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e-Journal Summary
Opinion Date: 08/20/2012
e-Journal Date: 08/29/2012
Full Text Opinion

Practice Area(s):   Bankruptcy
Constitutional Law

Issues: Constitutionality of MCL 600.5451 (Michigan's bankruptcy-specific exemption statute); Whether a state may enact an exemption scheme that applies only to debtors in bankruptcy; The Bankruptcy Clause (U.S. Const., art. I, § 8, cl. 4); The Supremacy Clause (U.S. Const., art. VI, cl. 2); In re Jones (Bankr. WD MI); Rhodes v. Stewart; Hood v. Tennessee Student Assistance Corp.; Whether MCL 600.5451 is a "bankruptcy law"; 11 USC § 522(b)(2) (the "opt-out" provision); Storer v. French (In re Storer); In re Reinhart (Bankr. ED MI); Hanover Nat'l Bank v. Moyses; "Congressional intent"; United States v. Ron Pair Enters., Inc.; Sheehan v. Peveich (4th Cir.); Owen v. Owen; The "uniformity" requirement; Schultz v. United States; Kulp v. Zeman (In re Kulp) (10th Cir.); Sticka v. Applebaum (In re Applebaum) (BAP 9th Cir.); Whether § 522 and MCL 600.5451 operate uniformly; MCL 600.5451 and the Supremacy Clause; Perez v. Campbell; "Express" preemption, "field" preemption, and "conflict" preemption; Railroad Ventures, Inc. v. Surface Transp. Bd.; Pertuso v. Ford Motor Credit Co.; In re Cross (Bankr. ND IN); Marrama v. Citizens Bank of MA; Grogan v. Garner
Court: U.S. Court of Appeals Sixth Circuit
Case Name: In re Schafer
e-Journal Number: 52495
Judge(s): Cole, Clay, and Mattice

Holding that MCL 600.5451 is constitutionally sound, the court affirmed the bankruptcy court's judgment for the debtor, rejecting the bankruptcy Trustee's objection to the debtor's use of MCL 600.5451's exemption scheme in his Chapter 7 bankruptcy case. Michigan law allows debtors in bankruptcy to choose their exemptions from those set forth in § 522(d), from a set of general exemptions available to all Michigan residents irrespective of their bankruptcy status (MCL 600.6023), or from a list of exemptions available solely to debtors in bankruptcy, MCL 600.5451. The debtor elected to claim a homestead exemption under MCL 600.5451, which permits bankruptcy debtors - and only bankruptcy debtors - to exempt up to $30,000 of the value of the home, or up to $45,000 if the debtor is over the age of 65 or disabled. These figures are adjusted for inflation triennially. The debtor, who is disabled, claimed a total exemption of $44,695 in the value of his home. The court noted that the homestead exemption in MCL 600.5451 "is substantially more generous" than either its federal counterpart ($21,625) (§ 522(d)(1)) or the Michigan general homestead exemption ($3,500). The BAP reversed the bankruptcy court, ruling that the bankruptcy-specific exemption was unconstitutional. The issue was whether "a state may enact an exemption scheme that applies only to debtors in bankruptcy." The Trustee argued that MCL 600.5451 violated the Bankruptcy Clause and the Supremacy Clause. The debtor and the intervenor-State of Michigan argued that the interpretation given to the phrase "uniform Laws" by the U.S. Supreme Court and the court "permits states to act in the arena of bankruptcy exemptions even if they do so by making certain exemptions available only to debtors in bankruptcy, and that such exemptions schemes are not invalidated by the Supremacy Clause." The court agreed with the debtor and the State of Michigan. The court concluded that the Trustee's argument as to Congressional intent was not well taken. "The plain language of § 522(b) demonstrates unambiguously that 'Congress has not seen fit to restrict the authority delegated to the states by requiring that state exemptions apply equally to bankruptcy and non-bankruptcy cases,' such that 'we are without authority to impose such a requirement.'" The court held that "an interpretation of § 522 that permits states to enact bankruptcy-specific exemptions schemes does not run afoul of either the Bankruptcy or Supremacy Clauses of the Constitution." The court concluded that the BAP's interpretation "misunderstands the concept of concurrent jurisdiction in the area of bankruptcy exemptions, and imputes, without a basis to do so, a limit onto a state's power to act." The court's understanding of Rhodes and the "uniform Laws" language of the Bankruptcy Clause supported its view that Michigan retained the power to pass a law like MCL 600.5451. The court noted that in Kulp, the only federal court of appeals to address the uniformity requirement of the Bankruptcy Clause in the context of a state's bankruptcy-specific exemption statute concluded that the statute did not violate the uniformity requirement. The court reached the same conclusion here, holding that § 522 and MCL 600.5451 operate uniformly. The court also rejected the Trustee's challenge to MCL 600.5451 based on the Supremacy Clause, concluding, inter alia, that "on an as-applied basis, the Michigan statute actually furthers, rather than frustrates, national bankruptcy policy."

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