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Guns and Bankruptcy

posted by Adam Levitin

Mike Konczal at Rortybomb has an interesting post about the Protecting Gun Owners in Bankruptcy Act of 2010 (the Pro-GOB Act).  This legislation would make firearms exempt from creditors' claims in bankruptcy.  I'm still not sure if it is a joke or real legislation; I haven't been able to find the text of a proposed bill.  Even if one thinks this legislation is a good idea (which it isn't), it is all sizzle, no steak.  It would be inapplicable to almost all bankruptcy cases.  It would only affect Chapter 7 debtors who own firearms and live in 16 states.  

To the uninitiated, certain property of consumer debtors is "exempt" from creditor' claims, meaning that the creditors cannot levy on and sell off the property.  State law exempts certain property as does federal bankruptcy law.  There is tremendous variation in exemptions, which range from generous (unlimited dollar value homestead exemptions in a few states and DC) to quite stingy (Delaware & Wyoming, e.g.).  A debtor who files for bankruptcy can choose between the applicable state and federal exemptions, unless the state has opted out of the federal exemptions.  Exemptions matter little except in Chapter 7 cases, and most of those are "no asset" cases where expanding the potential exemptions doesn't make any difference; it is just political show.  

Even for those handful of Chapter 7 cases that involve assets, a federal firearms exemption would be worthless for the residents of the 34 states that have opted out of the federal exemptions.  (This presumes that the legislation wouldn't trample on state sovereignty by creating a mandatory federal exemption.)  So this amendment would help debtors who (1) own firearms, (2) file for bankruptcy, (3) live in the 16 opt-in states (or really the 14 opt-ins that don't have state firearm exemptions already), and (4) would be "Asset" Chapter 7s.  We're talking probably under 1,000 people/year.  

[Query whether it does any good to exempt the gun, but not the license (if the license is property of the estate).] 

OK, so the proposed legislation is pretty useless, even if you think it's a good idea.  But is it?  I think there are two major knocks on it.  

Knock 1:  Paternalism.

There's a very strange bit of paternalism involved in exempting firearms.  Most gun-rights advocates cringe at anything that smacks of paternalism, but a firearms exemption in bankruptcy basically tells debtors that the government thinks that they should spend their income on firearms, rather than other forms of property.  A far better approach would be to increase the federal wildcard exemption by the cost of a handgun.  Let's put that generously at $1,000.  Gun owners who really value their guns can use it to exempt a firearm (or several, depending on valuation), while gun owners who want to hang on to their laptops or their jalopy can use it on something they value more than their gun.  Why not let people decide what they value most?  There's a right to bear arms, not an individual mandate to do so.  

Knock 2:  Allows for Gaming

Nine states currently have explicit firearm exemptions:  Iowa, Idaho, Montana, Nevada, Ohio, Oklahoma, Oregon, Texas, & Wisconsin.  That's fewer (I think) than the number of states with horse exemptions, and sewing machine exemptions might be running close behind.  A number of other states have exemptions for sporting goods or household goods or furniture or tools of the trade that might arguably cover a firearm, and some states have wildcard exemptions that could be used to cover a firearm.  This alone suggests that there's not a lot of popular interest in having a firearm exemption.  

It's notable, however, that only Iowa has an unlimited firearm exemption, like that in the proposed legislation.  Every other state either limits the number of firearms (1 or 2), their value ($200-$5000), or both.  The Pro-GOB Act woud exempt all firearms held "primarily for the personal, family or household use of the debtor."  Not even Texas gives debtors as broad of a firearm exemption as the legislation proposes.  Texas exempts two firearms (a house gun and a car gun, as it has been explained to me).  

The Pro-GOB Act would allow a debtor to retain not just their .22 for hunting or a Glock for self-defense, but an entire arsenal.  Beyond the sheer ridiculousness of this (surrender the house and the car, but keep the guns), it sets up a situation in which debtors can game the bankruptcy system.  Guns don't depreciate super fast, so a clever debtor would simply load up on guns before filing and then sell off the guns after getting a discharge.  

