Cite as: 79 B.R. 821
re Ronald L. Duss and Jan L. Duss, Debtors
Bankruptcy Case No. 87-00830-7
United States Bankruptcy Court
W.D. Wisconsin, Eau Claire Division
October 30, 1987
Howard D. White, Eau Claire, Wis., for debtors.
Sheree L. Gowey, Asst. U.S. Atty., Madison, Wis., for Farmers Home Administration.
Thomas S. Utschig, United States Bankruptcy Judge.
MEMORANDUM OPINION, FINDINGS OF FACT,
AND CONCLUSIONS OF LAW
The debtors, by Howard D. White, have brought a motion pursuant to 11 U.S.C. § 522(f)
and Bankruptcy Rule 4003(d) to avoid liens. The Farmers Home Administration (FmHA) appears
by Assistant U. S. Attorney, Sheree L. Gowey, and objects to the motion. By agreement of
the parties, the issues have been submitted to the Court for determination through briefs.
On July 23, 1987, the debtors filed an amended motion to avoid nonpossessory,
nonpurchase-money security interests that impair exemptions to which they would have been
entitled under § 522(b)(2). Through said motion the debtors seek lien avoidance with
respect to certain listed farm equipment.
The debtors filed a second amended exemption schedule on October 14, 1987, claiming
exemptions pursuant to § 522(b)(2) of the Bankruptcy Code and § 815.18 of the Wisconsin
Statutes. The FmHA has affirmatively conceded that the items listed on said schedule
should be allowed as exempt. The debtors have apparently withdrawn their claim for
exemption as to the farm equipment not listed in this second amended exemption schedule.
Accordingly, the lien avoidance motion with respect to such non-exempt property must be
denied in that the security interests are not impairing the debtors' exemptions. In re
Clowney, 19 B.R. 349 (Bankr. M.D. N.C. 1982).
FmHA does not contend that any of its security interests are either possessory or
purchase-money. Nor does FmHA dispute the fact that the trade of the debtors is farming.
The debtors seek to avoid FmHA's security interest in thirty (30) acres of hay. They
contend that the hay constitutes crops held primarily for the personal, family, or
household use of the debtors within the meaning of § 522(f)(2)(A). FmHA argues that the
hay is not a consumable and cannot really be considered to be held primarily for personal,
family, or household purposes. The Court agrees with FmHA and accordingly the debtors'
motion with respect to the thirty (30) acres of hay should be denied.
Finally the debtors seek to avoid the liens on the remaining items asserting that they
constitute implements or tools of the trade of the debtors. No party in interest has
objected to the debtors' claim of exemptions. Therefore, such property should be allowed
as exempt. 11 U.S.C. § 522(l).(1) FmHA objects to the
motion of the debtors and contends that the exempt items of farm machinery do not
constitute tools or implements of the trade of the debtors within the meaning of §
522(f)(2)(B) of the Bankruptcy Code. FmHA bases this argument on dicta from the case of In
re Patterson, 825 F.2d 1140 (7th Cir. 1987).
FmHA's reliance on Patterson is misplaced. The Patterson decision stands
for the single and narrow proposition that expensive farm tools and implements are not exempt
as tools and implements under § 522(d) of the Bankruptcy Code and, therefore, the liens
on such machinery cannot be avoided under § 522(f).(2) The
Court in Patterson explicitly distinguished situations where property has been
allowed as exempt under state law in accordance with § 522(b)(2) of the Bankruptcy
There is authority at this level, though not in this circuit, on the
question whether liens on farm machinery may sometimes be avoided by virtue of section
522(f), but that question is distinct. Section 522(f) allows the avoidance of liens on
property exempt not only by virtue of 522(d), the list of federal exemptions (that is, the
exemptions created by the Bankruptcy Code rather than merely absorbed by it from state
law), but also by virtue of state exemption laws, some of which exempt tools of the trade
more broadly than section 522(d) does. The same language in section 522(f), since it could
be picking up a tools of the trade exemption in state law as well as the tools of the
trade exemption (which need not have the same scope) in 522(d), could mean two different
things. Thus, cases like In re Liming, 797 F.2d 895, 899-901 (10th Cir. 1986); In
re LaFond, 791 F.2d 623, 626-27 (8th Cir. 1986), and Augustine v. United States,
675 F.2d 582 (3d Cir. 1982) all of which allow a lien on farm machinery to be avoided
under (f), do not necessarily control the present case, which is under (d).
