [the limitation on wage garnishment] is a 

 29 See Forker v. Irish (In re Irish), 311 B.R. 63, 67 (B.A.P. 8th Cir. 2004). See also In 

re Sanders, 69 B.R. 569, 574 (Bankr. E.D. Mo. 1987) (“[I]t would be highly anomalous, if not 

unjust, if the position of creditors were improved upon a debtor’s filing bankruptcy.”). 

It has been suggested that Virginia chose to opt out of the federal exemptions of 11 

U.S.C. § 522(d) because the federal exemptions are more generous than those granted under 

Virginia law and where an exemption scheme favors one filing bankruptcy, the number of 

bankruptcy filings would increase. Joseph E. Ulrich, Virginia’s Exemption Statutes-The Need 

for Reform and a Proposed Revision, 37 Wash. & Lee L. Rev. 127, 128-29 (1980). On the flip 

side, if state law exemptions were more generous than the federal exemptions, creditors 

would be more likely to file involuntary petitions against the debtor. Id. at 128 n.8. It would 

seem, therefore, that the legislature’s apparent goal of discouraging bankruptcy filings would 

be best served by having the Virginia exemptions provide a debtor with the same property in 

or out of bankruptcy. 

30 In In re Sanders, 69 B.R. at 573, the chapter 7 trustee argued that even if the 

Missouri garnishment statute could provide an exemption for prepetition wages, language in 

the statute limiting the amount that may be “subjected to garnishment” resulted in the 

exemption being available only in cases where a garnishment is pending at the time of 

bankruptcy. The Court rejected the Trustee’s argument, stating that “[i]f that principle was 

a correct statement of the law . . . bankrupts not subject to attachment or execution 

proceedings at the time of filing would lose their exemptions.” Id. at 573. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 23 of 29
24 

restriction not an exemption to be a distinction without a difference. 

Garnishment is the only method of ‘executing’ on a debtor’s wages available 

in this state.”). Prohibiting additional forms of creditor process that are not 

available to a creditor in any event serves no purpose.31

 Some courts have pointed out that the definition of “garnishment” 

included in state statutes utilizing the language of 15 U.S.C. § 1673 supports 

the contention that the protections included therein are available to bankrupt 

debtors. Va. Code § 34-29(d)(3), like other similar statutes, defines 

“garnishment” as “any legal or equitable procedure through which the 

earnings of any individual are required to be withheld for payment of any 

debt.” Bankruptcy falls within that definition, as it is a procedure whereby a 

debtor’s earnings would be used to satisfy a debt. See Forker v. Irish (In re 

Irish), 311 B.R. at 68; In re Urban, 262 B.R. at 869.32 Similarly, a bankruptcy 

trustee’s duty to administer assets, including earned but unpaid income, for 

 31 See also In re Mayer, 388 B.R. 869 (Bankr. N.D. Ill. 2008): 

Unlike other assets that might be subject to levy, unpaid wages are neither in 

the possession of the debtor nor owned by the debtor. Without a statute 

allowing a creditor to pursue the debtor’s entitlement to such wages, they 

would be immune from collection. . . . [T]he nature of unpaid wages, as choses 

in action immune from . . . common law methods of satisfying judgments, 

makes the broader exemption language employed in other Illinois exemption 

provisions unnecessary. The absence of references to assignment, 

attachment, levy, execution, and seizure is therefore no indication that the 

Illinois General Assembly intended unpaid wages to be subject to collection 

through these methods. 

Id. at 872-73 (citations omitted). 

32 “It is difficult to fathom what the means of effecting the transfer of a debtor’s 

property to the bankruptcy estate is if it cannot be considered a ‘legal or equitable procedure.’ 

Thus, this Court concludes that the filing of bankruptcy is a ’legal or equitable procedure’ 

creating an estate entitled to collect these wages ‘for the payment of any debt,’ subject to the 

restrictions or exemptions . . . that the debtor may avail himself of . . . .” In re Urban, 262 

B.R. at 869. 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 24 of 29
25 

the benefit of creditors would not exist but for the Bankruptcy Code, and the 

trustee’s ability to do so is supported and enabled under its provisions. This 

is surely a “legal or equitable procedure through which the earning of [an] 

individual are required to be withheld for payment of any debt.”33

 The reasoning and conclusions of the courts in In re Urban and In re 

Haraughty, finding that exemption provisions similar to Va. Code §34-29 

provide a wage exemption available to an individual in bankruptcy, are 

sound. Prior decisions of this Court, conduct of the Virginia General 

Assembly, the language of the statute (including the other provisions of Title 

34) as well as a long-standing practice of construing Virginia’s exemption 

statutes liberally,34 support the same conclusion in this case. Therefore, the 

Court finds that Va. Code § 34-29 permits a debtor in bankruptcy to exempt 

earned but unpaid wages subject to the limitations contained in its 

provisions. 

 Having found that § 34-29 permits a debtor in bankruptcy to exempt 

accrued but unpaid earnings, the Court must determine whether the 

distribution that the Debtor is entitled to receive in August of 2017 qualifies 

 33 In Kokoszka v. Belford, 417 U.S. 642, 650-51 (1974), the Supreme Court indicated 

that Congress did not intend to create a separate bankruptcy exemption when it enacted 15 

U.S.C. § 1673. Nevertheless, whether Congress intended to create an exemption for wages 

when it enacted § 1673 is not dispositive of the Virginia legislature’s intent when it borrowed 

the language of 15 U.S.C. § 1673 and incorporated it into § 34-29. See Forker v. Irish (In re 

Irish), 311 B.R. at 66-7 (an opt-out state could adopt the CCPA as a state exemption 

regardless of the purpose of the CCPA and the Supreme Court’s decision in Kokoszka); In re 

Urban, 262 B.R. at 870; In re Haraughty, 403 B.R. at 613. 

