EXEMPTIONS AVAILABLE UNDER UTAH LAW AND THEIR APPLICABILITY IN BANKRUPTCY. Matthew M. Boley 1

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1 EXEMPTIONS AVAILABLE UNDER UTAH LAW AND THEIR APPLICABILITY IN BANKRUPTCY By Matthew M. Boley 1 Under Utah law, certain property is statutorily exempt from execution, garnishment or attachment. In practical effect, such exempt property is protected from the reach of judgment creditors. It cannot be taken or used to satisfy a judgment. The judgment debtor, however, must actively assert and claim the exemptions. A judgment creditor can seek to execute upon, garnish or attach exempt property. The onus then is on the judgment debtor to object and to assert the exemptions. As more fully explained below, Utah s statutory exemptions generally apply in a bankruptcy case filed in the State of Utah. Exempt property generally cannot be liquidated by a chapter 7 trustee. Further, exempt property likely need not be taken into account in connection with a liquidation analysis in a chapter 13 or chapter 11 case. In short, exempt property is may be protected even in bankruptcy. I. Exempt Property in Bankruptcy Pursuant to section 522 of the Bankruptcy Code, the debtor may exempt from property of the estate certain property that is exempt from execution under state or federal law. See 11 U.S.C. 522(b). Unless the case is dismissed, property exempted under [section 522] is not liable during or after the case for any debt of the debtor that arose, [or that is deemed to have] arisen, before the commencement of the case, except (1) certain nondischargeable debts, and (2) debts secured by a lien on the property, which lien is neither avoided nor void. 11 U.S.C. 522(c). Any waiver of exemptions in favor of an unsecured creditor is unenforceable, both under the Bankruptcy Code and under Utah law. See 11 U.S.C. 522(e); Utah Code Ann. 78B-5-1 This article is provided for informational purposes only. It is not intended as, and does not constitute, legal advice. Further, access to or receipt of this article by any recipient shall not be construed to create an attorney-client relationship. Finally, the author disclaims any and all representations or warranties, express or implied. Among other things, recipients of this article hereby are warned and notified that the information provided herein may be incorrect and/or incomplete. As such, it is not reasonable for any person to rely upon this article or the information provided herein. Rather, all persons who obtain or review this article are encouraged to retain a licensed attorney to provide him, her or it with individualized and current legal advice. { DOC /} Page 1 of 7

2 509. A waiver of the debtor s right to avoid liens upon exempt property under section 522(f), as described below, also is unenforceable. See 11 U.S.C. 522(e). Pursuant to section 522(f) of the Bankruptcy Code, a debtor in bankruptcy may avoid certain liens to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of [section 522], including: (A) a judicial lien, other than a judicial lien that secured a debt [for unpaid alimony, maintenance or support]; or (B) a nonpossessory, nonpurchase-money security interest in any (i) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; (ii) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or (iii) professionally prescribed health aid for the debtor or a dependent of the debtor. 11 U.S.C. 522(f)(1). Accordingly, not only will certain assets of the debtor be exempt from execution in bankruptcy, but the debtor also will have the right to remove both judicial liens and contractual (nonpurchase-money) liens on such exempt property. While the Bankruptcy Code provides certain default exemptions that are applicable in bankruptcy, see 11 U.S.C. 522(d), Utah has opted out of the federal exemptions. See Utah Code Ann. 78B Accordingly, in Utah, a debtor s exemptions under section 522 of the Bankruptcy Code are governed by the Utah Exemptions Act, Utah Code Ann. 78B et seq.; provided, however, that the federal exemptions and/or the exemption statutes of another state may apply as to an individual [that] is a nonresident of this state and has been for the 180 days immediately preceding filing for bankruptcy. Utah Code Ann. 78B In short, the exemptions applicable in bankruptcy are the same exemptions that impose limits upon a judgment creditor s post-judgment remedies under Utah law generally. { DOC /} Page 2 of 7

