Opinion
Case No. 02-05321-JKC-7
October 4, 2002
ORDER OVERRULING TRUSTEE'S OBJECTION TO EXEMPTIONS
This matter comes before the Court on the Trustee's Objection to Exemptions. Following a hearing on August 29, 2002, the Court took the matter under advisement and now issues the following order, wherein it finds that the Debtor is entitled to the challenged exemption. When determining validity of a claimed exemption, the Court looks to the applicable state law. See In re Geise, 992 F.2d 651, 655-56 (7th Cir. 1993); In re Ondras, 846 F.2d 33, 35 (7th Cir. 1988). The trustee, as the objecting party, has the burden of demonstrating that the claimed exemption is improper. Fed.R.Bankr.Pro. 4003. Section 522(d) of the Code provides a list of exemptions available to debtors in bankruptcy. However, the Code also sets forth a mechanism by which states may "opt-out" of the federal bankruptcy exemptions. See 11 U.S.C. § 522(b). Indiana is one such state. Pursuant to Indiana Code § 34-55-10-2, Indiana debtors may claim only those exemptions that are available under state law or under federal law other than Code § 522(d)
Per his Amended Schedule C, the Debtor claimed as exempt $8,664.72 in income that he had earned but had not yet been paid as of the petition date. The exemption was based on Indiana's "garnishment statute," Indiana Code § 24-4.5-5-105. The Trustee objected and a hearing on the matter was held. At the hearing, the Trustee maintained that Indiana Code § 24-4.5-5-105 is not recognized in bankruptcy as an exemption. The Court disagrees. Indiana Code § 24-4.5-5-105 provides in relevant part that:
In his Objection to Exemptions, the Trustee raised various other objections to the Debtor's Amended Schedule C which were resolved by agreement.
[T]he maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment to enforce the payment of one (1) or more judgments against him may not exceed:
(a) twenty-five percent (25%) of his disposable earnings for that week; or
(b) the amount by which his disposable earnings for that week exceed thirty (30) times the federal minimum hourly wage prescribed by 29 U.S.C. § 206(a)(1) in effect at the time the earnings are payable;
whichever is less. In the case of earnings for a pay period other than a week, the earnings shall be computed upon a multiple of the federal minimum hourly wage equivalent to thirty (30) times the federal minimum hourly wage as prescribed in this section.
No Indiana court has specifically addressed whether the garnishment statute provides an exemption in bankruptcy. However, the Indiana Supreme Court has acknowledged that "[g]arnishment exemption statutes in Indiana have constitutional underpinnings." See Mims v. Commercial Credit Corp., 261 Ind. 591, 307 N.E.2d 867 (Ind. 1974). Article 1, Section 22 of the Indiana Constitution provides that "[t]he privilege of the debtor to enjoy the necessary comforts of life, shall be recognized by wholesome laws, exempting a reasonable amount of property from seizure or sale for the payment of any debt or liability hereafter contracted. . . ." As the supreme court further commented: "It is not without significance that Article 1 enumerates the Bill of Rights. A debtor, in Indiana, has a constitutional right to have a reasonable amount of his or her property exempted from garnishment. Garnishment exemptions merely implement that right."
Given the constitutional significance of the garnishment statute, the Court cannot conclude that Indiana Code § 24-4.5-5-105 was intended to apply only to non-bankrupt debtors. Such a distinction compromises the fundamental purpose behind the garnishment statute and deprives a certain class of debtors, i.e., those in bankruptcy, of their constitutional right to the "necessary comforts of life." Because the Trustee has failed to set forth any justification for holding differently, the Court finds that Indiana Code § 24-4.5-5-105 constitutes an exemption under Indiana law that may be claimed by a debtor in bankruptcy. As such, the Trustee's objection to the Debtor's claimed exemption is overruled.
At the hearing, the Trustee argued that Indiana's exemptions are limited to those set forth in Indiana Code § 34-55-10. Contrary to this argument, Indiana's exemptions are scattered throughout the Indiana Code. See, e.g., IND. CODE § 27-1-12-14 (exemption for certain life insurance proceeds); IND. CODE § 23-4-1-25 (exemption for specific partnership property); IND. CODE § 22-4-33-3 (exemption unemployment compensation not yet received). Thus, the fact that Indiana's garnishment statute is not codified in Indiana Code § 34-55-10 is not determinative.
The Court notes that various other bankruptcy courts have also held that the subject state garnishment statute provides an exemption that may be claimed in bankruptcy. See e.g., In re Urban, 262 B.R. 865 (Bankr.D.Kan. 2001); In re Robinson, 241 B.R. 447 (9th Cir. BAP 1999);. In re Sanders, 69 B.R. 569 (Bankr.E.D.Mo. 1987); In re Stewart, 32 B.R. 132 (Bankr.D.Utah 1983).
IT IS SO ORDERED