In re Patterson, 825 F.2d 1140, 1146 (7th Cir. 1987).
The language of § 522 of the Bankruptcy Code is clear, plain, and unambiguous. Thus
the plain meaning of the statute should be controlling. Jones v. Liberty Glass Company,
332 U.S. 524, 531, 68 S. Ct. 229, 232-33, 92 L. Ed. 142 (1947); Rosenman v. United
States, 323 U.S. 658, 661, 65 S. Ct. 536, 537-38, 89 L. Ed. 535 (1945). The Court will
now proceed to navigate through the § 522 lien avoidance provision incorporating the
relevant facts and using the above principle of statutory interpretation as its
In Wisconsin a debtor in bankruptcy may choose to use either the federal exemptions as
provided by § 522(b)(1) and (d), or the state exemptions provided by § 522(b)(2).(3) In the case sub judice the debtors have chosen to use the
state exemptions as provided by § 522(b)(2). Specifically, the debtors have claimed
several items of property as exempt pursuant to § 815.18(6) of the Wisconsin statutes.
FmHA has affirmatively agreed that these items should be allowed as exempt. Absent an
objection by a party in interest, the property claimed by a debtor as exempt is exempt. 11
U.S.C. § 522(1).
The effect of the exemption is to remove such exempt property from the bankruptcy
estate and, after discharge, from the claims of unsecured creditors. 11 U.S.C. §
522(c)(2); H. Rep. No. 95-595, 95th Cong., 1st Sess. (1977). The fact that property is
claimed as exempt does not destroy pre-existing valid liens nor prevent the enforcement of
such liens. H. Rep. No. 95-595, 95th Cong., 1st Sess. (1977) pp. 360-363 (adopting the
rule of Long v. Ballard, 117 U.S. 617, 6 S. Ct. 917, 29 L. Ed. 1004 (1886)); see
also In re Tarnow, 749 F.2d 464 (7th Cir. 1984).
Congress did, however, provide a method by which a debtor could avoid liens on property
claimed as exempt. 11 U.S.C. § 522(f). Under § 522(f)(2)(B) debtors may avoid
nonpossessory, nonpurchase-money security interests to the extent that such liens impair
exemptions to which the debtors would have been entitled in any implements or tools of the
trade of the debtors. FmHA's sole objection rests in its contention that the items of
property the debtors have claimed as exempt do not constitute tools or implements within
the meaning of § 522(f).
Initially, FmHA implicitly asserts that § 522(f)(2)(B) should be limited to the value
limitations provided in the federal exemptions of § 522(d). The Court disagrees. It is
quite apparent that Congress chose not to place value limitations in § 522(f)(2)(B).
Certainly if the result FmHA requests was intended, Congress in its wisdom could have
placed value limitations in § 522(f)(2)(B) similar to those placed in § 522(d). Instead,
Congress elected to delete such value limitations from § 522(f). The Tenth Circuit Court
of Appeals has recently addressed this issue.
[A]lthough the wording of the subsection (f) avoidances closely
follows the wording of the subsection (d) exemptions, subsection (f) contains no express
dollar limitations on the value of the items that the debtor may avoid. Indeed, that the
wording is identical but for the dollar limitations suggests a deliberate omission.
In re Liming, 797 F.2d 895, 901 (10th Cir. 1986).
