Court Opinion

ID: 9688905
Source: CourtListenerOpinion
Date Created: 2023-08-24 18:11:50.053776+00
Date Added: 2024-06-11T18:18:42.961668
License: Public Domain

KRESSEL, Chief Judge,
dissenting.
Because I disagree with the majority’s premise that “not being subject to attachment and execution” is the equivalent of “exempt” or “exempt from attachment and execution,” I dissent.
Before October 1, 1979, the concepts of exempt property and property not subject to attachment were explicitly distinct. Under § 70(a) of the Bankruptcy Act of 1898 (“Act”), the trustee was “vested by operation of law with the title of the bankrupt ... except insofar as it is to property which is held to be exempt ....” 11 U.S.C. § 110(a) (repealed). In other words, exempt property never came into what we now call the estate. The bankrupt could claim property as exempt under § 6 of the Act, which provided, inter alia, the “Act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the laws of the United States or by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile .... ” 11 U.S.C. § 24 (repealed).
In contrast with the concept of exempt property under the Act, the trustee was vested by operation of law with title to all of the bankrupt’s other property, which included, inter alia, “property, including rights of action, which prior to the filing of the petition [the bankrupt] could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequestered .... ” 11 U.S.C. § 110(a)(5) (repealed). In other words, like exempt property, rights of action not subject to levy did not become property of the estate, but for a different reason. If the lack of ability to be levied on resulted in property being exempt, then the latter provision would have been su*913perfluous. See TRW, Inc. v. Andrews, 534 U.S. 19, 31, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152, 2 S.Ct. 391, 27 L.Ed. 431 (1883) “It is our duty ‘to give effect, if possible to every clause and word of a statute.’ ”)
A debtor’s right to a tax refund is nothing more than a right of action and the United States Supreme Court held that an “income tax refund [was] ‘sufficiently rooted in the pre-bankruptcy past’ to be defined as ‘property’ under § 70a(5).” Kok-oszka v. Belford, 417 U.S. 642, 648, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) (quoting Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)). Thus, the Supreme Court made clear that a distinction must be made between exempt property and property of the estate which was capable of being “levied upon and sold under judicial process ....” under 11 U.S.C. § 110(a)(5) (repealed). Current Department of the Treasury regulations support the premise that a properly executed income tax return constitutes a claim for a refund. See, 26 C.F.R. § 301.6402-3(a)(5) (1994) (The Code of Federal Regulations provides that “[a] properly executed individual ... original income tax return or an amended return ... shall constitute a claim for refund or credit within the meaning of section 6402 and section 6511 for the amount of the overpayment disclosed by such return (or amended return).”).
The Bankruptcy Code eliminated exclusion from the estate based on inability to be levied on, but left essentially untouched the concept of exemption, at least for those debtors who choose not to or cannot use the bankruptcy exemptions iterated in § 522(d). There is nothing in the Code which indicates an intent on the part of Congress to retain the concept of exclusion from the estate based on inability to be levied on, but now as part of exemption law. See Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) (“When Congress amends the bankruptcy laws, it does not write ‘on a clean slate.’ ” quoting Emil v. Hanley, 318 U.S. 515, 521, 63 S.Ct. 687, 87 L.Ed. 954 (1943)). However, I think that is exactly what the majority is doing.
Although the pertinent language of the Bankruptcy Act of 1898 morphed a bit as it was transformed into the corresponding provisions of the Bankruptcy Code, the same distinction remains today between property that is exempt and property that is “subject to attachment and execution” or capable of being “levied upon”, “attached,” etc. Indeed, the Supreme “Court has been 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.” Dewsnup, 502 U.S. at 419, 112 S.Ct. 773 (citing United Savings Assn. of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 380, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988); Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 563, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990); and United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 244-245, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)).2 Under the Bankruptcy Code,
An exemption is [still] an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debt- or. Section 522 determines what property a debtor may exempt. Under § 522(b), he [sic] must select between a *914list of federal exemptions (set forth in § 522(d)) and the exemptions provided by his State, “unless the State law that is applicable to the debtor ... specifically does not so authorize,” § 522(b)(1)— that is, unless the State “opts out” of the federal list. If a State opts out, then its debtors are limited to the exemptions provided by state law.
Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).3
While exemption may mean different things in different contexts, in the context of § 522 it refers to laws enacted by the legislative branch which explicitly identify property judgment debtors can keep away from creditors for reasons of public policy. In re Pritchard, 75 B.R. 877, 879 (Bankr.D.Minn.1987) (discussing the “central and common characteristic of exemption statutes” and noting that “exemptions have no legal existence independent of statute”).
Examples of non-bankruptcy federal exemption statutes include:
— foreign service retirement and disability payments, 22 U.S.C. § 4060;
— social security payments, 42 U.S.C. § 407;
— injury or death compensation payments from war risk hazards, 42 U.S.C. § 1717;
— wages of fishermen, seamen, and apprentices, 46 U.S.C. § 11109;
— civil service retirement benefits, 5 U.S.C. § 8346;
— Longshoremen’s and Harbor Worker’s Compensation Act death and disability benefits, 33 U.S.C. § 916;
■ — • Railroad Retirement Act annuities and pensions, 45 U.S.C. § 231m;
— veterans benefits, 38 U.S.C. § 5301;
— special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. § 3101;
— railroad unemployment insurance benefits, 45 U.S.C. § 352(e);
— government employees’ disability or death benefits for work-related injuries, 5 U.S.C. § 8130;
— military survivors’ benefits, 10 U.S.C. § 1450®;
— military annuities, 10 U.S.C. § 1440;
— military pension benefits, 38 U.S.C. § 5301;
— insurance benefits paid under Ser-vicemembers’ Group Life Insurance or Veterans’ Group Life Insurance, 38 U.S.C. § 1970;
— Central Intelligence Agency Retirement and Disability System payments, 50 U.S.C. § 2094; and
— federally insured or guaranteed student loans, grants, and work assistance, 20 U.S.C. § 1095a(d).
4 Collier on Bankruptcy ¶ 522.02[3] (15th ed. rev.2005). If nothing else, this list indicates that Congress knows full well how to create an exemption when it wants one. *915Examples of Missouri exemption statutes are found at Mo.Rev.Stat. §§ 513.480 (personal property exemptions), 513.440 (head of household exemption), 513.460 (fire fighting equipment exemption), and 513.475 (homestead exemption). Each of these Missouri statutes identifies specific categories of property. However, there is no Missouri statute that exempts tax refunds.
§ 6402 requires the Secretary of the Treasury to pay a refund to the taxpayer, subject to certain rights of governmental setoff. Sorenson v. Secretary of Treasury of U.S., 475 U.S. 851, 854-856, 106 S.Ct. 1600, 89 L.Ed.2d 855 (1986). While § 6402 of the Internal Revenue Code has been interpreted to mean that creditors cannot attach refunds (except for limited rights of setoff for certain governmental creditors), those limitations benefit the IRS, and the exceptions benefit the federal and state governments. See In re Pritchard, 75 B.R. at 880. The limitation and its exceptions are not designed to benefit the taxpayer. § 6402 is by no stretch of the imagination an exemption statute. Similarly, anti-assignment provisions do not make 31 U.S.C. § 3727 an exemption statute. “The fact that [it] contain[s] anti-assignment provisions is a mere fortuity.” In re Pritchard, 75 B.R. at 879.
The Missouri attachment statutes, §§ 521.240 and 513.090, which identify categories of property under Missouri law that are subject to attachment and subject to sale under attachment and execution, respectively, are based on issues of ehoatness and practicality and are likewise not exemption statutes. See generally State ex rel. Auchincloss, Parker & Redpath v. Harris, 349 Mo. 190, 159 S.W.2d 799, 805 (1942). In the same way statutory and even constitutional immunity from process are based on principles of protecting the government and the public fisc and do not create exemptions. See, U.S. v. Horn, 29
F.3d 754, 761 (1st Cir.1994) (“sovereign immunity operates on the broadest possible level: it stands as an obstacle to virtually all direct assaults against the public fisc, save only those incursions from time to time authorized by Congress”).
In addition to disagreeing with the majority on the law, I fear that there will be the proverbial unintended consequences of today’s decision. It will create two categories of debts: those owed by the government and those owed by others. I also think the logical application of the decision is to create an exemption for property outside the state whose exemptions are being used. For example, if these debtors owned property in Kansas, since that property would not be subject to attachment under Missouri law, it would be exempt. This cannot be the law. See, Drenttel v. Jensen-Carter (In re Drenttel), 403 F.3d 611 (8th Cir.2005).
Since none of the Federal or Missouri statutes relied on by the debtors is an exemption statute, I think the bankruptcy court got it right and I would affirm.

