1
A “Rogue’s Paradise?”
A Review of South Dakota’s Property Exemptions and a Call for Change
By James A. Craig1
PRELUDE
This article explores South Dakota’s property-exemption statutes, their history, and
recent case treatment. The philosophy of a person’s relation to the state, as well as the
competition between the interests of capital and those of debtors will be discussed briefly. After
discussing the historical context and competing interests in this area of the law, I will argue that
changes need to be made to comply with the South Dakota constitution’s requirement that the
comforts and necessaries of life shall be recognized by wholesome laws exempting from forced
sale a homestead and a reasonable amount of personal property.
I.
How Did We Get Here?
The story of South Dakota’s property-exemption statutes is necessarily historical as the
statutes have changed little since territorial days.
It wasn’t until 1859 that a permanent
settlement took root in Yankton, the “Mother City of the Dakotas.”2 Dakota Territory was
created in 1861 (the year the civil war began).3 It was split into the states of North Dakota and
South Dakota in 1889,4 and our state undertook the process of creating the constitution and
statutes by which it would govern.
A.
1
A Nation In Crisis: The Panic of 1873 And The Political Climate That
The author is a sole practitioner in Sioux Falls, South Dakota. He was a bankruptcy trustee for 10 years
and is a past president of the National Association of Bankruptcy Trustees. He formed the South Dakota State Bar
Association’s Debtor Creditor Committee, serving as its Chairman and as a member at various times over 30 years.
The author wishes to thank his daughter, Amy Henson, for her valuable editorial assistance in the
production of this article.
2
Robinson, Doane, History of South Dakota, 1904 B.F. Bowen & Co., p. 2.
3
Act of March 2, 1861, Ch. 86, 12 Statutes At Large 239.
4
Act of February 22, 1889, Ch. 180, 25 Statutes at Large 676.
2
Followed
As the infant state of South Dakota began setting out its constitution and laws, it was, of
course, impacted by events of the times. Primary among these was the so-called economic panic
of 1873. In 1873, a major economic downturn spread from Europe to the United States. It was
precipitated on this side of the pond by unregulated industrial growth and the fall of Jay Cooke
and Company, the country’s preeminent investment banking firm and principal backer of the
Northern Pacific Railroad. Jay Cooke, acting in an era of wide-spread American political
corruption, obtained numerous government subsidies for the railroad by bribing politicians and
lying shamelessly about the qualities of the northern plains.5
In the summer of 1873, however, the money market tightened as congress began
withdrawing paper money from circulation under a concern that it posed a danger to society. “It
was in this context that Jay Cooke, no longer able to get loans, began using his clients' money
without bothering to tell them.”6 By September of 1873, Cooke had depleted most of his bank’s
resources.7 Jay Cooke and Company, along with other banks in the nation, had no place to turn.
The result was a “domino effect,” explained by author Michael Bellesiles as follows:
Without a central bank capable of protecting businesses and the stock
market from the mass recall of loans, banks had no security against sudden runs
on their resources. As a consequence, the whole financial structure experienced a
domino effect, as first one business and then another toppled, knocking over those
linked to each collapsing enterprise. President Grant and Congress stood by
Bellesiles, Michael A., 1877 America’s Year of Living Violently, 2010, The New Press, New York, pp 2-7.
Id.
7
Id.
5
6
3
helplessly and watched.8
During the resulting “panic,” the New York Stock Exchange closed for 10 days, credit
dried up, banks failed, and foreclosures were frequent.9 Eventually, many factories closed and
thousands of workers lost their jobs. Understandably, there developed from the panic a “bitter
antagonism between workers and the leaders of banking and manufacturing.”10 This antagonism
set the stage for labor disputes in the years that followed.
In 1877, railroad owners cut workers’ wages to starvation levels, leading to the first
nationwide strike in American history.11 The “Great Strike of 1877” began in West Virginia and
quickly spread across the country, as over five-hundred-thousand railroad workers left their jobs
and disrupted freight and passenger traffic.
As Bellesiles explains:
Management responded to these events not with negotiation but with
force. When local and private police forces proved insufficient to compel the
workers to return to work, management turned first to the state militia, and then to
the United States Army (corporate leaders expected their voices to be heard and
heeded at all levels of government, and they were rarely disappointed).12
The events accompanying the Great Strike led Bellesiles to describe 1877 as one of the most
violent years of the nation’s history.13
Dakota Territory, of course, was not exempt from the effects of the economic panic—nor
the violence that followed it. The territory was cursed with high interest rates, sanctioned under
8
Id.
http://www.u-s-history.com/pages/h213.html, last accessed 9/16/2013.
10
http://www.u-s-history.com/pages/h213.html, last accessed 9/16/2013.
11
Bellesiles, Michael A., 1877 America’s Year of Living Violently, 2010, The New Press, New York, pp 29
7.
12
13
Id. at 145.
Id. at ix.
4
the ostensible goal of attracting capital to the territory.14
The prevailing rate for chattel mortgages was ten per cent. Real estate
mortgages, however, commanded whatever rates the traffic could bear. The
maximum legal rate under legislation enacted in 1871 was two per cent a month
or 24 per cent a year. In 1873 the maximum rate was fixed at 18 per cent.
Approximately one-half of the real estate mortgages recorded in Clay
County during 1872 stipulated interest at 24 per cent. . . . The Legislature in 1875
complied with popular demand for a revision of the usury law by fixing 12 per
cent as the legal rate, but this reduction only mitigated some of the worst features
of the credit system.15
Given the national temperament, it is no surprise that Dakotans responded violently in
1877, when they learned that legislators of Dakota Territory repealed their personal-property
exemptions. Former South Dakota state historian Doane Robinson relates:
A bill, introduced by Mark W. Sheafe, providing that the conveyance of a
homestead should be absolutely invalid unless the wife joined in the conveyance,
was passed with a considerable modification in the house. Shortly after the close
of the session Hon. S. L. Spink was checking up his volume of the statutes by the
enactments of the recent legislature when he discovered that one section of the
new homestead law repealed the personal property exemption law of 1862, and as
he interpreted it, left the settlers without any personal property exemption
whatever. He at once called public attention to this repeal and it is probable that
no other event in the history of Dakota territory created such a sensation as did
this. Everybody was in debt and the repeal of the exemption law exposed all of
their property to execution sale. An indignation meeting assembled and was
addressed by many of the leading citizens of the territory. Spink, Brookings,
Bartlett Tripp16, Beadle, Hand, Burleigh and others made exciting talks upon the
subject. Dr. Burleigh expressed the sense of the meeting when he said, "To get up
some morning and find that several of Dakota's counties had been suddenly
swallowed up by an earthquake would be of but passing consequence to me when
compared to the surprise and indignation occasioned by the discovery of the
passage of this bill repealing the personal property exemptions." An examination
of the subject developed the fact that Mr. Sheafe's bill, as originally introduced,
contained but three short sections providing specifically that the wife must join in
the conveyance of the homestead. That in its passage through the house the bill
was amended and re-drafted by Colonel Moody, who extended it into nineteen
14
Shell, History of South Dakota, UNP, 1961, pp 122-123. Official immigration pamphlets issued in 1870
and 1872 called special attention to the advantages of high interest rates. Id.
15
Id.
16
Bartlett Tripp was later elected the first president of the South Dakota Bar Association in 1897.
http://en.wikipedia.org/wiki/Bartlett_Tripp, last visited 6/19/2013.
5
sections, defining a homestead and prescribing the method by which it could be
claimed and exempted from execution. One of the last of these sections provided
that a section of the exemption law of 1862 should be repealed. The public at
once jumped to the conclusion that there was a conspiracy between Moody,
Sheafe, Jolley and others to deprive the people of their exemption rights in the
interest of the money sharks, and after the public meeting had abused them to
their heart's content the excited crowd went out and hung Moody, Sheafe and
Jolley in effigy.17
Members of the indignation meeting directed territorial governor John Pennington to go
to Washington and convince the United States Congress to revoke the act passed by the
territorial legislature.18
Governor Pennington was successful in his task, but the incident
nonetheless “had spread concern and perturbation throughout the territory.”19 Robinson has
astutely recognized, “It is hard now to comprehend fully how vital the exemption law was to the
debt ridden settlers of [the time]. In fact the very existence of many of them depended upon it,
and it would have been a courageous man indeed who should knowingly have voted for this
abrogation. . . .”20
In addition to the short-term elimination of the personal-property exemption, early
Dakotans had to endure the appointment of governors whom they viewed as corrupt.
For
example, they bristled at their treatment at the hands of political hacks like Nehemiah Ordway,
appointed as governor of Dakota Territory in 1880. Ordway used the office to profit at the
expense of the settlers. He “bribed legislators, threatened vetoes of legislators’ bills if they
resisted his plans, compelled settlers seeking county seats to give him land, installed his son as
17
Robinson, Doane, The History of South Dakota, pp. 265-266. In his defense, Colonel Moody made the
argument that “the law of 1862 had been enlarged upon by a law in 1866, which was whole and complete in itself,
and therefore the exemption law was not repealed nor in any wise affected, but no one of the other lawyers agreed
with him.” Id.
18
Id.
19
Id.
20
Id.
6
territorial auditor in order to control finances, and moved the capital from Yankton to Bismarck
in order to benefit from real estate speculation.”21 This was the political climate that existed
when the state of South Dakota was born.
B.
Constitutional Development
South Dakota’s constitution states:
The right of the debtor to enjoy the comforts and necessaries of life shall
be recognized by wholesome laws exempting from forced sale a homestead, the
value of which shall be limited and defined by law, to all heads of families, and a
reasonable amount of personal property, the kind and value of which to be fixed
by general laws.22
How these homestead and personal-property exemptions came about is important in
considering how they should be interpreted today. Although South Dakota’s constitution was a
product of conventions running from 1883 to 1889, the most significant discussion of property
exemptions occurred on the sixteenth day of the 1885 convention. On that day, the debate
centered on what protections should be afforded creditors and debtors, whether the constitution
or future legislation should set exemption amounts, and the persons to whom the exemptions
should apply (i.e.,whether to include the reference to “heads of families”).
First, the convention members addressed the balance to be struck between protecting
debtors and attracting business. The interests of those wishing to attract capital to the state
conflicted with those concerned about protecting a debtor and his family. Mr. Fowler laid out
the position of those whose aim was to bring capital to the state:
Lauck, John “The Organic Law of a Great Commonwealth”; The Framing of the South Dakota
Constitution, South Dakota Law Review, vol.53, p225, 2008.
22
South Dakota Constitution Art. XXI §4, adopted October 1, 1889.
21
7
I dislike to have the homestead limited to two-thousand dollars, first
because it might catch me but laying that aside, sir, I think that proposition of
one-thousand dollars invested in a homestead, is probably a little small; in other
words, if a man, the head of a family, in the business of agriculture, happens to be
unfortunate, unable to pay his debts, if he has a comfortable home for his family, I
should very much dislike to have him turned out of doors because it exceeded
one-thousand dollars. On the other hand, the minority report suits me better than
the majority report, it fixes the value beyond which the legislature can not go. My
experience in Dakota is, that the exemption laws prevents parties from collecting
debts that are due to him but they injure the credit of every inhabitant in Dakota. .
. . I move to substitute the word five-thousand for two-thousand, providing there
shall be no exemptions allowed to any except the heads of families.23
Mr. More then laid out the view that the constitution should protect the debtor and his family:
I think an honest endeavor to get at the real purpose of exemptions may
come in here. I do not think that the legislature intends that cheating creditors is
the object of exemptions. I think the real object of exemptions is that the family
may not be dispersed and financially wrecked but what they can prosecute the
industries in which they have engage, so that subsequently they can pay their
debt. It is a fact that creditors are sometime avaricious; it is a fact that some
creditors seems to take it all; and when they do take it all; the family from which
they take it away, are financially wrecked.” 24
Eventually Mr. More’s position prevailed, leading Mr. Jones of Miner to excitedly
exclaim, “This is a rogue’s paradise!”25
Second, the convention members debated whether exemption amounts should be firmly
set in the constitution or whether they should be left to the legislature to set. Delegate distrust of
future legislatures is a recurring theme in the debates. No doubt this was a reflection of general
distrust in government given the national abuse reflected in the scandals of the age by moneyed
interests. Some delegates favored enacting a strict constitutional limit on future legislatures to
protect the credit of South Dakota. Others insisted the constitution should be a broad expression
of policy, with the legislature determining the specifics, as required at any given time. In the
23
Constitutional Debates, 1885 session, sixteenth day, p. 552.
