Opinion
No. A00-21 CV (JWS)
June 9, 2000.
On Appeal from U.S. Bankruptcy Court District of Alaska, No. A99-00006-DMD Hon. Donald MacDonald IV.
I. INTRODUCTION
This is an appeal from the United States Bankruptcy Court of an order denying objections to claims of exemption. Jurisdiction is based on 28 U.S.C. § 158(a). At docket 6, appellant Larry D. Compton, Trustee ("Compton"), files an opening brief. Appellee/debtor Dorismae Melin files her brief at docket 8. Compton files a reply brief. Oral argument was held on June 9, 2000.
II. BACKGROUND
The issue presented by this appeal is whether Alaska law, AS 09.38.030(b), exempts the future income stream from a promissory note. The facts stated here are based on the Bankruptcy Court's order filed January 5, 2000. See 6 ABR 310 (2000). The court incorporates by reference the Bankruptcy Court's order herein as if set forth in its entirety, and merely summarizes the key facts here to provide context for the court's ruling. Melin is an elderly widow battling cancer who lives alone in Palmer. She is unemployed and does not receive earnings from any source. She filed for Chapter 7 bankruptcy on January 5, 1999. Melin claimed as an exemption $2,530/month in liquid assets from notes receivable under AS 09.38.030(b). This income is based on notes arising from the sale of real property that Melin and her husband had owned and intended to use in their retirement. Melin receives approximately $550/month in income from the notes. She also receives $524/month in social security benefits. The resulting sum is not sufficient to meet her basic needs and medical bills, notwithstanding the fact that it is undisputed that Melin lives a frugal and modest life. Melin's children therefore assist her by contributing approximately $440/month. Other facts are noted below.
III. STANDARD OF REVIEW
A bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. The bankruptcy court's decision will be affirmed unless the appellate court reaches a definite and firm conviction that the bankruptcy court committed clear error. Issues of law are reviewed de novo. IV. DISCUSSION
In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1262 (9th Cir. 1982).
In re Bubble Up Delaware, Inc., supra, 684 F.2d at 1262.
In re New England Fish Company, 749 F.2d 1277, 1280 (9th Cir. 1984).
AS 09.38.030(b) provides:
An individual who does not receive earnings either weekly, semimonthly, or monthly is entitled to a maximum exemption for the aggregate value of cash and other liquid assets available in any month of $1,400, except as provided in (t) and (h) of this section and in AS 09.3 8.050. The term "liquid assets" includes deposits, securities, notes, drafts, accrued vacation pay, refunds, prepayments, and receivables, but does not include permanent fund dividends before or after receipt by the individual.
The $1,400 exemption was raised to $1,610 in January 1999. The parties and Bankruptcy Court agree on the essential facts and basic legal principles underlying this appeal.
See AS 09.38.030(b).
The only issue in dispute centers on the meaning of the phrase "liquid assets available in any month." If this is construed to permit a debtor to exempt the income stream received from notes receivable, then the Bankruptcy Court should be affirmed. Elsewise, Compton prevails.
After reviewing legislative history and statutory provisions, and reflecting upon the broader policy-related goals of Alaska law, the Bankruptcy Court determined that the phrase "liquid assets available in any month" should be interpreted and applied to permit Melin to exempt the income stream she received from notes receivable. This conclusion was principally (but not exclusively) driven by five considerations. First, Alaska's exemption laws are intended to allow debtors to provide for the basic necessities of life. Second, AS 09.38.030(b) was intended to ensure that debtors without a monthly income were not deprived of the ability to provide for the basic necessities of life. The Bankruptcy Court noted that debtors receiving a regular income were entitled to exempt $402.50 for the necessities of life effective January 1999. This being so, the Bankruptcy Court impliedly concluded that it made little sense in law or policy to limit debtors without earnings to a "one shot" exemption when debtors with earnings faced no such restriction. Third, AS 09.38.030(b) places no restriction on the number of months that a debtor may claim an exemption under its provisions. Fourth, unless payable in full, notes are not available in any month for the full face amount of the note. Fifth and finally, exemption laws are remedial in nature and should be broadly construed in favor of debtors. This court finds the Bankruptcy Court's analysis to be well-reasoned and thoughtful.
Although not expressly stated in the Bankruptcy Court's order, this conclusion seems implicit in the order and also appears to be an arguably fair characterization of the Bankruptcy Court's holding.
Compton argues that Melin should only be entitled to a one-time exemption in the amount of $2,490.00, and should never be permitted to exempt future income from notes. Compton's primary argument is that permitting debtors to exempt the future stream of income from notes receivable will encourage unscrupulous individuals to finance notes and then file for bankruptcy. But nothing in Title 11 requires Bankruptcy Courts to turn a blind eye to such fraudulent activity. Compton's remaining arguments are not without academic and logical merit, but they are ultimately unpersuasive when evaluated against the policy, purpose, and goals of Alaska law as summarized by the Bankruptcy Court.
V. CONCLUSION
For the foregoing reasons, the order of the Bankruptcy Court denying the Trustee's objections to claims of exemption is AFFIRMED.