If you've borne with me this far, be warned--I'm shifting topics to truly academic questions:  

While I'm on the exemption theme, here's a nice statutory interpretation question:  do exemptions for "Bibles" cover Korans or Vedas or other sacred texts?  And do they cover books with the title "Bible" (the Chef's Bible, e.g.) that are not holy scriptures?  On the one hand, it would seem that legislatures wanted Scriptures generally exempted (maybe avoiding a modern Donatist controversy?) because of the social/moral value they impart.  On the other hand, it's questionable whether state legislatures intended for anything other than Christian scripture (in a non-denominational sense) to be exempted.  There are underlying free exercise and equal protection issues, of course, and I don't think this issue is likely to come up, but I might torment students with it in the future...  

A final ghoulish exemption thought---burial plots are exempt federally and in some states.  But Hawaii specifically exempts tombstones.  Could creditors haul off a tombstone?   Consider cases where a spouse or child has predeceased or even when the debtor has died.  I would assume that tombstones only have hostage value (maybe they can be recut), but that could be powerful leverage to shake out some dollars from a debtor or his/her relatives.  This isn't as strange an idea as it seems.  In ancient Egypt creditors used to take ancestors' remains (mummies!) as collateral.  Subsidiary thought--are tombstones realty or personalty or fixtures?  How does one perfect in a tombstone or burial plot or mausoleum?


1) Isn't there already effectively a mandatory federal exemption for certain retirement plans by way of §541(b)(7), etc.?

2) Most states don't require a license to own a firearm. Even if they did, it seems nobody surrenders their drivers license, or more applicably, their concealed handgun license, in bankruptcy, for example. Licenses like these are personal to the owner, and don't represent a property interest with any sort of value, unlike, say, liquor licenses.

3) As for tombstones, unless they are elaborate they generally are something not worth dealing with and would likely be abandoned. Plus it seems that far fewer living people own tombstones than guns.

Very entertaining post!!

(Note: Arizona permits each debtor a firearm exemption in "one shotgun or one rifle or one pistol" up to $500 combined with other personalty, including a typewriter, a bicycle and "a family bible." Yes, it's a lower case "bible" that's exempt. One of my favorite books is the "The Pie and Pastry Bible" by Rose Levy Beranbaum. This is clearly an important book in my family and it's great to know that Arizona permits it an exemption.)

I thought decedents -- or, in any case, their estates -- weren't eligible for bankruptcy. It's possible I'm simply mistaken, or that it's changed since I was given that impression.

1) Fair point that 541(b) is another set of exemptions. Maybe the idea is to put the firearm exemption in 541, not 522.

2) I would assume that a firearm license is not transferrable and therefore would not become property of the estate in the first place, but it's at least a theoretical issue.

3) A tombstone can be quite pricey. And it has a level of sentimental value (hostage value) that few other items can match. I think that they would likely be abandoned, but only because of social mores, not because of value.

4) This has nothing to do with decedents' estates. Rather, burial plots and tombstones are, I would presume, property of someone other than the deceased, as the deceased do not hold property. So if your spouse predeceased you, I think you would own your spouse's burial plot and tombstone. There's some serious sentimental value there.

5) Congressional Research Service apparently counts ten states with firearm exemptions. My count of nine comes from a quick web search; I didn't go into the statutes for this one.

6) The Guttenbergs lobbied hard for the "family bible" exemption.

7) Exemptions have to be one of the most slapdash area of debtor-creditor law. NCCUSL doesn't seem to have a model/uniform property exemption law. I can't imagine how an agreement would be hammered out on this, but maybe that speaks to exempting a dollar amount and certain types of very personal property (family photos, e.g.).

I have no interest in the law but I find it intellectually puzzling for a website that is so pro-consumer debtor to say that this particular consumer debtor exemption is a bad idea. I can't believe there is a bankruptcy law basis for making that judgment. I suspect it's more cultural, that you're opposed to the gun culture it signifies. I am not a part of that culture either, but I am not sure there is a principled basis tethered to bankruptcy law, to distinguish this pro-consumer-debtor proposal from all the other ones you've supported through the years.