Id. at p. 555.
25
Id. at p. 559.
24
8
end, the delegates adopted the recommendation of the Committee on Exemptions Real and
Personal, leaving the amount to be set by the legislature:
Mr. Allen of Turner County (member of the Committee on Exemptions
Real and Personal appointed in 1883) explained the committee had adopted the
article in view from Wisconsin, “thinking it would answer the purpose for Dakota
just as it would for Wisconsin. It exempts simply the homestead, and leaves the
legislature to determine its value; whatever they may determine is the reasonable
value to place upon the homestead, it will so remain. We thought it going too
much into legislation for this Convention to fix that amount. It also exempts a
reasonable amount of personal property, it does not state the amount; we think the
necessity for exemptions is liable to change at any time; what may be a reasonable
exemption of personal property today in ten or twenty years from now may be
very unreasonable. So it was thought to leave this matter entirely to the
legislature and let them fix the amount of exemptions, real and personal, as they
think the people demand. The Legislature come directly from the people and they
will know just exactly what they want. We are of the opinion that this matter
ought to be left entirely to the legislature.”26
Finally, the delegates addressed the important question whether the exemptions should be
limited to “heads of family,” and, if so, what was meant by that phrase.
The issue was
complicated by the fact that the territorial code referenced only “debtor.”27
Mr. Fowler
explained his belief that the exemptions should be denied single men, whom he did not consider
“heads of families”:
If the minority report is adopted I should feel like adding a provision to it
to comply with the provision of the majority report, so that it should include only
the heads of families. I don’t believe in including in exemptions those great
able-bodied men who have got nothing to do but take care of themselves. A man
who is able-bodied and wants the benefit of this statute ought to emigrate from
this country, he ought to be ashamed of being in this country, and nobody but a
booby28 would expect to do it.29
Shortly thereafter, the delegates were asked to consider an amendment to the report of the
26
Id. at p. 554-55 (remarks of Mr. Gehon).
See Historical summary addendum.
28
Webster defines “booby” as, “an awkward foolish person: dope.” Webster’s Third New International
Dictionary 252 (1981).
29
Constitutional Debates, 1885 session, sixteenth day, p. 552.
27
9
majority committee, which amendment would have deleted the reference to “heads of families.”
Mr. Neill: I now insist upon my motion that we adopt the report of the
Majority Committee.
Mr. ————: I desire to offer an amendment. . . . I desire to strike out in
the third line the words “heads of families”, and the reason why I want that done
is because it is not now consistent with Sections 10 and 12 of the report, which
says that no special immunity shall be granted to any person or corporation. . . .
By the President: The first motion is on the adoption of the majority
report, offered by Mr. Neill, of Grant. The gentleman from Lawrence proposes an
amendment in reference to the heads of families. . . .
Mr. Dow: I think we have covered a large range of discussion, and I am in
favor of leaving something to the Legislature. I do not believe it is necessary for
us to prescribe all limits, and for that reason I would favor the original report of
the majority Committee; but I will say this; that I believe large exemptions are
detrimental to a poor man instead of money loaners. This I believe every man
who handles money will agree with me, that large exemptions are to the
disadvantage of the poor man. I want to say while I am on the floor that I am
opposed to that amendment, which would throw around the married man the
protection of the State of Dakota I believe that the man who has no wife is to be
pitied, and he is entitled to the sympathy of the State. A man that has a wife is
worth $1000 without any other property, and every child about $500, and I am
opposed to the amendment of the gentleman from Lawrence, which makes this
distinction, and think it would be better to leave this matter to the legislature, and
let them decide the matter. Therefore, I oppose this amendment, and favor the
majority report.
Mr. Frank: I would like to say in answer to the gentleman from Brown
county, that I am a poor man, and am trying to accumulate some property to get
married.
Mr. Owen: Mr. President, I would like to ask if this Constitutional
Convention in adopting this, prescribes the limitations, in providing for
exemptions for heads of families, does it by implication, so far as the right of the
Legislature to deny the right to anybody else, so that the poor single wretch might
be deprived of his goods.
Delegate: It is not meant by this that a man must marry as soon as the sign
runs out.
By the President: The question is upon the motion of Mr. Franks which is
to strike out the words “of families.”
10
The vote stood 29 for and 39 against, the amendment is beaten.30
Thus, by eleven votes, the issue of who is “head of the family” would be litigated for
decades to come.
Living Under 19th Century Standards in the 21st Century: The Current State of South
II.
Dakota’s Exemption Statutes
A. The Statutory Framework
The first property exemption provision was placed in Chapter 37 of the Territorial Code
of 1862. In eleven succinct sections, Chapter 37 defined the homestead and personal property
exempt in the territory. A summary is found in the historical chart appended to this article.31 It
is noteworthy that it made no distinctions among debtors, such as “head of family,” “single
person,” or “non-head of family.” It also contained no arbitrary categories of personal property,
such as “absolute,” “additional,” or “alternative property”. It contained generous (by today’s
standards) provisions protecting the debtor from the elements, i.e. food, clothing, and provisions
for a year. It permitted the debtor to keep property necessary to get back on his feet, including
tools and a mode of transportation in all seasons. Over the years we have strayed from these
concepts.
In 1877, Dakota Territory categorized property exemptions as absolute,32 additional,33
and alternative,
34
an approach that was codified at South Dakota Codified Laws Title 43,
Chapter 45. A historical chart attached to this article35 traces what became of those provisions
over the years, and provides a perspective of the value of the exemptions by converting the dollar
30
Id. at pp. 559-61.
See Addendum 1.
32
S.D.C.L. 43-45-2.
33
S.D.C.L. 43-45-4.
34
S.D.C.L. 43-45-5 (repealed by SL 1998, ch 265, § 2.)
35
Addendum 1, supra.
31
11
limitations at the time of passage to 2012 values, using the consumer price index as the measure
of value.36 South Dakota codified the homestead exemption at South Dakota Codified Laws,
Title 43, Chapter 31.
Later, other property exemptions were added to the code and were located outside of
Title 43. Annuities,37 fraternal benefit society benefits,38 health insurance,39 life insurance,40
retirement benefits for municipal41 and public42 employees, unemployment compensation,43 and
worker’s compensation benefits44 are found elsewhere. In 2011, the state bar’s Debtor Creditor
Committee worked with the code’s editors at Thomson Reuters to list (for the first time) all of
these provisions in the index under Debtors and Creditors, Exempt property. 45
In addition, exemptions not found in South Dakota’s code will apply to South Dakota
debtors from time to time. Federal statutes are included in statutes governing Social Security
benefits;46 disability and death compensation to federal employees; 47 Civil Service retirement
annuity payments;48 serviceman’s savings, pensions, and military survivor’s benefits;49 Federal
Home Loan Mortgage Corp benefits;50 Foreign Service Retirement benefits;51 Judicial Survivor
36
http://www.measuringworth.com/U.S.C.ompare/ last visited 7/2/2013.
S.D.C.L. 58-12-6.
38
S.D.C.L. 58-37A-18.
39
S.D.C.L. 58-12-4.
40
S.D.C.L. 58-12-4 (and 43-45-6).
41
S.D.C.L. 9-16-47.
42
S.D.C.L. 3-12-115.
43
S.D.C.L. 61-6-28.
44
S.D.C.L. 61-6-48.
45
General Index A-L, pp. 680-681.
46
42 U.S.C. 407.
47
5 U.S.C. 8130.
48
5 U.S.C. 8346.
49
10 U.S.C. 1035, 1440, and 1452.
50
12 U.S.C. 1452.
51
22 U.S.C. 4060.
37
12
benefits;52 Serviceman Veteran’s Group Life Insurance benefits; 53 war risk hazard benefits;54
Railroad Retirement benefits and railroad workers unemployment benefits;55 and CIA Employee
Retirement benefits.56
Finally, a bankruptcy practitioner must utilize the exemption statutes of the state in which
her client resided 730 days prior to filing the bankruptcy case or, if the debtor was domiciled in
more than one state during that 730-day period, the state in which the debtor was domiciled for a
longer portion of the 180-day period immediately preceding that 730-day period than in any
other state.57 and occasionally, the federal bankruptcy exemption provisions,58 when application
of a state’s exclusion of exemptions to non-residents, would otherwise leave a debtor with no
state exemptions.
1. Absolute Exemptions
As of July 1, 2013, S.D.C.L. § 43-45-2 reads:
The property mentioned in this section is absolutely exempt from all such
process, levy, or sale, except as otherwise provided by law:
(1) All family pictures;
(2) A pew or other sitting in any house of worship;
(3) A lot or lots in any burial ground;
(4) The family Bible and all schoolbooks used by the family, and all other
books used as a part of the family library, not exceeding in value two hundred
dollars;
(5) All wearing apparel and clothing of the debtor and his family;
52
28 U.S.C. 376n.
38 U.S.C. 770.
54
42 U.S.C. 1717.
55
45 U.S.C. 231.
56
50 U.S.C. 403.
57
11 U.S.C. §522(b)(3)(a). State exemptions can be found in bankruptcy treatises, such as the National
Consumer Law Center’s Consumer Bankruptcy Law and Practice, 10 th edition, 2012, Vol 2., Appendix J.
58
11 U.S.C. §522(d).
53
13
(6) The provisions for the debtor and his family necessary for one year's
supply, either provided or growing, or both, and fuel necessary for one year;
(7) All property in this state of the judgment debtor if the judgment is in
favor of any state for failure to pay that state's income tax on benefits received
from a pension or other retirement plan while the judgment debtor was a resident
of this state;
(8) Any health aids professionally prescribed to the debtor or a dependent
of the debtor.59
Sections (1) through (6) have been on the books since 1877. Considering the year they
were created, they were reasonable. What about now? Does any family provide their own pew
in today’s churches? The bible and schoolbooks were allowed in an amount that equals $4,520
of today’s dollars. Yet, $200 is still on the books. How do we learn today? If limited to a bible
and schoolbooks, how would debtors and their dependents compete with peers using computers,
ipads, smart phones, calculators, nooks and kindles, not to mention television and radio?
Provisions for one year’s supply and fuel necessary for a year was understandable in an agrarian
society, in which a family’s crops could be wiped out by the elements. In that time there was no
social safety net, other than churches and charitable neighbors. Today’s farmers have crop
insurance and subsidized loan programs. Others have state assistance in the form of food
stamps, heating and rent assistance, and social security benefits. The problem is, no one has
taken a look at these statutes in a very long time. If we are to maintain an absolutely exempt
division of property, what should it include today?
2.
Additional Exemptions
As of July 1, 2013, S.D.C.L. § 43-45-4 provides:
In addition to the property provided for in §§ 43-45-2 and 43-45-3, the
debtor, if the head of a family, may, personally, or by agent or attorney, select
from all other of the debtor's personal property, not absolutely exempt, goods,
chattels, merchandise, money, or other personal property not to exceed in the
59
SL 2013, §1.
14
aggregate seven thousand dollars in value; and, if not the head of a family,
property as aforesaid of the value of five thousand dollars, which is also exempt,
and which shall be chosen and appraised as provided by law.