3 II. Utah s Statutory Exemptions A. The Homestead Exemption The most significant exemption available under Utah law is the so-called homestead exemption. An individual may claim a homestead exemption in the amount of $30,000 2 in his or her primary personal residence, or in the amount of $5,000 in real property which is not the person s primary personal residence. See Utah Code Ann. 78B-5-503(2)(a). If the property is jointly owned, for example, by a husband and wife as joint tenants, the amount of the exemption is doubled to 60,000 per household in the primary personal residence 3 and $10,000 per household in all other real property. See Utah Code Ann. 78B-5-503(2)(c). Outside of bankruptcy, an individual may select and claim a homestead by filing a signed and acknowledged declaration of homestead with the county recorder in which the homestead property is located, or by serving a signed and acknowledged declaration of homestead upon the sheriff or other officer conducting an execution sale prior to commencement of the sale. See Utah Code Ann. 78B In the context of bankruptcy, the debtor selects and claims his or her exemptions by fil[ing] a list of property that the debtor claims as exempt under [section 522(b)]. 11 U.S.C. 522(l). This listing usually is provided on Schedule C of the debtor s schedules of assets required to be filed by Rule Fed. R. Bankr. Pro. 4003(a). See also Boldridge v. United Van Lines, Inc. (In re Boldridge), BAP No. KS , 2001 Bankr. LEXIS 558, at *3 n.2 (B.A.P. 10th Cir. June 4, 2001) ( The only way to claim goods as exempt is by listing them on the schedule of assets required to be filed by [Bankruptcy Rule 1007]. ) B. Certain Property Exempt Without Limitation as to Value The following types of personal property are exempt under Utah law, without any limitation as to dollar amount or value: 78B Property exempt from execution. (1) (a) An individual is entitled to exemption of the following property: 2 Effective as of May 14, 2013, the homestead exemption amount was increased from $20,000 per person or $40,000 per household to $30,000 per person or $60,000 per household. Although the courts have not yet addressed the effect of H.B. 149 on bankruptcy cases filed before May 14, 2003, it is likely that the lower exemption amounts will remain applicable in such cases. 3 Effective as of May 14, 2013, the homestead exemption amount was increased from $20,000 per person or $40,000 per household to $30,000 per person or $60,000 per household. Although the courts have not yet addressed the effect of H.B. 149 on bankruptcy cases filed before May 14, 2003, it is likely that the lower exemption amounts will remain applicable in such cases. { DOC /} Page 3 of 7

4 (i) a burial plot for the individual and the individual's family; (ii) health aids reasonably necessary to enable the individual or a dependent to work or sustain health; (iii) benefits the individual or the individual's dependent have received or are entitled to receive from any source because of: (A) disability; (B) illness; or (C) unemployment; (iv) benefits paid or payable for medical, surgical, or hospital care to the extent they are used by an individual or the individual's dependent to pay for that care; (v) veterans benefits; (vi) money or property received, and rights to receive money or property for child support; (vii) money or property received, and rights to receive money or property for alimony or separate maintenance, to the extent reasonably necessary for the support of the individual and the individual's dependents; (viii) (A) one: (I) clothes washer and dryer; (II) refrigerator; (III) freezer; (IV) stove; (V) microwave oven; and (VI) sewing machine; (B) all carpets in use; (C) provisions sufficient for 12 months actually provided for individual or family use; (D) all wearing apparel of every individual and dependent, not including jewelry or furs; and (E) all beds and bedding for every individual or dependent; (ix) except for works of art held by the debtor as part of a trade or business, works of art: (A) depicting the debtor or the debtor and his resident family; or (B) produced by the debtor or the debtor and his resident family; (x) proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory; (xi) the proceeds or benefits of any life insurance contracts or policies paid or payable to the debtor or any trust of which the debtor is a beneficiary upon the death of the spouse or children of the debtor, provided that the contract or policy has been owned by the debtor for a continuous unexpired period of one year; { DOC /} Page 4 of 7

5 (xii) the proceeds or benefits of any life insurance contracts or policies paid or payable to the spouse or children of the debtor or any trust of which the spouse or children are beneficiaries upon the death of the debtor, provided that the contract or policy has been in existence for a continuous unexpired period of one year; (xiii) proceeds and avails of any unmatured life insurance contracts owned by the debtor or any revocable grantor trust created by the debtor, excluding any payments made on the contract during the one year immediately preceding a creditor's levy or execution; (xiv) except as provided in Subsection (1)(b), any money or other assets held for or payable to the individual as a participant or beneficiary from or an interest of the individual as a participant or beneficiary in a retirement plan or arrangement that is described in Section 401(a), 401(h), 401(k), 403(a), 403(b), 408, 408A, 409, 414(d), 414(e) or 457, 4 Internal Revenue Code; and (xv) the interest of or any money or other assets payable to an alternate payee under a qualified domestic relations order as those terms are defined in Section 414(p), Internal Revenue Code; and (xvi) unpaid earnings of the household of the filing individual due as of the date of the filing of a bankruptcy petition in the amount of 1/24 of the Utah State annual median family income for the household size of the filing individual as determined by the Utah State annual Median Family Income reported by the United States Census Bureau and as adjusted based upon the Consumer Price Index for All Urban Consumers for an individual whose unpaid earnings are paid more often than once a month or, if unpaid earnings are not paid more often than once a month, then in the amount of 1/12 of the Utah State annual median family income for the household size of the individual as determined by the Utah State Annual Median Family Income reported by the United States Census Bureau and as adjusted based upon the Consumer Price Index for All Urban Consumers. 5 (b) The exemption granted by Subsection (1)(a)(xiv) does not apply to: (i) an alternate payee under a qualified domestic relations order, as those terms are defined in Section 414(p), Internal Revenue Code; or (ii) amounts contributed or benefits accrued by or on behalf of a debtor within one year before the debtor files for bankruptcy. This may not include amounts directly rolled over from other funds which are exempt from attachment under this section. (2) The exemptions in Subsections (1)(a)(xi), (xii), and (xiii) do not apply to proceeds and avails of any matured or unmatured life insurance contract assigned or pledged as collateral for repayment of a loan or other legal obligation. (3) Exemptions under this section do not limit items that may be claimed as exempt under Section 78B Utah Code Ann. 78B-5-505(1). 4 5 The statute s reference to section 457 was added by H.B. 149, which became effective on May 14, Subsection (xvi) of the statute was added by H.B. 149, which became effective on May 14, { DOC /} Page 5 of 7