. Had Congress wanted to insert the phrase "exempt from attachment and execution” (or “not subject to attachment”) in place of the word "exempt” in § 522(b)(2)(A), it could have easily done so (and changed the Act concept of "exempt”). However, it did not do so.

. As to this latter point in Owen, the Eighth Circuit has acknowledged that "Missouri, the residence of the [debtors] has exercised this option.” Garner v. Strauss (In re Garner), 952 F.2d 232, 234 (8th Cir.1991) (citing Mo.Rev.Stat. § 513.427); Wallerstedt v. Sosne (In re Wallerstedt), 930 F.2d 630, 631 n. 1 (8th Cir.1991) ("In 1982 the Missouri legislature [via Mo.Rev.Stat. § 513.427] opted out of the federal exemption scheme pursuant to 11 U.S.C. § 522(b)(2) (1988), thereby restricting Missouri residents to the exemptions available under Missouri law and under federal statutes other than 11 U.S.C. § 522(d).”); Abernathy v. LaBarge (In re Abernathy), 259 B.R. 330, 333 (8th Cir. BAP 2001) ("As permitted by 11 U.S.C. § 522(b)(2)(A), Missouri has chosen to opt out of the exemption scheme provided under the Bankruptcy Code.”). Given this, I question whether Mo.Rev.Stat. § 513.427 is really an exemption statute at all or merely a wordily drafted opt-out statute. I think a fair reading of Mo.Rev.Stat. § 513.427 is that it is only an opt-out statute; not an exemption statute nor some hybrid of the two.