In Section II C, you will see many cases dealing with “head of a family” vs. “single
person” or “not the head of a family.” Understand, this is the legacy left us by at least eleven
constitutional delegates at the end of a long day, who ignored the sound advice of the un–named
delegate who urged them to drop the distinction because it was not consistent with “Sections 10
and 12 of the report, which says that no special immunity shall be granted to any person or
corporation.”
The supreme court has ruled that the legislature may define these terms. 60 Indeed, with
respect to homestead provisions, it did so in 1903, saying that any family, whether consisting of
one or more persons shall be deemed to be a “family” with respect to homesteads. S.D.C.L. 4331-14.61 Because the legislature never did the same thing with respect to personal property
exemptions, we remain mired in this quagmire with respect to personal property.
By far the single greatest failing of the legislature is to link the dollar values to the
consumer price index providing an automatic adjustment by law. In an area of the law where
decades (or a century) pass with no meaningful review of a statute by the legislature, this is
inexcusable. Minnesota and the U.S. Congress have done this. It’s time for South Dakota to
follow suit.
B.
60
Some Thoughts Before Examining Our Local Case Law; or Pigs, Hogs, and the
The homestead right, however, within constitutional limitations, is one clearly a matter of legislative
discretion, and may be conferred upon any person or class of persons of its own choosing. Where the right is
conferred upon the head of a family, it may declare who shall be considered the head of a family. Where it is
conferred upon the family, it may declare of whom the family shall consist. As is said in Wales on Homestead and
Exemption (page 98, par. 11): “The true rule is, Follow the statute.” Sobers v. Sobers, 1914 33 S.D. 551, 146 NW
716, 718; on rehearing 34 S.D. 594, 149 NW 558.
61
SL 1874-5, ch 37, §2, Hesnard v. Plunkett, 1894, 6 S.D. 773, 60 NW 159; In re Hanson, (Bkrtcy SD, 17
B.R. 239).
15
“Length of the Chancellor’s Foot”.
Before considering case law dealing with exemptions, remember that much depends upon
the trier of fact’s view of the case. Just as the tension between creditors and debtors was seen in
the constitutional delegates’ remarks, it is seen in the remarks of judges and particularly
bankruptcy judges. In 1988, two Eighth Circuit decisions were issued on the same day, by the
same panel. In each, the lower court’s ruling was upheld, though one court disallowed the
exemption (and the debtor’s discharge), while the other court allowed the exemption.
In Northwest Bank Nebraska, N.A. v. Tveten,62 a Minnesota physician in financial trouble
liquidated assets and invested the proceeds in a homestead having a value of some $700,000.00.
Minnesota had no dollar limit on the homestead at that time.
In Hansen v. First National Bank in Brookings,63 a South Dakota farmer sold property at
fair market value to family members and invested the proceeds in a life insurance policy, exempt
under South Dakota law. In his concurring opinion in Hansen, Judge Arnold provided an astute
analysis of these decisions:
I agree with the result reached by the Court and with almost all of its
opinion. I write separately to indicate some variation in reasoning and also to
compare this case with the companion case of Norwest Bank Nebraska, N.A. v.
Tveten, 848 F.2d 871, also decided today by this panel.
In general, as the Court says, citing Forsberg v. Security State Bank, 15
F.2d 499 (8th Cir.1926), "a debtor's conversion of non-exempt property to exempt
property on the eve of bankruptcy for the express purpose of placing that property
beyond the reach of creditors, without more, will not deprive the debtor of the
exemption to which he otherwise would be entitled." Ante, at 868. And this is so
even if the conversion of property into exempt form takes place while the debtor
is insolvent. The result is otherwise, of course, if there is "extrinsic evidence of
fraud," ante, at 868, but the word "extrinsic" must mean some evidence other than
the conversion of the property into exempt form itself, the debtor's insolvency,
62
63
Norwest Bank Nebraska, N.A. v. Tveten, 848 F.2d 871(C.A.8 (MN.), 1988).
Hanson v. First Nat. Bank in Brookings, 848 F.2d 866 (C.A.8 (S.D.), 1988).
16
and the debtor's purpose to put the property beyond the reach of creditors.
Otherwise, the entire Forsberg rule would be swallowed up in the exception for
"extrinsic fraud."
The Court is entirely correct in holding that there is no extrinsic fraud
here. The money placed into exempt property was not borrowed, the cash
received from the sales was accounted for, and the property was sold for fair
market value. The fact that the sale was to family members, "standing on its own,
does not establish extrinsic evidence of fraud." Ante, at 869.
With all of this I agree completely, but exactly the same statements can be
made, just as accurately, with respect to Dr. Tveten's case. So far as I can tell,
there are only three differences between Dr. Tveten and the Hansons, and all of
them are legally irrelevant: (1) Dr. Tveten is a physician, and the Hansons are
farmers; (2) Dr. Tveten attempted to claim exempt status for about $700,000
worth of property, while the Hansons are claiming it for about $31,000 worth of
property; and (3) the Minnesota exemption statute whose shelter Dr. Tveten
sought had no dollar limit, while the South Dakota statute exempting the proceeds
of life-insurance policies, S.D.Codified Laws Ann. Sec. 58-12-4 (1978), is limited
to $20,000. The first of these three differences--the occupation of the parties--is
plainly immaterial, and no one contends otherwise. The second--the amounts of
money involved--is also irrelevant, in my view, because the relevant statute
contains no dollar limit, and for judges to set one involves essentially a legislative
decision not suitable for the judicial branch. The relevant statute for present
purposes is 11 U.S.C. Sec. 522(b)(2)(A), which authorizes debtors to claim
exemptions available under "State or local law," and says nothing about any
dollar limitations, by contrast to 11 U.S.C. Sec. 522(d), the federal schedule of
exemptions, which contains a number of dollar limitations.) The third
difference--that between the Minnesota and South Dakota statutes--is also legally
immaterial, and for a closely related reason. The federal exemption statute, just
referred to, simply incorporates state and local exemption laws without regard to
whether those laws contain dollar limitations of their own.
The Court attempts to reconcile the results in the two cases by
characterizing the question presented as one of fact--whether the conversion was
undertaken with fraudulent intent, or with an intent to delay or hinder creditors. In
Tveten, the Bankruptcy Court found fraudulent intent, whereas in Hanson it did
not. Neither finding is clearly erroneous, the Court says, so both judgments are
affirmed. This analysis collapses upon examination. For in Tveten the major
indicium of fraudulent intent relied on by the Bankruptcy Court was Dr. Tveten's
avowed purpose to place the assets in question out of the reach of his creditors, a
purpose that, as a matter of law, cannot amount to fraudulent intent, as the Court's
opinion in Hanson explicitly states. Ante, at 868. The result, in practice, appears
to be this: a debtor will be allowed to convert property into exempt form, or not,
depending on findings of fact made in the court of first instance, the Bankruptcy
Court, and these findings will turn on whether the Bankruptcy Court regards Page
871 the amount of money involved as too much. With all deference, that is not a
rule of law. It is simply a license to make distinctions among debtors based on
17
subjective considerations that will vary more widely than the length of the
chancellor's foot.64
C. Review of South Dakota Bankruptcy Court decisions.
Bankruptcy practitioners can refer to local precedent by going to the court’s website. 65
The case notes below are intended to aid practitioners in their research, once they get to the
court’s site.
EXEMPTIONS - ANNUITIES
McGruder, John David & Marlene Joyce 2001 #34
This annuity not a trust; Present value analysis rejected by court under S.D.C.L. 58-12-8.
Three future payments added and divided by months covering period. Debtor entitled to $250
per month, balance to estate.
Powell, Susan M. 2006 #19
Conversion of cash into annuity (not in payment status) on eve of filing not fraudulent;
exemption allowed. 58-12-6 limited only by 7, 8, and 9;not subject to 54-8A-4.
EXEMPTIONS - AVOIDANCE OF LIEN ON EXEMPT PROPERTY
Aguire, Antonio & Kelli D. (Aguirre v. Fullerton Lumber) 2007 #5.
11 U.S.C. 348 doesn’t turn conversion date into new petition date for purposes of
547(b)(4); as homestead was no longer property of the estate once deadline for objecting to
exemption had passed (FRBP 4003(b)), and as Fullerton’s work and mechanic’s lien never
attached to estate property and it filed no claim in bankruptcy, 11 U.S.C. 502 and 506 have no
effect. Though the homestead exemption is at all times and under all circumstances not subject
to a lien, judgment or levy and sale under execution, except for purchase money (citing In re
64
65
These cases stand for the proposition that, “Pigs get fed, and hogs get slaughtered.”
http://www.sdb.U.S.C.ourts.gov/Decisions.
18
Maiden Mills, Inc. 35 B.R. 71 and Langley v. Daly, 1 S.D. 257, 46 NW 247(1890)), the issue of
whether Fullerton’s claim is protected from debtor’s claim of exemption (under S.D.C.L. 43-458) as material furnished in the original erection of the homestead, is to be determined by the state
court.
Hamann, David R. & Peggy J. 1997 #32
Purchase money security interest in furniture is not merged into a money judgment, citing
In re Hogg, 76 B.R. 735,741-742(Bankr.S.D.1987). Judgment and security interest co-exist. 11
U.S.C. 522(f) can not be used to void purchase money security interest.
Heikes, JoAnne 1997 #4
Possessory lien survives debtor’s motion for avoidance under 11 U.S.C. 522(f).
West, Jesse & Luella 2000 #42
Court rejects legal fiction that filing bankruptcy petition creates “sale of homestead”
thereby limiting the value of the exemption. When petition filed, debtor was over 70 years of age
and had an unlimited exemption (this case decided before In re (Dorothy) Davis (below) in
which SD Supreme Court ruled that provision unconstitutional.) When lien impairs homestead
exemption on the date the petition is filed, 522(f)(2)(A)requires the court to value the full value
of the homestead to determine if it is impaired. It was, and the lien was avoided.
EXEMPTIONS - CONVERSION OF ASSETS INTO EXEMPT PROPERTY
Andrawis, Ehab A 1998 #17
Debtor sold car to mother for fair market value and used proceeds to buy life insurance
policy. Fraud found in testimony debtor only intended to use life insurance purchase as a device
to shelter equity in the vehicle, in anticipation of the bankruptcy case, to a family member,
retaining free use of the asset. Had he intended to retain the policy or had another purpose in
19
purchasing it, the result might have been different. Though Hanson (848 F.2d 869) was
acknowledged, that family dealings alone are not extrinsic evidence of fraud, the court looked to
Kelly v. Armstrong (141 F.3d 799,802 (8th Cir. 1998) to find that here, family dealings were a
badge of fraud.
Powell, Susan M. 2006 #19
Conversion of cash into annuity (not in payment status) on eve of filing not fraudulent;
exemption allowed. S.D.C.L. 58-12-6 is limited only by 7, 8, and 9;not subject to S.D.C.L. 548A-4.
Torgerson, Ronald & Charlene 1995 #4
Objection to claimed annuity exemption overruled; Loan from relatives (properly secured
by perfecting interests in vehicle) alone, did not warrant finding extrinsic evidence of fraud.
Mere conversion insufficient.
EXEMPTIONS - DENIAL FOR BAD FAITH
Alderson, L.D. . . . . . . . . . 1991 #20
Debtor’s removal of assets to Nebraska led to finding he was absconding debtor under
S.D.C.L. 43-45-07, limiting his exemptions to absolute. Since Bankr. R. 1009 allows a debtor to
amend his schedules at any time before the case is closed, it is not within a court's discretion to
prohibit a debtor from making a timely amendment. In re Doan, 672 F.2d 831, 833 (11th Cir.
1982)(citing In re Gershenbaum, 598 F.2d 779, 781-82 (3rd Cir. 1979)). The Court of Appeals
for the Eleventh Circuit, however, recognized one caveat to that general rule. "[A] court might
deny leave to amend on a showing of a debtor's bad faith or of prejudice to creditors." Id. While
the court noted that simple delay in filing an amendment is not necessarily prejudicial to
creditors, it did find that concealment of an asset will bar exemption of that asset. Id.
