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The Unconstitutionality of 11 U.S.C. 522(p)

posted by John Pottow

I’ve been mulling this provision of BACPA over for sometime now, including conferral with a colleague of mine on the faculty here who specializes in constitutional law, and I’m becoming increasingly convinced that s. 522(p) is unconstitutional.

For those who want to see the Code, I’ll copy it in at the bottom of this post.  For those who want a reminder, this is the “hard cap” of $125K homestead exemption that applies for debtors who have recently moved.

Why is it unconstitutional (in my view)?  It has nothing to do with the generic exemption challenges that have failed in the past (e.g., the dis-uniformity of different states having different exemptions, or the dis-uniformity of some states opting out of the federal exemptions).  No, this is a somewhat arcane matter of constitutional law that rarely gets litigated (just because it’s so unusual to be implicated).  The problem is that it inhibits the unenumerated but generally accepted right to interstate travel under the Fifth Amendment’s Due Process Clause.

Here’s the problem.  The Feds could exercise their Supremacy Clause power and pass hard caps in Bankruptcy for everyone.  (Cf. Recommendations of NBRC.)  But what they’ve done here, with 522(p)(2)(B), is made a cap but then made an exception to the cap for intra-state movers.  What this means, therefore, is that the cap only applies to inter-state moving debtors.  As such, it is a direct discrimination on those who move states.  Moreover, this is not like a “vesting requirement,” which has survived constitutional scrutiny in previous cases, because the rule is not that the debtor keeps his old exemptions until he vests into the new ones.  Rather, the rule is if he moves from Texas to Florida, he forfeits his unlimited exemption under each state’s laws just because he was an inter-state mover – a “penalty” visited by neither state’s laws!

If the level of scrutiny applied to this provision were strict, then I don’t see how it could possibly pass constitutional muster (I’m not even sure how it’d do on a lower standard).  I could be off-base, so I’m open to changing my mind.  Herewith the Code:

11 U.S.C. s. 522
….
(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 [$125,000 (added by BAPCPA 10-17-05) effective 4-1-04. Adjusted every 3 years by section 104.] in value in--

            (A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
            (B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
            (C) a burial plot for the debtor or a dependent of the debtor; or
            (D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

    (2)….
(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.

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