6 C. Certain Property Exempt Up to a Ceiling Dollar Value Certain other items and categories may be exempt under Utah law, but are subject to limitations as to dollar amount: 78B Value of exempt property -- Exemption of implements, professional books, tools, and motor vehicle. (1) An individual is entitled to exemption of the following property up to an aggregate value of items in each subsection of $1,000: 6 (a) sofas, chairs, and related furnishings reasonably necessary for one household; (b) dining and kitchen tables and chairs reasonably necessary for one household; (c) animals, books, and musical instruments, if reasonably held for the personal use of the individual or the individual s dependents; (d) heirlooms or other items of particular sentimental value to the individual; and (e) firearms and ammunition not included in other exemption categories in the amount of $250 per individual, and not more than $500 per household. 7 (2) An individual is entitled to an exemption, not exceeding $5,000 8 in aggregate value, of implements, professional books, or tools of the individual's trade, including motor vehicles to which no other exemption has been applied, and that are actually used by the individual in the individual's principal business, trade, or profession. (3) (a) As used in this Subsection (3), "motor vehicle" does not include any motor vehicle designed for or used primarily for recreational purposes, such as: (i) an off-highway vehicle as defined in Section , except a motorcycle the individual regularly uses for daily transportation; or (ii) a recreational vehicle as defined in Section , except a van the individual regularly uses for daily transportation. (b) An individual is entitled to an exemption, not exceeding $3,000 9 in value, of one motor vehicle. (4) This section does not affect property exempt under Section 78B Utah Code Ann. 78B Effective as of May 14, 2013, this dollar amount was increased from $500 per individual to $1,000 per individual. Although the courts have not yet addressed the effect of H.B. 149 on bankruptcy cases filed before May 14, 2003, it is likely that the lower exemption amounts will remain applicable in such cases. 7 Subsection (e) of the statute was added by H.B. 149, which became effective on May 14, Effective as of May 14, 2013, this dollar amount was increased from $3,500 per individual to $5,000 per individual. The reference to motor vehicles also was added by the amendment. Although the courts have not yet addressed the effect of H.B. 149 on bankruptcy cases filed before May 14, 2003, it is likely that the lower exemption amounts will remain applicable in such cases. 9 Effective as of May 14, 2013, this dollar amount was increased from $2,500 per individual to $3,000 per individual. { DOC /} Page 6 of 7

7 D. Proceeds of Exempt Property are Exempt Finally, the traceable proceeds of certain types of exempt property are exempt under Utah law, including condemnation proceeds, insurance proceeds payable upon the loss, damage or destruction of exempt property, and any other traceable proceeds. See Utah Code Ann. 78B By statute, the tracing presumptions and methodology may be by application of the principles of first-in first-out, last-in last-out, or any other reasonable basis for tracing selected by the individual. Utah Code Ann. 78B-5-507(3). E. Some Additional Federal Exemptions In addition to the exemptions provided by Utah statute and applicable in bankruptcy cases pursuant to section 522 of the Bankruptcy Code, there are several types or categories of property that may be exempt under federal law, including: Social Security payments and traceable proceeds, see 42 U.S.C. 407(a); and funds held in qualified retirement accounts, pension plans, etc., see 29 U.S.C. 1056(d)(1); 11 U.S.C. 541(c)(2); Patterson v. Shumate, 504 U.S. 753 (1992). { DOC /} Page 7 of 7