Family Bibles also contain (or at least, used to contain) records of births, marriages, and deaths in the family, which makes (made) them valuable as evidence for property ownership and inheritance purposes. I agree that, generally, one doesn't need a "license" to have a firearm in my state of Michigan, though one needs a "license" to purchase a handgun, and might need a permit or license to carry the firearm as a concealed weapon. Quaere--whether the McDonald case, extending the Second Amendment to the states, because having a firearm, especially a handgun, in the home, for self-defense, is a fundamental right, won't have some effect here, especially in the states that neither permit use of the Federal Bankruptcy Code exemptions, nor already have a "firearm" exemption in their statutes?

MT--There's a very good bankruptcy law reason for objecting to a special exemption for gun-owners. I have no objection to expanding consumer debtor exemptions per se. I do object, however, to broadening them just for a particular subset of consumers, namely gun-owners. The effect of giving extra protection to gun owners in bankruptcy is to make everyone else relatively worse off because it gives the gun owner more exempt property that can later be converted to cash. I see no reason to be extra nice to gun-owners. The 2d amendment provides a right, not a virtue. The fairer solution would be to increase the wildcard exemption by something around the median value of a gun and then let consumers choose what they want to retain.

Now to be fair, almost all exemptions are only useful if you own the exempt property. And that's what I'm arguing against. I think that's the wrong system. My argument isn't about guns, really. You could substitute "Perrier" or "organic tofu" for "guns" and nothing would change in the argument. A far better exemption system would be to exempt a certain dollar amount, adjusted for local cost-of-living, and also some broad categories exemptions for tools of the trade and personal belongings with little value to creditors (clothes, bedding, children's toys, family photos, etc.), perhaps with a maximum amount by category.

Greg Jones: Interesting point about the possible origins of family bible exemptions. I don't think the McDonald case will change things for state exemptions. Allowing creditors to seize a gun does not abrogate the right to possess a gun. It just means that the right to possess a particular gun is subject to creditors' claims. As soon as the creditors seize the gun, you can always go an get another one.

Query: do family photo exemptions cover digital media? Would that be a way to exempt an entire computer, if the photos were on the hard drive? Would it matter if there was a backup copy?

Great mind tingling post! We like our guns here in Texas but I agree that the wild-card option would be better to cover that kind of stuff.

This is my 2 cents as far as the article which I commented on yesterday after reading it:
1. What about the many states (Virginia for one) that have opted out of the federal exemption scheme and rely on state exemptions only? How will you protect gun owners in those states?
2. The law seems somewhat unnecessary. Unless you have a number of antique guns, as opposed to one or two pistols at home for protection, the trustee will almost surely “abandon” these assets.
3. “Many times this results in individuals seeing their assets reclaimed and sold to pay off their debt, with creditors paying little regard to their well-being.” All due respect Congressman but that is simply untrue and is further perpetuating one of the many myths associated with bankruptcy: 90% of chapter 7 cases, if not more, are “no-asset” cases. The consumer gives up nothing. There is no liquidation. Moreover, federal exemption has a fairly decent wild card exemption that one can use.
4. Finally, and most importantly, again, with all due respect, can we prioritize please? Protecting the family home and permitting judges to cram down the 1st mortgage is what we really need to focus on. Guns, is a distant second. Please don’t shoot me/hurt me/yell at me for saying that:)

Now, with that said, I would would be willing to march naked down the street, and support that all guns, grenades, tanks, etc. be fully exempt in bankruptcy IF the bill had a provision in there allowing for mortgages to be modified by bankruptcy judges. But just like not even Stallone could pull off Rocky V, I simply can’t see the giant NRA taking down the even bigger giant known as the banking association. But, by all means, if you can prove me wrong…


Leaving all the other issues aside, if this is not limited as to value, it is madness, as some antique/collectible guns can be quite valuable. For example, I don't think there is any state that exempts cars without regard to value. If there were, pretty quickly all the Duesenbergs in existence would be at least temporarily owned by the Ponzi promoters, real estate speculators and other assorted debtors in that state.

This is similar to a sales tax exemption, it is a special interest legislation, whether shopping on certain days, befitting certain companies, at the expense of others who have to pay sales taxes, etc.

This is quite similar to the home mortgage interest deduction, have personal credit debit its not tax deductible on the interest, but home equity lines of credit are for personal use and to buy a home or fix it up, while there are limits on that its still significant in certain places.

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