20
A debtor's bad faith in filing an amended claim of exemption may be found if the debtor
knowingly makes a material, false statement in his schedules. Drewes v. Magnuson (In re
Magnuson), 113 B.R. 555, 558 (Bankr. D.N.D. 1989). "A statement is material if it concerns the
existence and disposition of property." Id. Failure to amend erroneous schedules promptly
constitutes reckless indifference to the truth, which is the equivalent of fraud. Id. at 559 (citations
omitted). Further, an exemption claim may be disallowed when a debtor fraudulently conceals an
asset that he later claims as exempt. Id. at 560 (citing In re Hanson, 41 B.R. 775, 778 (Bankr.
D.N.D. 1984)(2); Redmond v. Tuttle, 698 F.2d 414, 417 (10th Cir. 1983)); see also In re Roberts,
81 B.R. 354, 363 (Bankr. W.D. Pa. 1987). "Since fraudulent intent rarely is susceptible to direct
proof, courts long have accepted extrinsic evidence of fraud." Hanson v. First National Bank,
848 F.2d 866, 868 (8th Cir. 1988).
EXEMPTIONS - DETERMINATION OF APPLICABLE LAW
Alcorn, Zacchary McKensie & Jennifer Raechelle . . . . . . 2013 #3
In bankruptcy, debtor may choose between the exemptions listed in § 522(d) and those
provided in other federal law and in the law of the state in which the debtor was domiciled for
the 730-day period immediately preceding the date on which he filed his petition for relief or, if
the debtor was domiciled in more than one state during that 730-day period, the state in which
the debtor was domiciled for a longer portion of the 180-day period immediately preceding that
730-day period than in any other state. Here, Nebraska permitted a homestead and wages to be
claimed by non-residents of the state; its opt-out was limited to personal property. Further, its
opt out provision (like Arizona, Kansas, Oklahoma, and Florida) was limited to debtors filing
bankruptcy petitions within the state. As debtors filed in South Dakota, they were free to use
federal exemptions under 11 U.S.C. 522(2).
21
EXEMPTIONS - GENERAL
Alcorn, Zacchary McKensie & Jennifer Raechelle . . . . . . 2013 #3
See “Determination of Applicable Law” above.
Anderson, Gregory A. & Deanne M. . . . . 2002 #4
Where creditor sought permission to proceed with state court award of costs against the
estate and/or the debtors, relief from stay denied. When the offer of judgment was made, and
refused, the action was property of the estate, controlled by the trustee, not the debtors under
their claim of exemption.
Benedict, Leroy Dennis & Betty L. Fairbanks-Benedict . . . 2009 #2
Sanctions awarded against debtors’ counsel for indefensible attempts to claim property
exempt.
Fridrich, Harvey G. & Adeline L. 1995 #15
Account receivable (rent payment) owed to debtors on date of filing, scheduled and
claimed exempt, is property of the estate. When recovered by the trustee, debtors, under 11
U.S.C. 522(g), may amend exemption claim to maximize exemption under S.D.C.L. 43-45-4.
Ginsbach, Wesley & Julie . . . . 1991 #2
Property of the estate includes property in the hands of sheriff as a result of levy. Failure
to timely object to claim of exemption justified granting debtors motion for turnover (to the
trustee under 11 U.S.C. 542) subject to debtors’ allowed claim of exemption.
Larson, Lee Scott . . . . . . . . 1988 #24
A domicile "is that permanent fixed place of abode which [a] person intends to be his
residence and to which he intends to return despite temporary residences elsewhere or despite
temporary absences." State of domicile determines applicable exemptions. (Note case decided
22
pre-BAPCA.)
Ludwig, Nora Y. . . . . . . . . . 2001 #35
Debtor may amend exemption claim to maximize statutory allowance under S.D.C.L. 4345-4, where trustee’s post petition action increases the equity in the vehicles.
McLeod, Cara . . . . . . . . . . 1999 #21
Debtor scheduled and claimed exempt two preferential payments to mother and sister,
prior to filing. If debtor voluntarily transferred the property, she may not claim it exempt under
11 U.S.C. 522(g)(1)(A) if trustee recovers under § 547 or § 550. Further, if voluntary, Debtor
may not recover the preference under § 522(h), which is controlled by 522(g)(1).
Mefferd, Larry C. & Julie A. . . . . . . 2008 #7
While it may not always be possible to assign a precise value to an item of personal
property for the purposes of schedule B, a debtor must specify the dollar amount being claimed
exempt under S.D.C.L. § 43-45-4 on schedule C.
A claim of "all" or "unknown" is
inappropriate.
Ogle, Jessica Diane & Jeremy James (U.S. Dept. of Ag.v. Ogle) . . 2011 #2
Debtors' exemption claim in a tax refund is subject to the government's right of setoff,
and the government will be given relief from the automatic stay to effect the setoff.
Schomaker, Charles & Jeanette . . 1988 #22
Under Rule 1009, amendments to schedules (including claims of exemptions) may be
made at any time while the case remains open. Amendment must be served on all creditors and
parties in interest.
Swiontek, Roxanne R. . . . . . . . . . 2005 #45
The amount in debtor’s bank account on the date the petition is filed, and any tax refund
23
(pro-rated to date of filing), can only be claimed exempt under S.D.C.L. 43-45-4. Wages, earned
but unpaid on filing, cannot be claimed exempt under S.D.C.L. 43-45-4, per 21-18-53, and
S.D.C.L. 43-45-14.
The garnishment limitations do not serve as an additional exemption.
S.D.C.L.15-20-12 is not an exemption statute in addition to 43-45-4. This case is no longer valid
with respect to earned wages. See SL 2007 Ch 251 which amended S.D.C.L. 43-45-14 to permit
claiming earned wages exempt under S.D.C.L. 43-45-4 in bankruptcy, whether or not garnished.
Also see Kraft 07-3.
Tebay, Casey J. . . . . . . . . . 2000 #32
S.D.C.L. § 48-4-14 established that on the petition date, it was Debtor's interest in the
partnership itself that became bankruptcy estate property, not any interest specifically in the
sound system or other partnership property. This is because § 48-4-14 provides that "specific"
partnership property is not subject to attachment or execution for the debts against an individual
partner.
Tiede, Richard H. & Doris K. . . 1995 #29
Contract for deed payments not exempt because the property that is the subject of the
contract was never homestead property to begin with. (Note executory contract issue.)
Torigian, Joel L. & Diane J. . . 1996 #11
Potential income tax refund is property of the estate. See Kokoszka v. Belford, 417 U.S.
642, 648 (1974); Barowsky v. Serelson (In re Barowsky), 946 F.2d 1516, 1518 (10th Cir.
1991)(cites therein); Wetteroff v. Grand (In re Wetteroff), 453 F.2d 544, 546 (8th Cir. 1972); and
Riske v. Oliver (In re Oliver), 172 B.R. 924, 926 (Bankr. E.D. Mo. 1994). Compare Gehrig v.
Shreves (In re Gehrig), 491 F.2d 668 (8th Cir. 1974)(called into doubt by Kokoszka, 417 U.S. at
651, as discussed in Wallerstedt v. Sosne (In re Wallerstedt), 930 F.2d. 630, 632 (8th Cir. 1991)).
24
Further, the potential refund has value, even if the tax year is not complete when the petition is
filed. See Doan v. Hudgins (In re Doan), 672 F.2d 831, (11th Cir. 1982)(citing Segal v. Rochelle,
382 U.S. 375 (1966)); and United States v. Johnson (In re Johnson), 136 B.R. 306, 309 (Bankr.
M.D. Ga. 1991). In a Chapter 7 case, the value of the estate's interest in the refund generally is
prorated between the estate and debtors based on the date the case is filed. In re Orndoff, 100
B.R. 516, 517-18 (Bankr. E.D. Ca. 1989)(cites therein)
Van Dentop, Melvin D. . . . . . . 1997 #7
Balance in bank account on date case is filed is estate property. Attempt to increase
insurance exemption by paying off loan against life insurance policy, failed as check to life
insurance company had not been honored before the case was filed. If not presented or honored
by bank before the case is filed, the check does not result in funds being transferred. Trustee may
seek recovery of funds from transferee (life insurance company), under 11 U.S.C. 549(a). Date
of check’s honor is used when considering 549(a). Barnhill v. Johnson, 112 S.Ct. 1386 (1992)
Willman, Russell Eugene & Cindy Lou . . . . 2012 #2
Vacation time accrued before filing may be claimed exempt, as it is property of the
estate. If debtor has care custody or control of the property, and has not claimed it exempt, she
must deliver it to trustee under 11 U.S.C. 542. Otherwise, Trustee may pursue from debtor’s
employer, subject to discount under the restrictions of the employer-employee contract, such as
“use or lose” provisions and normal payroll tax and other withholding.
EXEMPTIONS - HEAD OF HOUSEHOLD
Bucaro, Patricia A. (bench ruling) . . . 2007 #4
Debtor, sole breadwinner for herself and daughter, is “Head of family”, not the adult
male living with debtor and her daughter, who earned more than debtor. Though he was member
25
of “household”, he was not member of “family”. S.D.C.L. 43-45-4
Dice, Roger L. . . . . . . . . . 1997 #12
Single person paying child support is entitled to “Head of family” status. S.D.C.L. 4345-4
Ferguson, Aisley B. . . . . . . 2006 #15
Debtor living with non-filing husband, making more income than debtor, is not a “head
of household” [sic] under 43-45-4.
Meier, Ryan Eugene & Rebecca Ann . . . . 2020 #8
Before filing bankruptcy, debtors had filed a divorce action in state court, and separated
with each debtor living with the children of their first marriage. Debtors argued each was the
head of his or her family, entitled to the “Head of Family” exemption under S.D.C.L. 43-45-4.
The court disagreed. “Family” is undefined in Chapter 43-45 and the court, relying on the plain
and ordinary meaning of “family” and “household” found in Black’s dictionary, and the
distinction between those two words found elsewhere in South Dakota’s code (S.D.C.L. 25-103(1) (protection orders) S.D.C.L. 57A-9-406(h) (uniform commercial code) and the Bucaro, and
Wilsey cases rejected debtors’ argument, holding that although separated, they were still legally
a family, and awarded the “Head of Family” exemption only to the wife, who had greater income
than the husband.
Olson, Jean D. . . . . . . . . . . 2005 #25
Widow living with adult son who was only sporadically employed and dependent upon
widow for support is “head of family” under S.D.C.L. 43-45-4. [In dicta, Court notes, that for
homestead purposes only, a “family” includes widow or widower, or any family member,
whether consisting of one or more persons in actual occupancy of the homestead. S.D.C.L. 43-
26
31-14.]
Schmidt, Marjorie Alvina . . . . 1997 #20
Debtor living with non-filing husband, found not to be “Head of Family” due to
information contained on Schedules I & J (income and expense statements) and also not a
“single” person (citing Holleman v. Gaynor, 237 N.W. 827 (S.D. 1931), therefore ineligible for
any personal property exemption, as S.D.C.L. 43-45-4 then read. [In 1998 [SL ch 265, 266], the
legislature amended “single person” to read “non-head of family”, to remedy this problem.]
Wilsey, Roger M. . . . . . . , 2007 #12
Debtor, living with adult female not related by blood or marriage, was not “head of
family” under S.D.C.L. 43-45-4.
EXEMPTIONS - HOMESTEAD
Aguirre, Antonio M. & Kelli D. (Aguirre v. Fullerton Lumber) 2007 #5
See Avoidance of liens, above.
Bohn, Dawn Marie (bench ruling) . . . . 2006 #4
Debtor may not claim her right to receive up to $10,000 exempt as proceeds under
S.D.C.L. 45-45-3, when her ex-husband sells her former homestead. Her right to payment is a
personal right under S.D.C.L. 2-14-2(19), and may only be claimed exempt under S.D.C.L. 4345-4.