Further, the limitations of § 522(d) do not logically come into the analysis when a
debtor has selected the § 522(b)(2) exemptions. When a debtor has elected to use the
state exemptions, as is authorized by Congress in § 522(b), it is clearly contrary to the
plain language of the statute to "read over" the value limitations of § 522(d)
into § 522(f). It should further be noted that a state may opt-out of § 522(b)(l)
altogether. Thus, it would be an incongruous result to apply § 522(d) value limitations
after a state has affirmatively decided that § 522(d) should not be used. Congress was
perfectly aware that states could opt-out of § 522(d) and if it had intended the §
522(d) value limitations in § 522(f), then such limitations would have been directly
provided in § 522(f). FmHA has not argued or provided any reason for the Court to believe
that Congress somehow "goofed" in not placing value limitations in § 522(f). In
addition FmHA's argument has already been rejected in this district. In re Flake,
33 B.R. 275, 277 (W.D. Wis. 1983).
To reiterate, a debtor may elect to use either the federal exemptions of § 522(b)(l)
and (d) or the state exemptions of § 522(b)(2). Had the debtor ultimately decided to use
the § 522(b)(1) exemptions, it may be possible that the language of § 522(b)(l) and (d)
could be helpful with respect to § 522(f) lien avoidance issues. However, where a debtor
has elected to use the state exemptions in accordance with § 522(b)(2), then § 522(b)(2)
is also the operative exemption provision with respect to lien avoidance issues and §
522(d) does not even come into the scheme of the analysis.
Next, FmHA argues that the terms tools and implements as used in § 522(f)(2)(B) should
be restricted to small hand tools and modest implements. Basically, this is a request that
the Court engage in judicial legislation. This request shall be humbly declined. As noted
earlier, the language of the statute is quite clear and absent any ambiguity a court
should be reticent to engage in statutory reconstruction. The Court notes the statute
specifically states any tool or implement. The items of property claimed as exempt
by the debtors are very much considered tools and implements in the common vernacular. To
hold that the subject items of property are not tools or implements would do particular
violence to the English language, hedging on verbicide. See, Martin, Farming in
Wonderland, Norton Bankr. Law Advisor (Sept. 1987). The applicable state exemption
statute, § 815.18(6) of the Wisconsin Statutes, provides exemptions for livestock, farm
implements, and automobile. Thus, it is patently clear that these items are considered
exempt implements under state law.
Wis. Stat. § 815.18(6), however, offers its own list of members of
the class of tools or implements to be exempted. The cited subsection is titled
"Livestock, Farm Implements And Automobile," and identifies, inter alia, the
dozen or so specific items of farm machinery claimed by the debtor. The lien avoidance
provision of the Bankruptcy Code, § 522(f), provides for avoidance of liens on
"implements." Where the state law is specific as to which implements
can be exempted any general limitation there may be as to tools of the trade when treated
by the statute as a general class does not apply. It is beyond question that the
implements named in Wis. Stat. § 815.18(6) are intended to be among the tools necessary
to carry on the trade of farming, a trade in which the debtor is engaged. There being no
dollar limit on the value of those implements imposed by the statute creating the
exemption none can be engrafted by reference to the federal statute creating an entirely
different scheme of available exemptions.
In re Flake, 33 B.R. 277 (Bankr. W.D. Wis. 1983). The items
claimed exempt by the debtors have in fact been allowed as exempt in accordance with §
522(b)(2) of the Bankruptcy Code and § 815.18(6) of the Wisconsin Statutes.(4)
As a practical matter, in the context of a bankruptcy, farm equipment of substantial
value will almost always be encumbered by a non-voidable purchase-money security interest.
Further, both the Tenth Circuit Court of Appeals and the Third Circuit Court of Appeals
have specifically held that debtors may avoid security interests in expensive farm
machinery as tools or implements of the trade of a debtor. Augustine v. United States,
675 F.2d 582 (3rd Cir. 1982); In re Liming, 797 F.2d 895 (10th Cir. 1986). The
Eighth Circuit Court of Appeals has specifically rejected the argument of FmHA. In re
LaFond, 791 F.2d 623 (8th Cir. 1986). "We reject [the] contention that large
items of farm equipment may not be considered 'implements' or 'tools of the trade.'" Id.
This section allows debtors "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." In Re Duchesne, 21 B.R. 390, 391 (N.D. N.Y. 1982) See
Augustine, 675 F.2d at 584; In re Walkington, 42 B.R. 67 (Bankr. W.D. Mich.