34 See note 14 supra. See also In re Stewart, 360 B.R. 132, 138 (Bankr. E.D. Va. 

2006). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 25 of 29
26 

as “earnings” under the definition contained in the statute.35 Under § 34-

29(d)(1), the term ‘earnings’ means “compensation paid or payable for 

personal services, whether denominated as wages, salary, commission, bonus, 

payments to an independent contractor, or otherwise, whether paid directly 

to the individual or deposited with another entity or person on behalf of and 

traceable to the individual, and includes periodic payments pursuant to a 

pension or retirement program . . . .” On its face, the distribution appears to 

fall within this definition, since it represents compensation for past services 

of the Debtor. 

The question of whether a deferred compensation payment constitutes 

“earnings” and is thus exemptible under Va. Code § 34-29 was answered in 

the affirmative by this Court in In re Gnadt. The Court noted that the 

Fourth Circuit has held that 

Pre-petition assets . . . are those assets rooted in the 

debtor's pre-petition activities, including any proceeds 

that may flow from those assets in the future. These 

assets belong to the estate and ultimately to the creditors. 

Post-petition assets are those that result from the debtor's 

postpetition activities and are his to keep free and clear of 

the bankruptcy proceeding. 

2015 WL 2194475, at *5 (quoting Andrews v. Riggs Nat’l Bank (In re 

Andrews), 80 F.3d 906, 910 (4th Cir. 1996)). Expanding upon this definition, 

the Court observed that the rule has “been consistently applied by the courts 

 35 There is no doubt that accrued but unpaid wages owed to a debtor upon the 

commencement of a bankruptcy generally constitute property of the bankruptcy estate 

pursuant to 11 U.S.C. § 541(a)(1). Aveni v. Richman (In re Aveni), 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). 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 26 of 29
27 

in the context of deferred employee compensation.” 2015 WL 2194475, at 

*5.36 The Debtor’s deferred compensation held in the Partner Equity Plan 

represents funds to which the Debtor is entitled because of his prepetition 

activities. Following the analysis set forth in In re Andrews and In re Gnadt,

the Court finds that the funds to be distributed to the Debtor from the 

Partner Equity Plan in August 2017 constitute earnings covered by Va. Code 

§ 34-29. Accordingly, 75% of those earnings may be exempted by the Debtor 

in his bankruptcy case. 

CONCLUSION 

 On the basis of the foregoing, the Court finds that the Debtor has not 

met his burden of establishing that the Partner Equity Plan is not property of 

the bankruptcy estate and must include those earnings in his bankruptcy 

estate. The Court further finds that Ms. Foster and the chapter 13 trustee 

have not met their burden of proving that the Debtor’s exemption of the 

Partner Equity Plan proceeds was improper. Therefore, the objections of Ms. 

Foster and the chapter 13 trustee to the Debtor’s claim of exemption are 

overruled. A separate order will be entered. 

Signed: August 12, 2016 /s/ Keith L. Phillips 

 United States Bankruptcy Judge 

 36 “See In re Ryerson, 739 F.2d 1423, 1425 (9th Cir.1984)(lump sum severance 

payment from pre-petition contract—“by including all legal interests without exception, 

Congress indicated its intention to include all legally recognizable interests although they 

may be contingent and not subject to possession until some future time”); In re Powell, 511 

B.R. 107, 112 (Bankr. C.D. Ill. 2014) (debtor's interest in profit sharing plan—“where the 

future payment is linked, at least in part, to services rendered prepetition, the ‘sufficiently 

rooted’ inquiry is ordinarily satisfied”); In re Jokiel, 447 B.R. 868, 872–73 (Bankr. N.D. Ill. 

2011) (severance payment was sufficiently rooted in debtor's pre-bankruptcy past).” 2015 

WL 2194475, at *5. 

Entered on Docket: August 12, 2016

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 27 of 29
28 

Copies: 

Laura Taylor Alridge 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Veronica D. Brown-Moseley 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Amanda Erin DeBerry 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Emily C. Fort 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Mark C. Leffler 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Stephen F. Relyea 

Boleman Law Firm, P.C. 

P.O. Box 11588 

Richmond, VA 23230-1588 

Barry W. Spear 

Boleman Law Firm, P.C. 

Convergence Center III 

272 Bendix Road Suite 330 

Virginia Beach, VA 23452 

Carl M. Bates 

P. O. Box 1819 

Richmond, VA 23218 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 28 of 29
29 

Chapter 13 Trustee's Office 

P.O. Box 1819 

Richmond, VA 23218 

John Herbert Foster, Jr. 

8008 Stonemeade Drive 

Henrico, VA 23231 

Thomas H. Gays, II 

Saunders, Patterson & Mack 

9100 Arboretum Parkway Suite 300 

Richmond, VA 23236 

Case 15-33626-KLP Doc 99 Filed 08/12/16 Entered 08/12/16 15:59:52 Desc Main

 Document Page 29 of 29