Buxcel, Clifford & Elaine . . . . 1998 #12
In South Dakota, homestead must be “owned” by the debtor to be declared exempt, citing
US.v Nelson,969 F.2d 626, 631 (8th Cir. 1992). Though a debtor may possess a legal right to
buy back a homestead after foreclosure, that right does not constitute an ownership interest that
can be declared a homestead. Id. While Debtors were in discussion with SBA to repurchase their
27
home and ten acres and had tendered $15,000.00 to SBA for that purpose before their petition
date, a purchase agreement between Debtors and SBA was not signed by Debtors and the SBA
until late January, after Debtors had filed bankruptcy. Therefore, on the petition date, Debtors did
not have title to the real property, their redemption rights had expired, and they had no
enforceable purchase agreement with SBA. Debtors were in possession of the home but that
interest does not constitute an ownership interest that can be declared a homestead. See Nelson,
969 F.2d at 631. [NB: Other "Interests" may support claim of homestead under S.D.C.L.
43-31. See: In re Wood, 8 B.R. 882, SD Bkrtcy Ecker,1981)(e.g. home on land licensed from
Homestake Mining Company, sufficient.)
Gebur, Jerome Dean . . . . . . . 1999 #8
In October,1995 per state court divorce decree, non-debtor was ordered to pay debtor
“$11,000" to recognize his share in the equity of the marital home. To comply, she executed a
promissory note to pay over a ten year period with interest at 7%. Debtor conveyed his interest
by quit claim deed to non-debtor spouse, retaining a lien to satisfy the judgment. Debtors lien
was not the product of a voluntary sale, or a forced sale under S.D.C.L. 21-19. It was the
product of a divorce decree. Second, the proceeds of the sale were not used in the purchase of a
new homestead within one year of the date of sale (S.D.C.L. 43-45-3(2)). Consequently, the
homestead claim was denied.
Davis, Dorothy . . . . . . . . . 2003 #09
Because of the Judge Hoyt’s review of South Dakota homestead case law in this decision,
extensive excerpts are set out below. Debtor, who was 75 years of age when the petition was
filed, claimed her homestead valued at $95,000, exempt under S.D.C.L. 43-31-1,45-31-2, and
45-45-3. S.D.C.L. 43-31-1, provided in part that the homestead held by a person age 70 or over
28
is exempt from sale for taxes as long as it continues "to possess the character of a homestead."
S.D.C.L. § 43-31-2, sets forth inter alia the general qualification that the homestead "must
embrace the house used as a home by the owner." S.D.C.L. § 43-45-3, provides that if a
homestead is sold voluntarily or under Chapter 21-19 of the state code, then proceeds of the sale
to the extent of $30,000 are exempt. Section 43-45-3 also contains an exception to the $30,000
limit on which Debtor relied. The exception in S.D.C.L. § 43-45-3(2) provides, "Such exemption
shall not be limited to thirty thousand dollars for a homestead of a person seventy years of age or
older or the unremarried surviving spouse of such person so long as it continues to possess the
character of a homestead."
In his brief, Trustee Lovald first argued that 11 U.S.C. § 544
imposes a lien on Debtor's equity in her home and that this lien can be realized when the house is
no longer used as her home. Trustee Lovald's second argument was that, if Debtor could have an
unlimited homestead under S.D.C.L. § 43-45-3, then that state statute violates Article VI, § 18,
and Article XXI, § 4, of the South Dakota Constitution.
In her brief, Debtor argued that her homestead exemption must be fixed on the petition
date and not contingent on a possible future event. She cited several cases, relying most on
Armstrong v. Peterson (In re Peterson), 897 F.2d 935, 937-38 (8th Cir. 1990). Debtor also
responded to Trustee Lovald's two arguments that § 43-45-3's provision for persons age 70 and
over is unconstitutional. Finally, Debtor argued that as a matter of public policy Debtor's
homestead exemption should be upheld and not subject to later divestiture.
In In re Ned Maryott, Bankr. No. 01-10052, slip op. (Bankr. D.S.D. Sept. 24, 2001), the
Court delved briefly into the history of subsection (2) of § 43-45-3.
Except for the last sentence of subsection (2), § 43-45-3 has been a part of South Dakota's
homestead laws since at least 1939 with only the value limitation changing over the years. See
29
S.D.C. § 51.1802(7)(1939). The last sentence in subsection (2) was added in 1980. S.L. 1980, ch.
296, § 3. The phrase "so long as it continues to possess the character of a homestead," which is a
part of the last sentence in subsection (2), has been a part of § 43-31-1 and that statute's earlier
versions since at least 1874-75. See S.L. 1874-75, ch. 37, § 1 (Dak. Terr.). Maryott, slip op. at
12 n.6. In Maryott, the Court also expressed concern about some of the conclusions reached in
Beck v. Lapsley, 593 N.W.2d 410 (S.D. 1999), where the court limited the 70 or older person's
exemption to only $30,000 in proceeds if the homestead is voluntarily sold.
In Beck, the South Dakota Supreme Court, with limited discussion, concluded that upon a
voluntary sale of a homestead, the property no longer possesses the character of a homestead, as
required by § 43-45-3(2). Beck, 593 N.W.2d at 413. The state Supreme Court thus has interpreted
§ 43-45-3(2) to provide that a debtor, age 70 or over, may protect a homestead of any value from
an execution sale, but that he may protect only $30,000 in proceeds for one year if he voluntarily
sells his home. Id. at 412-13.
The conclusion in Beck appears to be inconsistent with S.D.C.L. § 43-31-9, which states
an owner may change his homestead entirely, and S.D.C.L. § 43-31-11, which provides that
"[t]he new homestead shall in all cases be exempt to the same extent and in the same manner as
the old or former homestead was exempt."7 [Footnote 7.: The provisions of S.D.C.L. §§ 43-31-9
and 43-31-11 have been a part of South Dakota's homestead laws since 1875. See S.L. 1874-75,
ch. 37, §§ 12 and 13 (Dak. Terr.).] The conclusion in Beck also appears to be inconsistent with
earlier case law. See Christiansen v. United National Bank of Vermillion, 176 N.W.2d 65, 67
(S.D. 1970)(upon a voluntary sale, every protection originally given to the homestead right
adheres to the proceeds for one year after receipt);Smith v. Midland National Life Insurance Co.,
234 N.W. 20, 21 (S.D. 1930)("An attempt to sell the property is not in and of itself any evidence
30
of an abandonment." Smith v. Hart, 207 N.W. 657, 658-59 (S.D. 1926)(in order to give full effect
to the state's statute that allows an owner to change his homestead, the proceeds from a voluntary
sale of a homestead, which the owner intends to reinvest in a new homestead, must be protected
from creditors)8 [Footnote 8: As discussed in Christiansen, 176 N.W.2d at 67, Smith v. Hart
prompted a change in South Dakota's homestead exemption statutes to clarify that a voluntary
sale did not constitute an abandonment of the homestead.]; see also Keleher v. Technicolor
Government Services, Inc., 829 F.2d 691, 693 (8th Cir. 1987)(a debtor cannot be presumed to
willingly imperil his homestead or homestead proceeds unless necessity so requires or he
expressly does so)(cites therein); Botsford Lumber Co. v. Clouse (In re Clouse's Estate), 257
N.W. 106, 108 (S.D. 1934)(the homestead privilege ceases when there is no longer any reason for
the homestead). Maryott, slip op. at 13-14. This Court then went on to discuss its holding in In
re Hughes, 244 B.R. 805 (Bankr. D.S.D. 1999), and to reach a conclusion on the multifaceted
homestead issue presented in Maryott.
In Hughes, this Court applied S.D.C.L. § 43-45-3(2) in a case where the debtor was under
age 70. The Court concluded that equity in a homestead in excess of $30,000 was property of the
bankruptcy estate available to pay creditor's claims. Hughes, 244 B.R. at 810-12. The Court
noted in Hughes that the same conclusion would be reached regardless of whether the debtor's
bankruptcy petition was deemed a voluntary sale of the property, see Karcher v. Gans, 83 N.W.
431, 432 (S.D. 1900)(cited inHughes, 244 B.R. at 813 and 813 n.6), or whether the case trustee
accessed the equity by standing in the shoes of a judgment lien creditor. Hughes, 244 B.R. at
812-13.
In light of the South Dakota Supreme Court's recent ruling in Beck, it appears that a
different result would be reached in this case, where Debtor is age 70 or older, depending on
31
which theory was applied. If we considered Debtor's bankruptcy petition as putting the trustee in
the shoes of a judgment lien creditor, Debtor's entire homestead would be protected, regardless
of value, because the Trustee could not force an execution sale. However, if we considered
Debtor's bankruptcy as a voluntary transfer of his property, including his homestead, then under
Beck Debtor could only protect $30,000 in equity. The Court will not force that loss of
exemption upon Debtor by deeming his Chapter 7 petition to be a voluntary transfer of his and
his wife's homestead property. First, to do so would be inconsistent with S.D.C.L. §§ 43-31-9
and 11, which allow a debtor to change his homestead without peril to his exemption. Second,
exemption laws are to be construed liberally in the debtor's favor. Wallerstedt v. Sosne (In re
Wallerstedt), 930 F.2d 630, 631 (8th Cir. 1991)(cited in Andersen v. Ries (In re Andersen), 259
B.R. 687, 690 (B.A.P. 8th Cir. 2001)). Third, the application of exemption laws should not be
altered by the filing of a bankruptcy petition. See Hughes, 244 B.R. at 812. Finally, this result is
consistent with the Court's decision on a related judgment discharge issue in Langford State
Bank v. West (In re West), Bankr. No. 99-10322, Adv. No. 00-1013, slip op. at 3-4 (Bankr. D.S.D.
Dec. 26, 2000). Accordingly, Debtor may declare the entire 160 acres exempt as his homestead,
regardless of value. Trustee Pfeiffer, as a hypothetical judgment lien creditor, or other actual
judgment lien creditors may not access any equity in this homestead that may exceed $30,000.
Maryott, slip op. at 14-16.
The twist that Trustee Lovald has added in this case, that distinguishes it from Maryott, is
his specific request that Debtor's case be held open so that he can recoup the equity in Debtor's
home should the home loose its homestead character sometime in the future. This argument does
not survive scrutiny.
A debtor's entitlement to an exemption is determined on the day he files his bankruptcy
32
petition. 11 U.S.C. § 522(b)(2)(A);Peterson, 897 F.2d at 937-39; and Mueller v. Buckley (In re
Mueller), 215 B.R. 1018, 1022 (8th Cir. B.A.P. 1998)(cites therein). Further, as noted earlier,
exemptions are construed liberally in favor of the debtor. Wallerstedt v. Sosne (In re
Wallerstedt), 930 F.2d 630, 631 (8th Cir. 1991). In light of these basic tenets and this Court's
earlier holding in Maryott, the Court concludes that Trustee Lovald may not hold open Debtor's
case until her home is no longer her homestead and then recover, on some future date, her equity
in it.
The court then referred the constitutional argument to the District Court to request an
opinion of the State Supreme Court. The Supreme Court agreed with the trustee that Article
XXI, §4 requires a dollar limit (area limit insufficient) on the exemption. See below.
In In re Davis, 2004 SD 770, 681 N.W.2 452 (S.D., 2004)
The United States District Court for the District of South Dakota, the Honorable
Lawrence L. Piersol, Chief Judge, certified two questions for this Court: (1) Whether the last
sentence of S.D.C.L. 43-45-3(2) violates Article VI §18 of the South Dakota Constitution. (2)
Whether the last sentence of S.D.C.L. 43-45-3(2) violates Article XXI §4 of the South Dakota
Constitution. On the first question, we rule in the negative, but on the second question, we hold
that because the last sentence of S.D.C.L. 43-45-3(2) fails to set a limit on the amount of a
homestead exemption that may be claimed by persons seventy or older, it violates Article XXI
§4 of our Constitution. Note: in response to this case, in 2005 (SL 2005, Ch 235, §1) the
legislature established a monetary limit of $170,000.00 for a person 70 years of age or older, or
the un-remarried surviving spouse of such person.