1984). We agree with the district court that Congress, in setting the tools of the trade
lien avoidance language in a separate subsection than that provided for household,
personal, and family goods, intended that tools and implements could be of more than
nominal resale value. ... Congress could not have been totally unaware of the fact that
many "tools" or "implements" of the trade are more expensive than
ordinary household goods. The literal meaning of the tools of the trade subsection
indicated an intention to allow avoidance of liens on large farm implements and tools,
items necessary to a debtor'farmer's new beginning. As was insightfully stated in In Re
Pommerer [10 B.R. 935 (Bankr. Minn. 1986)]:
One primary purpose of the Bankruptcy Code is to afford the
financially beleaguered a fresh start by readjusting financial rights and liabilities ...
(Citations omitted). A fresh start cannot be attained by returning a debtor to point zero.
Sec. 522(f) encompasses property which Congress envisioned as necessary to give substance
to the concept of a fresh start. This property is required for the maintenance, health and
welfare of the debtor and his family, and avoids literal destitution. Eliminate them and
the debtor would be left financially fresh, but without a start. (Citations omitted). 10
B.R. at 946.
Id. at 627.
The items of equipment that the debtors have claimed as exempt are "tools"
and "implements" within the meaning normally ascribed to these terms. It is
conceded that these items are exempt under § 815.18(6) of the Wisconsin Statutes which
provides that these implements are exempt from execution. It is the conclusion of the
Court that the debtors' motion to avoid liens on farm implements and equipment should be
granted with respect to such implements allowed as exempt.
This opinion shall constitute findings of fact and conclusions of law in accordance
with Bankruptcy Rule 7052.
1. These items were not claimed as exempt in the debtors' original
schedules. They were, however, included in the amended exemption schedule filed July 14,
1987, and in the second amended schedule filed October 14, 1987. More than 30 days have
expired since the July 14, 1987, filing. The debtors were issued a bankruptcy discharge on
July 31, 1987. A no-asset report was issued on May 14, 1987, and the trustee has no
objection to the second amended exemptions.
2. It should be noted in passing that Patterson apparently
does not stand for the proposition that any item with a value in excess of $750 is not a
tool or implement. Rather, it is "the debtor's aggregate interest, not to exceed $750
in value, in any tool or implement that is exempt." Hence, it would seem that it was
contemplated that an implement could have a total fair market value in excess of $750 but
the debtor is limited to exempting his intererest in such property to the extent of $750.
Therefore if an item has a value slightly in excess of the $750 dollar amount, the debtor
can claim the item as exempt. To compute the value of such exemption only the unencumbered
portion of the property is counted. This is consistent with the legislative history behind
this section of the Bankruptcy Code.
Property may be exempted even if it is
subject to a lien, but only the unencumbered portion of the property is to be counted in
computing the "value" of the property for the purposes of exemption.
S. Rept. No. 95-989, 95th Cong., 2d Sess. (1978) pp. 75-76, U.S. Code
Cong. & Admin. News 1978, pp. 5787, 5861, 5862.
Under proposed 11 U.S.C. 541, all property of
the debtor becomes property of the estate, but the debtor is permitted to exempt certain
property from property of the estate under this section. Property may be exempted even if
it is subject to a lien, but only the unencumbered portion of the property is to be
counted in computing the "value" of the property for the purposes of exemption.
Thus, for example, a residence worth $30,000 with a mortgage of $25,000 will be exemptable
to the extent of $5,000. This follows current law. The remaining value of the property
will be dealt with in the bankruptcy case as is any interest in property that is subject
to a lien.
H. Rept. No. 95-595, 95th Cong., 1st Sess. (1977) pp. 360-363, U.S.
Code Cong. & Admin. News 1978, p. 6316.
3. This section also provides that a debtor may exempt property
under federal law other than § 522(d); however, it is generally referred to as the state
4. The Court notes that the state exemption statute does in fact
provide dollar limitations for certain items such as an automobile and a tractor. Two
cases have recently been decided that specifically relate to § 815.18(6) of the Wisconsin
Statutes. See In re Erickson, 815 F.2d 1090 (7th Cir. 1987); In re Kowalewski,78
B.R. 553 (Bankr. W.D. Wis. 1986).