Case No. 697-67189-fra7.United States Bankruptcy Court, D. Oregon.
April 27, 1998
MEMORANDUM OPINION
FRANK ALLEY, Bankruptcy Judge
The Chapter 7 Trustee in this case filed an objection to the Debtors’ claimed exemption in earned commissions under O.R.S. 23.185. For the reasons that follow, the Trustee’s objection will be denied.
BACKGROUND
Mr. and Mrs. Osworth are self-employed real estate agents. At the petition date Mr. Osworth had a commission owed him in the amount of $1,925, for which he claimed an exemption under O.R.S. 23.185 of $1,443.75. The Trustee objects on two grounds: 1) that O.R.S. 23.185 is not a proper exemption statute and does not shield the asset from the Trustee, and 2) that O.R.S. 23.185 does not apply to self-employed individuals.
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DISCUSSION O.R.S. 23.185
O.R.S. 23.185 reads in relevant part as follows:
(1) . . . [T]he maximum part of the aggregate disposable earnings of an individual for any workweek that is subjected to garnishment may not exceed:
(a) 25 percent of the individual’s disposable earnings for that week;
(b) For wages payable on or after July 1, 1991 . . .
(c) For wages payable on or after July 1, 1992 . . .
(d) For wages payable on or after July 1, 1993, the amount by which the individual’s disposable earnings for that week exceed $170;
(e) The amount described in paragraph (a), (b), (c) or (d) of this subsection, minus any amount required to be withheld from the individual’s disposable earnings for that week pursuant to an order [for certain types of support], whichever amount is less.
O.R.S. 23.185 is an Exemption Statute
The Trustee states that the question of whether O.R.S. 23.185
is a valid exemption statute for bankruptcy purposes is one of first impression in this state. That is not entirely true. While it does appear to be true that the question of the validity of the statute for bankruptcy exemption purposes has not been previously raised, there is at least one opinion which implicitly accepted it for exemption purposes. In In re Langley, 22 B.R. 137
(Bankr. D. Or. 1982), the question was whether the $400 wildcard exemption of O.R.S. 23.160(1)(k) could be used to exempt wages of the debtor. Judge Luckey held that it could not, because wages were specifically exemptible under O.R.S. 23.185
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and the wildcard exemption could not be used to increase any other exemption.
The Trustee, however, argues that O.R.S. 23.185 does not state anywhere in the statute that wages are exempt, merely that earnings are subject to limited garnishment outside of bankruptcy. He cites to a Tennessee bankruptcy case, In reLawrence, 205 B.R. 115 (Bankr. E.D. Tenn. 1997) which held that the Tennessee garnishment statute did not create an exemption recognizable in bankruptcy. Because both the Oregon and Tennessee garnishment statutes were modeled on the Consumer Credit Protection Act, the Trustee argues, there is no reason for a court interpreting the Oregon garnishment statute to hold differently than one interpreting the Tennessee statute.
11 U.S.C. § 522(b)(2)(A) allows a debtor to exempt from property of the estate “any property that is exempt under . . . State or local law that is applicable on the date of the filing of the petition. . . .” There is also a federal scheme of exemptions which Oregon, like Tennessee, has opted out of, leaving only the state exemption scheme available for bankruptcy purposes.
The bankruptcy court in In re Lawrence stated that the “Bankruptcy Code provision for recognizing state exemptions is evidently designed to secure the same treatment to a debtor who is forced to the point of claiming exemptions, whether he is in or out of bankruptcy. If a state permits a debtor to sequester certain assets from his creditors, then the Bankruptcy Code does
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likewise.” Lawrence, 205 B.R. at 118. The court observed that Tennessee’s garnishment statute was unlike the state’s other exemption statutes which provide that assets shall be “exempt from execution, seizure or attachment.” In contrast, the Tennessee garnishment statute merely limits to 25% the amount of disposable earnings which may be subject to garnishment. Once in the hands of the debtor, there is nothing under Tennessee law to prevent a creditor from seizing the cash from the debtor or the debtor’s bank account, even if it is directly traceable to wages. Id. Because the Tennessee garnishment statute does not place the funds beyond the reach of creditors, but merely limits the amount which may be garnished, the court concluded it does not constitute an exemption statute for purposes of 11 U.S.C. § 522
and Tennessee law.
It is true that the Oregon garnishment statute was modeled after the federal Consumer Credit Protection Act; it was enacted by the Oregon legislature, however, which was free to add protections not otherwise in the federal act. One such provision is O.R.S. 23.166. O.R.S. 23.166 requires that certain exempt funds which are deposited into an account of a debtor continue to be exempt up to an accumulation of $7,500. The relevant part of the statute is subsection (1) and reads in part as follows:
All funds exempt from execution and other process under ORS . . . 23.185(1)(b), (c), (d) and (e) . . . shall remain exempt when deposited in an account of a judgment debtor as long as the exempt funds are identifiable.
Unlike the law in Tennessee, Oregon has thus provided that funds
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subject to the garnishment statute remain exempt from process even after the funds are in the hands of the debtor and are deposited to the debtor’s bank account.[1] Oregon’s garnishment statute, unlike Tennessee’s, provides for an exemption under both Oregon law and federal bankruptcy law.
Garnishment Statute Applies to Self-Employed
The Trustee argues that even if O.R.S. 23.185 provides an exemption recognizable in bankruptcy, it wouldn’t apply in the present case because the statute only provides relief to employees, not self-employed persons. I disagree.
O.R.S. 23.175(2) defines earnings for purposes of O.R.S. 23.185 as “compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus or otherwise, and includes periodic payments pursuant to a pension or retirement program.” The statute speaks in terms of compensation paid for personal services, but does not limit the source of that compensation in any way. Both Oregon and federal bankruptcy courts must interpret statutory language by first looking at the text of the statute to determine whether it is
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clear and unambiguous. See McIntire v. Forbes, 322 Or. 426, 429, 909 P.2d 846, 848 (1996) (Court must “first examine the text and context of the provision to try to ascertain the intent of the legislature and, if the intent is clear from that inquiry, then we proceed no further”); United States v. Ron PairEnterprises, Inc., 489 U.S. 235, 242 (1989) (“The plain meaning of legislation should be conclusive, except in the `rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters’.”). It is clear from O.R.S. 23.175(2) that the focus of the protections afforded a debtor under O.R.S. 23.185 is the type of income (i.e. compensation for personal services) rather than the source of that income. Accordingly, I hold that the debtor may not be denied an exemption under O.R.S. 23.185 due to the fact that he is self-employed.[2]
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CONCLUSION
Federal bankruptcy law allows a debtor to exempt that property from property of the estate which is exempt under state law. O.R.S. 23.185 provides an exemption under Oregon law for part of a debtor’s compensation earned for personal services. That exemption applies regardless of whether the compensation was earned by an employee or by a self-employed person. Accordingly, the Trustee’s objection to the Debtors’ claimed exemption is denied. An order consistent with this opinion will be entered.
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