Dice, Roger L. . . . . . . . . . 1997 #12
Land may not be claimed exempt under 43-45-4, which is limited to personal property.
33
Intention to occupy homestead must be evidenced by actual occupancy within a reasonable time.
Feucht, Teresa J. . . . . . . . . 2006 #16
Though Debtor testified there were certain circumstances under which she would return
to the Fairview house, none of those circumstances existed on the petition date, and none
appeared on the horizon. Further, Debtor’s removal from the Fairview house was not due to
temporary circumstances related to her employment or health. Compare In re Johnson, 61 B.R.
858 (Bankr. D.S.D. 1986)(the debtor did not lose her homestead interest when she moved into a
nursing home); Smith v. Midland National Life Ins. Co., 234 N.W. 20 (S.D. 1930) (temporary
absence from homestead for employment due to financial difficulties does not constitute an
intent to abandon the homestead). Instead, ”[a]ctual removal without intention to return is a
forfeiture of the homestead right. If one removes from homestead property without any present
intention of returning, but with a mere possible, or at most probable future purpose to do so,
contingent upon the happening or not happening of a particular event, the homestead is
abandoned.” Yellowhair v. Pratt, 182 N.W. 702, 703 (S.D. 1921). Those are the circumstances
presented here. Debtor abandoned her homestead interest in the Fairview house and on the
petition date had no present, non contingent intention to return. Accordingly, Debtor abandoned
her homestead interest in the Fairview house, and she may not claim a homestead exemption in
it.
Fredricks, Evert L. & Rhoda A. . . . . 2000 #35
No abandonment of homestead where debtor intends to move back to homestead when
she retires, and no evidence to the contrary. Work in a nearby town and financial problems
contributed to absence from the house.
Hanson, Steven D. & Bonnie M. . . . . 2001 #19
34
Citing Gebur above, objection to claim of proceeds from disposition of marital property,
was sustained. Once debtor permanently removed himself from the family home, it was no
longer his homestead, although he still had an ownership interest. S.D.C.L. § 25-4-33 (there is no
presumption of common domicile after separation; United States v. Nelson, 969 F.2d 626, 631
(8th Cir. 1992)("Homestead rights under South Dakota law accrue only to owners who use the
property as a home...."). That fact was seemingly recognized by the language in the quit claim
deed he gave his former spouse. Debtor also may have abandoned his homestead interest in the
former marital home when he established a new homestead. See Warner v. Hopkins, 176 N.W. at
748. However, since there was no evidence of when he left the marital home without a present
intent to return or when he established his new homestead, the Court does not rely on either his
departure or the creation of a new homestead as the cutoff point for his homestead interest in his
former marital home.
Herding, Jamie L. . . . . . . . . . . 2007 #4
Debtor left marital home pursuant to a protection order. Though he claimed a homestead
interest in the former marital home, he stopped making the mortgage payments and in his
statement of intention, said he intended to abandon the home to the mortgagee. He argued he
intended to preserve his share of the homestead equity, notwithstanding the statement of
intention. The court found that in negotiating property settlement offers in the divorce action,
debtor had abandoned claims in the homestead in an attempt to keep land he owned in North
Dakota. Debtor had abandoned his interest in the marital home, by failing to take any action to
lawfully return to and to use the marital house as his home.
Hoffman Farms . . . . . . . . . . 1994 #16
Section 21-19-29 of the South Dakota Code provides that an order directing the sale of a
35
homestead shall provide: unless waived by the debtor that sale of the homestead be not had for
sixty days, and that at any time prior to the sale the debtor may, at his option, pay to the officer
the surplus of the determined valuation of said homestead over and above such homestead
exemption plus all encumbrances.
Contrary to Debtors' assertion, this provision does not give Debtors the right to purchase
the homestead parcel after the sale. It is a right to be exercised before the sale. Debtors did not do
so. Debtors did not raise any objections to the sale based on potential rights under S.D.C.L. §
21-19-29 in their October 12, 1994 objection to the Trustee's Notice of Proposed Action for Sale
of Real Estate by Auction Sale Free and Clear of Liens. Consequently, the Court concludes that
Debtors may not rely on S.D.C.L. § 21-19-29 now in an attempt to purchase the homestead
property from the Trustee at the sale price, less their homestead claim.(8)
Finally, Debtors may claim a homestead exemption only to the extent that equity up to
$30,000.00 exists over and above encumbrances. Peck v. Peck, 212 N.W. 872 (S.D. 1927); First
National Bank of Beresford v. Anderson, 332 N.W.2d 723, 726 (S.D. 1983). After application of
FmHA's mortgage, no equity exists on which Debtors may claim a homestead exemption and
Debtors have no rights under S.D.C.L. § 21-19-29 that they may exercise.
Hughes, Jessie Joyce & Carroll Lee .. 1999 #25
Debtors' constitutional arguments are essentially that the Trustee cannot use § 21-19-2 to
force a sale of the homestead because it would be a pre-judgment taking and that § 21-19-2
impermissibly allows the forced sale of a homestead while not allowing the sale of other
absolutely exempt property. Debtors' arguments are premised on the conclusions that a
homestead in South Dakota is always absolutely exempt and is not subject to a judicial lien or
sale.
36
As discussed below, the Trustee's authority to sell the property is not an exclusive
product of S.D.C.L. § 21-19-2. However, to the extent that Trustee Lovald may need to rely on §
21-19-2 to obtain court approval to sell the homestead under either 11 U.S.C. § 363(f)(1) or (5),
each of which could incorporate S.D.C.L. § 21-19-2, the Court will consider Debtors'
constitutional challenges to § 21-19-2.
Debtors' constitutional challenge of S.D.C.L. § 21-19-2 fails to consider the statute in the
whole context of chapter 21-19. Debtors' arguments surrounding the constitutionality of S.D.C.L.
§ 21-19-2 isolates the statute from other sections of ch. 21-19 and yields distorted conclusions.
Section § 21-19-2 is just an initial step in the process a judgment creditor must follow to obtain a
sale of a homestead to recover on a debt. All provisions of ch. 21-19 must be considered part of
the homestead sale process. Linquist v. Bowen, 813 F.2d 884, 888-89 (8th Cir. 1987); Nielson v.
AT&T Corp., 597 N.W.2d 434, 439 (S.D. 1999). For example, § 21-19-24 provides for a
valuation hearing and § 21-19-29 requires an execution before the sale is conducted.
Article XXI, § 4 of the South Dakota Constitution directs the legislature to limit the value
and define by law that homestead which shall be exempt from forced sale.(1) Section 43-31-1 of
the state code, which creates the homestead exemption, recognizes that directive by providing
that the homestead exemption exists "to the extent and as provided in this code[.]" Section
43-45-3(2) then sets forth the value limitation., when the homestead is voluntarily sold or is sold
pursuant to S.D.C.L. ch. 21-19.
The homestead is a privilege granted by law, not an estate in land. In re Wood, 8 B.R.
882, 887 (Bankr. D.S.D. 1981)(citing Botsford Lumber Co. v. Clouse, 257 N.W. 106, 108 (S.D.
1934)(cited in Schutterle v. Schutterle, 260 N.W.2d 341 (S.D. 1977))); Speck, 318 N.W.2d at 344
37
(quoting Clouse, 257 N.W. at 108). A defined homestead has significance in areas of law other
than debtor-creditor matters, see, e.g., S.D.C.L. § 25-2-7 and § 29A-2-402, and is distinct from
the homestead exemption. See S.D.C.L. § 21-19-2 (both terms used), and Hansen, 166 N.W. at
428. Compare S.D.C.L. §§ 43-31-1 and 43-45-3 (homestead exemption statutes) to S.D.C.L. §§
43-31-2, -3, and -4 (homestead definition statutes).
The value limitation on a homestead exemption has significance only when the
homestead is the subject of litigation between the homestead owner and a judgment creditor.
O'Neill v. Bennett, 207 N.W. 543, 546 (S.D. 1926); see also Rohl v. McCullough (In re Rohl), 34
F.2d 268, 270 (8th Cir. 1929)(under the Bankruptcy Act, the case trustee could avoid
pre-petition homestead sale by the debtor; the debtor's wife was entitled to $5,000 in homestead
sale proceeds as her homestead exemption). Once the value of a homestead exceeds the protected
exemption amount, a creditor may seek recovery of the excess to pay his claim. S.D.C.L. ch.
21-19. As explained in an early decision entered shortly after a value limitation was first
adopted,
[t]he result is that, where the owner of a homestead is free from debts, his homestead,
may consist of 160 acres of land, with improvements thereon, free from all limitation as to value.
. . . [B]ut where the owner of such homestead is in debt, then such homestead, to the extent that it
exceeds $5,00 in value, is subject to the payment of the owner's debt. Hansen, 166 N.W. at 429;
see also Peck v. Peck, 212 N.W. 872, 875-76 (S.D. 1927)(once the homestead character of
property is established, the next question is whether it is exempt against creditors, which is really
a question of value). Since 1918 when Hansen was decided, the value limitation has been
broadened to include voluntary transfers of a homestead, as well as sales obtained by a judgment
creditor. S.D.C.L. § 43-45-3(2). The value limit also has been increased. Though the statutes
38
that define and limit the value of a homestead exemption have changed somewhat in form over
the years, the interpretative case law has remained consistent ever since a value limit was
codified around 1890. Hansen, 166 N.W. at 428-29; O'Leary v. Croghan, 173 N.W. 844, 845
(S.D. 1919)(the size and value of a homestead is left entirely to the wisdom of the legislature);
Pfeiffer v. Bormes (In re Bormes), 14 B.R. 895, 897 (Bankr. D.S.D. 1981). "A homestead is
exempt against creditors to the extent of the statutory amount of the exemption, over and above
encumbrances." First National Bank of Beresford, 332 N.W.2d at 725-26 (citing Peck, 212 N.W.
872). If prior encumbrances are paid and the debtor is left with property worth at least as much
as the amount of the homestead exemption, "the protection afforded by the provisions of our
state constitution and statutes has been satisfied." Id. at 726.
Hughes, Jessie Joyce & Carroll Lee .. 1999 #26
Sale proceeds of homestead are limited by S.D.C.L. 43-45-3(2), and S.D.C.L. 43-45-4
(the personal property exemption) cannot be used to claim additional homestead proceeds
exempt.
Maryott, Ned (fdba Maryott Livestock) . . . . . 2001 #39
Filing of bankruptcy petition is not a “sale” of homestead, triggering lower exemption
level under Beck v. Lapsley, 593 N.W.2d. 410 (S.D. 1999.) (For additional discussion, see In re
Dorothy Davis, above.)
Mendel, Clifford E. . . . . . . 2001 #18
Under South Dakota law, an exempt homestead must embrace a house used as a home by
the owner. S.D.C.L. § 43-31-2; United States v. Nelson, 969 F.2d 626, 631 (8th Cir.
1992)(homestead must be owned to be declared exempt). In determining whether a homestead
character has attached to a house, the most important factor to consider is the debtor's intent.
39
Corbly, 61 B.R. at 850 (cites therein).
When South Dakota's homestead laws are construed liberally in Debtor's favor, the Court
may only conclude that the 16.6 acres in Spink County were Debtor's homestead on the petition
date and that he validly declared the 16.6 acres exempt. On that date, Debtor had not yet done
anything inconsistent with a homestead claim on this land. That he had taken employment
elsewhere and would be moving in the near future is not controlling. In re Lippert, 113 B.R. 576,
578-79 (Bankr. N.D. 1990). The circumstances and Debtor's intent on the petition date are
controlling. On that date, Debtor actually occupied the home as his homestead and he intended it
to be his homestead. Clark v. Evans, 60 N.W. 862, 864 (SD. 1894). At most, that day he also had
a present intent to change his homestead in the near future. He had not yet, however, abandoned
his present homestead by taking a job in Nebraska and making a permanent home there.
West, Jesse & Luella . . . . . . . 2000 #42
While a judgment lien may attache to any equity in the homestead above the allowed
exemption amount and prior encumbrances of record (S.D.C.L. 15-16-9), impairing the
homestead claim of 70 year old debtor, the lien is subject to removal under 11 U.S.C. § 522(f),
because it impairs the homestead exemption on the petition date. Bank’s lien $110,930.55 +
$90,000.00 other encumbrances (SBA mortgage) + ($90,000.00) the maximum exemption
available, = total encumbrances and exemption of $223,105.87. As debtor’s interest absent the
liens is -$90,000.00, the interest is impaired by the sum of $133,105.87. The lien was therefore
avoidable under the bankruptcy code.
EXEMPTIONS - LIFE INSURANCE
Berger, Arthur & Cheryl . . . . 1994 #1
Fraternal Aid Society benefits, are not limited. S.D.C.L. 58-37-68 states:
40
No money or other benefit, charity, relief, or aid to be paid, provided or
rendered by any society, shall be liable to attachment, garnishment or other
process, or to be seized, taken, appropriated or applied by any legal or equitable
process or operation of law to pay any debt or liability of a member or
beneficiary, or any other person who may have a right thereunder, either before or
after payment by the society.
The law was declared constitutional by the South Dakota Supreme Court in First National Bank
v. Halstead, 229 N.W. 294 (S.D. 1930). Section 58-12-4 of the South Dakota Code provides
generally for the exemption of life insurance proceeds to the extent of $20,000.00. Section
58-37-142 recognizes that other statutes under Title 58, which governs insurance generally,
potentially affect Chapter 58-37, which governs fraternal benefit societies. Section 58-37-142
enumerates the several sections of Title 58 that "shall apply to fraternal benefit societies, to the
extent applicable and not in conflict with the express provisions of [Chapter 58-37] and the
reasonable implications thereof[.]" Section 58-12-4, the life insurance exemption limitation, is
not addressed by § 58-37-142. Moreover, § 58-1-3 says that other provisions of Title 58 shall not
apply to fraternal benefit societies except as provided by Chapter 58-37. Chapter 58-37 does not
make § 58-12-4 applicable to fraternal benefit societies. Therefore, the life insurance benefits
that Debtors received from Aid Association for Lutherans is exempt under § 58-37-68 and is not
limited to $20,000.00 by § 58-12-4.
Ihnen, Dennis L. & Mary Ann . . . . . 2002 #26
Under S.D.C.L. 58-12-4, a total of $20,000.00 shall inure to the benefit of the debtor, his
spouse, and his children. Debtor’s attempt to claim $20,000 exempt for each debtor denied.
Volberding, Loren E. . . . . . 1995 #45
Under S.D.C.L. 58-12-4, the proceeds of a policy of life or health insurance to the total
amount of twenty thousand dollars only, in the absence of any agreement or assignment to the
41
contrary, shall inure to the separate use of the insured, his surviving spouse or children, as the
case may be, independently of the creditors of any one of them and shall not be subject to the
payment of the debts of any one or all of such persons, notwithstanding that the proceeds may be
payable directly to the insured or surviving spouse or children as the named beneficiary or
beneficiaries or otherwise. Proceeds includes cash surrender value. Magnuson v. Wagner, 1 F.2d
99, 101-02 (8th Cir. 1924)) “To whom” the proceeds are payable is not determinative of whether
they are exempt. The only exception is if the debtor has assigned or contractually given the
proceeds to another. S.D.C.L. § 53-12-4; Norwest Bank v. Hogg (In re Hogg), 76 B.R. 735,
(Bankr. D.S.D. 1987), aff'd on other grounds, 877 F.2d 691 (8th Cir. 1989). That exception is not
presented here. Therefore, Debtor may claim the life insurance proceeds of $1,260.00 exempt.
EXEMPTIONS - OBJECTIONS/PROCEDURE
Giere, David & Nancy A. . . . . . 2005 #10
A claim of exemption may be amended at any time that the case is open under Fed.R.
Bankr.P. 1009(a). The only exception is if the amendment can be proven to have been filed in
bad faith. See Ladd v. Ries (In re Ladd), 319 B.R.599 (B.A.P. 8th Cir. 2005); Kaelin v. Bassett
(In re Kaelin), 308 F.3d 885 (8th Cir.2002); and In re Alderson, Bankr. No. 89-50106, slip op.
(Bankr. D.S.D. August27,1991).
Thomas, Bradley D. . . . . 2005 #37
A motion for turnover of property exceeding the value of property claimed exempt, is not
limited to the deadline imposed by Fed.R.Bankr.P 4003(b). It proceeds under 11 U.S.C. 542(a)
which has no specific filing deadline.
EXEMPTIONS - PERSONAL PROPERTY
Hughes, Jessie Joyce & Carroll Lee .. 1999 #26
42
A claim of homestead proceeds limited by S.D.C.L. 43-45-3(2) cannot be expanded by
using S.D.C.L. 45-45-4 to claim additional proceeds exempt.
Kitterman, John W. . . . . . . . 1998 #29
A trailer not affixed to lot and capable of being moved, was allowed to be claimed
exempt under S.D.C.L. 43-45-4. Where the trailer was not declared to be homestead property,
the lot on which it stood could be sold by the trustee.
Swiontek, Roxanne R. . . . . . . . . . 2005 #45
Wages earned but unpaid (less mandatory deductions) and tax refund, pro-rated to the
date of filing, are property of the estate. (See General, above.)
Williams, Britt E. . . . . . . . 1996 #2
The claim of miscellaneous personal property (not enumerated in S.D.C.L.43-45-2) is
limited to the amount allowed under S.D.C.L. 43-45-4.
Van Dentop, Melvin D. . . . . . . 1997 #7
(See general above).
EXEMPTIONS - POST-PETITION TRANSFERS
Van Dentop, Melvin D. . . . . . . 1997 #7
(See General above).
EXEMPTIONS - PROCEDURE OF CLAIM AND OBJECTION
Alderson, L.D. . . . . . . . . . 1991 #20
A debtor may exempt from property of the estate any property that is exempt under
Federal law, other than [the Federal exemptions allowed under §§ 522(b)(1) and 522(d)], or State
or local law that is applicable on the date of the filing of the petition[.] 11 U.S.C. § 522(b)(2) (in
43
pertinent part). The debtor is responsible for filing a list of the property that he claims exempt. 11
U.S.C. § 522(l). The list must be filed within fifteen days of the petition filing date unless an
extension of time is granted for cause shown. Bankr. Rs. 1007 and 4003(a). Since Bankr. R. 1009
allows a debtor to amend his schedules at any time before the case is closed, it is not within a
court's discretion to prohibit a debtor from making a timely amendment. The listed property is
deemed exempt unless a timely objection is filed. 11 U.S.C. § 522(l). Objections must be filed
within thirty days of the § 341 meeting of creditors or the filing of any amendment to the list.
Bankr. R. 4003(b). The objector bears the burden of proving that an exemption has not been
properly claimed. Bankr. R. 4003(c).
In re Doan, 672 F.2d 831, 833 (11th Cir. 1982)(citing In re Gershenbaum, 598 F.2d 779,
781-82 (3rd Cir. 1979)). The Court of Appeals for the Eleventh Circuit, however, recognized one
caveat to that general rule. "[A] court might deny leave to amend on a showing of a debtor's bad
faith or of prejudice to creditors." Id. While the court noted that simple delay in filing an
amendment is not necessarily prejudicial to creditors, it did find that concealment of an asset will
bar exemption of that asset. Id. The list may be amended at any time before the case is closed.
Bankr. R. 1009. Notice of the amendment must be given "to the trustee and to any entity affected
thereby." Id.
West, Jesse B. & Luella V. . . . . 2000 #31
Stipulation to extend time for filing objection to exemptions is rejected where deadline
for objecting had passed already. Rules 4003(b), 9006(b)(3). This Rule is strictly construed in
Eighth circuit. In re Ellis, 72F.3d 628,631(8th Cir. 1995) Extension based on “excusable neglect”
is not an option. Pioneer Investments Services v. Brunswick Associates, LTD Partnership, 507
U.S. 380, 389 (1993).
44
EXEMPTIONS - RETIREMENT FUNDS (including ERISA Plans, IRAs, and Annuities)
Ihnen, Dennis L. & Mary Ann . . . . . 2002 #26
Under S.D.C.L. 58-12-4, life insurance proceeds allowed only a total of $20,000, not
$20,000 each per husband and wife. An annuity contract need not be in payment status to be
exempt under S.D.C.L. 58-12-6. Court proposed methodology set forth in McGruder, 2001 #34.
McGruder, John D. & Marlene J. . . . . . . 2001 #34
See Annuities (above)
Nehlich, Loren J. & April M. . . . . . . 2002 #18
An IRA is exempt under S.D.C.L. 45-45-16.
Pesicka, Betty Ann. E. . . . . . . . . . 2000 #8
Debtor claiming interest in husband’s S.D. employment retirement under divorce decree,
was not permitted to exempt the property under S.D.C.L. 3-12-115, as the legislature did not
protect assigned funds.
EXEMPTIONS - TOOLS OF TRADE
Webb, David C. & Janice L. . . 1997 #14
Moot as S.D.C.L. 43-45-5(4) was repealed by the legislature in 1998, Ch 265.
EXEMPTIONS - WAGES AND BENEFITS
Benedict, Leroy Dennis & Betty L. Fairbanks-Benedict . . . 2009 #2
Moot as to the issue of whether wages earned but unpaid could be claimed exempt under
43-45-5(2) as provisions, given repeal of SDLC 43-45-5 in 1998. No implied trust under
S.D.C.L. 55-1-6 through 11 for funds in bank accounts on date petition filed to cover outstanding
checks for food and provisions. Sanctions awarded trustee under Rule 9011.
45
Chesmore, Kelly K. & Michelle M. (bench ruling) . . . 2007 #2
Earned but unpaid wages can not be claimed exempt using the garnishment limitation of
SDL 21-18-51, where wages had not been garnished, and the statute does not apply to any order
of any court under Title 11 of the U.S. Code.
Groetken, Michael J. & Jamie J. . . . 2005 #19
Wages garnished preceding the filing of the case and not claimed exempt were property
of the estate and properly turned over to the trustee. S.D.C.L. 21-8-53 limits the extent to which
wages are protected by state law.
Kraft, Jason N. & Kelly K. (bench ruling) . . . . 2007 #3
Unpaid wages not subject to garnishment may be claimed exempt under S.D.C.L. 43-454.
Further, notwithstanding S.D.C.L. 21-18-53 and 43-45-14, a debtor outside of bankruptcy
may claim wages exempt under at least two other statutes, S.D.C.L. 15-20-12 and S.D.C.L. 21–
19-17.
Swiontek, Roxanne R. . . . . . . . . . 2005 #45
See Exemptions - General, above.
Willman, Russell Eugene & Cindy Lou . . . . 2012 #2
Vacation time accrued pre-petition is property of the estate. Where debtor is not in
control of funds he cannot be compelled to turn the property over to the trustee. Rather the
trustee must demand turnover of the employer, subject to the terms of their employment contract,
which may trigger discount of the “face value” of the accrued vacation.
Zike, Gregory D., Sr. . . . . . . . . . 2003 #27
46
Wages garnished pre-petition may not be claimed exempt under S.D.C.L. 15-20-12, as
S.D.C.L. 21-18-53 provides that wages are exempt from levy only to the extend provided by
S.D.C.L. 21-18-51 and 21-18-52. The state court would already have applied those limits before
the funds were collected. Note, they may be claimed exempt under S.D.C.L. 43-45-4 per SL
2007, as recognized in later case Kraft, 07- #3.
Additional cases of note
ALIMONY
No exemption provision exists for alimony.
Steen, 2012, # 4
"Homestead Purpose" "The purpose of the homestead exemption is, of course, to
provide the security of a home to a family against the claims of creditors." Speck v. Anderson,
318 N.W.2d 339, 343 (S.D.1982). "There is no question but that this Court has over the years
jealously and assiduously protected the homestead exemptions guaranteed by our constitution
and statutes." Id.
"Interests" that support claim of homestead S.D.C.L. 43-31; In re Wood (8 B.R. 882( SD
Ecker, 1981)(home on land licensed from Homestake Mining Company sufficient.)
Disposition of property exemptible, not fraudulent - Noyes v. Belding 5 S.D. 605, at
622, 59 NW 1069 (1894): The authorities strongly fortify the position, and it has been held in this
jurisdiction that exempt property is not susceptible of being fraudulently disposed of or alienated
to the prejudice of a creditor. First National Bank v. North, 2 S.D. 480, 51 NW 96 (1892); Bates
v. Callender, 3 Dak. 256, 16 NW 506. In State v. Carson (),43 NW 361, the court held that: "The
fact that relator, who was the head of a family, transferred the property to his wife, who instituted
an action in replevin against the officer making the levy, but was unsuccessful in her suit,-the
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property being held to be that of her husband,-will not deprive the debtor of the benefit of the
exemption laws, even though he may have testified upon the trial that the property belonged to
his wife, and that he had no interest in it."
To the effect that a judgment debtor is not estopped, by the fraudulent disposition of his
property, from claiming his [5 SD 623] statutory exemptions, see Sannoner v. King (),5 SW 327;
Airey v. Buchanan (),1 South. 101; Sears v. Hanks, 14 Ohio St. 298; McAbe v. Thompson (),6
NW 479; Elder v. Williams, 16 Nev. 416; Vaughan v. Thompson, 17 Ill. 78; Bell v. Devore, 96
217; 1 Freem. Ex'ns, 214a, and cases there cited. The entire record in this case, viewed in the
light of the law applicable thereto, presents in our opinion, no reversible error, and the judgment
is affirmed.
III.
A Call to Modernize
“South Dakota's exemptions statutes are archaic, sexist, violate equal protection, and
discriminate against single people." Honorable Peder K. Ecker, In re Lind, 10 B.R.611, 615,
Bkrtcy SD 1981. In the years following Judge Ecker’s remarks, little has changed. Proponents
for change, need to consider the following in working to improve these provisions.
A.
Preparing for Pierre
Our state is blessed with a limited session and true citizen legislators. During the session,
things move quickly. The legislators have a lot on their plates and not much time to get their
work done.
In the past, proponents of change have been limited to a small group of debtor’s counsel
and a (very) few sympathetic legislators. Critical to the success or failure of any change is the
sponsoring legislator. He must know the substance of the proposal and this can be provided by
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debtor’s counsel meeting with him well before the session begins.
The legislator’s experience is more critical than his knowledge of the substance. He will
know: which committee is likely to give the proposal a fair hearing and may be able to steer it
there; whether the proposal should be contained in a single bill or several small bills; the tactics
involved in resurrecting a bill that has been tabled to the 41st day of the session; possible allies
and likely opponents.
Proponents must understand that while they drive to Pierre to testify before a committee
for an hour, their work is apt to be undone by full time lobbyists who may return again and again
to individual legislators throughout the session. If the sponsoring legislator is well liked by his
peers, he will kept informed of the pressure they are receiving, the new arguments being
presented to them by opponents, and he in turn, can reach out to proponents for information
necessary to a proper response.
Proponents must know the order of process in committee hearings. Time to make the
case will be allocated first to the proponents, and then to the opponents. Occasionally the
legislative proponent will be given a short rebuttal opportunity. Then the matter is opened to
committee discussion. During this time committee members may ask questions of the people
who have testified. That depends on the chair and the time available. Then, the chair will solicit
a motion for or against the proposed bill, and call the vote whether to pass the bill on for a vote
in the associated chamber, or to kill it. Each chamber has its own committee and proponents
should be prepared to travel to Pierre twice, in the event bills are introduced into both houses.
B.
Knowing The Opposition
Mr. Allan placed great faith in future legislators: “The legislature come directly from the
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people, and they will know just exactly what they want.”66 Unfortunately, as John Stuart Mill
noted:
The will of the people, moreover, practically means the will of the most numerous or the
most active part of the people; the majority, or those who succeed in making themselves
accepted as the majority; the people, consequently may desire to oppress a part of their number;
and precautions are as much needed against this as against any other abuse of power. The
limitation, therefore, of the power of government over individuals loses none of its
importance when the holders of power are regularly accountable to the community, that is, to the
strongest party therein. This view of things, recommending itself equally to the intelligence of
thinkers and to the inclination of those important classes in European society to whose real or
supposed interests democracy is adverse, has had no difficulty in establishing itself; and
in political speculations "the tyranny of the majority" is now generally included among the evils
against which society requires to be on its guard.67
Those in financial trouble represent a minority in our society. But we have agreed in our
Constitution that we will protect that minority, “The right of the debtor to enjoy the comforts and
necessaries of life shall be recognized by wholesome laws exempting from forced sale a
homestead . . . and a reasonable amount of personal property.”68
It is no surprise that legislators, elected by those in the majority, tend to be unable or
unwilling to sympathize with the needs of this minority.
People in financial trouble are
frequently depressed and tend to hide their heads in shame. For most, the last thing they want to
do is confess their need to friends and family, let alone legislators. Unless someone goes to the
66
Page 8.
Mill, John Stuart. On Liberty, first published 1859.
68 {const. cite}
67
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legislature on their behalf, their needs are not conveyed to our legislators. When an appearance
is made on their behalf, their voices are drowned out by those representing the majority.
Consequently, the focus quickly shifts from the “comforts and necessaries of life and a
reasonable amount of personal property” to the needs of the majority. As a result, this is what
legislators hear, and say:
Why reward failure?
Our customers include small businesses like the
butcher, the feed store, the nurse practitioner, attorneys and after care programs,
trying to collect from people who have decided they don’t want to pay their bill.
If you vote for increased exemptions how will this go over with your main street
business voters. The merchant is stopped from rightfully collecting his judgment.
(President of the Association of Collection Agencies)
People who extend credit deserve to be repaid. In South Dakota, we did
not increase state salaries to account for inflation, in fact we cut them by 10%. So
why would we tie exemption dollar limits to an inflation index? (Lobbyist for
Collection Association.)
When exemptions are increased, small businesses get hurt by not being
able to collect from debtors. Only 1 in 8 cases in bankruptcy are asset cases, and
most of those are due to large tax refunds. When exemptions are high, execution
and levy on a judgment becomes difficult. (Bankruptcy Trustee)
It’s a matter of personal responsibility. It’s not that they can’t pay, it’s
that they choose not to pay. The majority of people who get into financial trouble
do so because of their imprudent use of credit. They buy too much stuff.
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My parents operated a small grocery store. People couldn’t pay their
grocery bills, but they could sit on the front steps of the store drinking and
smoking. Obviously, they never intended to pay my parents.
These statements echo the arguments found in the constitutional debates. No one likes to
be cheated. At the core, these arguments are based on the idea that anyone who gets into
financial trouble has no one but herself to blame. In this context, exemption statutes are not
“wholesome” unless the debtor is punished. But that is not what should be discussed in the
context of exemption statutes. That is to be discussed when fashioning remedies for culpable
debtor behavior, fraud, deceit, etc. When dealing with exemption statutes, we must get beyond
the cause of the financial distress, and deal with what constitutes a reasonable amount of
property, to ensure the debtor can still maintain the comforts and necessaries of life. Here,
legislators should base their deliberations not on the “bad apples”, but rather on a presumption
that the poor are in dire straights through no fault of their own.
Proponents need to come armed with statistics and/or anecdotes to counter these
assertions. Certainly, debtors make bad financial decisions. But they also have to contend with
life’s curves: job losses, cuts in overtime pay, loss of job benefits, medical emergencies, and the
consequences of divorce. Their dependents are also in need of protection.
In today’s society, few choose to look at the creditor’s side of the equation. Every
extension of credit, is a toss of the dice. If creditors do not wish to take that risk, they can
withhold credit, or pass the risk of loss to institutions that specialize in risk calculations: big bank
credit card issuers. Forgotten is the idea that the relationship of debtor and creditor is a voluntary
relationship. Sound exemption statutes bring resolution to a soured relationship, and leave the
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consequence of poor credit decisions to those who made them: the creditors. By leaving debtors
with sufficient property to go on with their lives, we avoid thrusting the consequence of bad
credit decisions onto the shoulders of those outside the relationship, the general public.
C.
Specific Issues That Need Attention
The following areas should be addressed by the legislature.
1.
Divorce and Division of the Homestead
When the homestead is divided pursuant to a divorce decree, the non-resident spouse
loses whatever exemption claim she or he had in the former homestead. S.D.C.L. 43-31-2
should be amended to provide: If a husband or wife is required to leave the homestead, either
pursuant to a protection order obtained by his or her spouse, or otherwise to preserve peace in the
home, the absence from the homestead does not cause a waiver or abandonment of his or her
interest in the homestead. If the homestead is divided by court order pursuant to S.D.C.L. § 25-444 and a lien is imposed upon the homestead for the benefit of the non-occupant spouse pursuant
to § 25-4-42, absence from the homestead and loss of title to the homestead pursuant to the court
order, does not constitute forfeiture of the homestead exemption and homestead protection shall
attach to the judicial lien.
The impact of this change on creditors would be zero. The homestead remains limited to
the dollar limits chosen. The only difference is how that amount is allocated between the parties
to the divorce.
2.
Alimony Awarded in Divorce
Alimony is the award of a stream of payments over time. It is a personal property right.
No South Dakota exemption statute exempts it. S.D.C.L. 43-45-2 should be amended to provide:
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To the extent that alimony is necessary for the welfare of the spouse, it is
absolutely exempt.
3.
Vehicle Exemption
It is time to reinstate the protection of a debtor’s right to safe transportation. S.D.C.L.
43-45-2 should be amended to provide:
Whether head of family or non-head of family, each debtor shall be
permitted to keep interests in motor vehicles in an amount not to exceed
$5,000.00, if used primarily for normal daily transportation. For the purposes of
this chapter, the term “motor vehicles” is limited to vehicles used in the ordinary
course of affairs of the debtor and dependents of the debtor, and excludes “toys”
such as boats and jet skis, and other recreational vehicles as defined elsewhere in
this code.
4.
Inflation - Dollar Values to Be Indexed
In an area of the law where dollar limits are unchanged for decades at a time, this is
critical. The code should be amended as follows:
On July 1, 2015, and at each two year interval ending on July 1 thereafter,
each dollar amount in effect under Chapters 43 and 58 shall be adjusted:
1. to reflect changes in the Consumer Price Index for all Urban
Consumers, published by the United States Department of Labor, for the most
recent two year period ending immediately before January 1 preceding such July
1, and indexed to the consumer price index; and
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2. To round to the nearest $25 the dollar amount that represents such
change.
5.
Time to Rid Ourselves of “Head of Family” and “Not the Head of
Family”.
In today’s world there is no valid reason for maintaining this archaic distinction. Consider
we eliminated this with respect to homestead provisions more than a hundred years ago. Our
courts have better things to do than to wrangle with the issue of who is and who is not the head
of family. S.D.C.L. 43-45 should be amended to provide:
Each debtor, whether “head of family” or “not the head of family” shall be
entitled to claim exempt . . .
CONCLUSION
It is hoped this article shed light on an area of the law that is too often neglected.
Progress, however incremental, is needed. To fulfill our Constitutional obligations, we can and
should do better for the poorest among us.
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ADDENDUM
Here insert Historical Chart