In Belsome v. Belsome (In re Belsome), 434 F.3d 774 (5th Cir. 2005), the United States Court of Appeals for the Fifth Circuit was faced with the issue of whether, under Louisiana's exemption statute, a school bus should be classified as: a "motor vehicle," in which the debtor could only claim a $7,500 exemption; or a "tool," which the debtor could claim as completely exempt from the bankruptcy case.
On Dec. 28, in an opinion authored by Judge Fortunato Pedro Benavides, the court held that a school bus qualifies as a motor vehicle. Consequently, the debtor's exemption in the bus was limited to $7,500.
On May 28, 2004, Tessie Belsome filed a voluntary petition for relief under Chapter 7 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Eastern District of Louisiana. At the time she filed her petition, the debtor worked as a school bus driver for the Jefferson Parish School System. She drove a 1997 Thomas school bus that she had financed through her credit union. In her initial filings, the debtor filed an exemption for the school bus as a tool of her trade under La. Rev. Stat. Section 13:3881(A)(2)(a). The school bus was valued at $22,500, with an outstanding loan balance of $1,514.
The Chapter 7 trustee and the debtor's former husband filed objections to the debtor's claim for the exemption. The appellants argued that the tool of the trade exemption did not apply because the school bus was a motor vehicle subject to an exemption of only $7,500 under La. Rev. Stat. Section 13:3881(A)(2)(d).
The bankruptcy court sustained the appellants' objections and allowed the debtor an exemption of only $7,500. The debtor appealed the order to the U.S. District Court for the Eastern District of Louisiana, which reversed the decision of the bankruptcy court. The district court found that the school bus was, in fact, a "tool" that the debtor needed in order to earn her living. As such, it fell within the tool of the trade exemption rather than the motor vehicle exemption. The appellants appealed the district court's decision to the 5h Circuit.
The Court's Analysis
Louisiana has opted out of the federal exemptions available to debtors under Section 522(d) the Bankruptcy Code. Therefore, in Louisiana, a debtor can only choose exemptions available under the Louisiana exemption statute, which is codified at La. Rev. Stat. Section 13:3881. Based on the foregoing, the appellate court began its analysis with an overview of the Louisiana exemption statute. The Louisiana exemption statute provides in pertinent part the following:
"(A) The following income or property of a debtor is exempt from seizure under any writ, mandate, or process whatsoever, except as otherwise herein provided:
(2) That property necessary to the exercise of a trade, calling, or profession by which he earns his livelihood, which shall be limited to the following:
(d) Seven thousand five hundred dollars in equity value for one motor vehicle per household, used by the debtor and his family . . . . The one motor vehicle may be used in exercising a trade, calling or profession or used for transportation to and from the place at which the debtor earns his livelihood."
The court of appeals noted that exemption statutes must be strictly construed, but it also recognized the policy underlying these statutes: to provide for the subsistence, welfare and fresh start of the debtor so that the debtor and his or her family would be less likely to become a burden on their community or state. Based on these guiding principles, the court found that when interpreting the exemption statute, it must first look to the plain meaning of the statute by focusing on the words themselves.
Due to the fact that the Louisiana Supreme Court had not interpreted the exemption statute as it relates to school buses, and because Louisiana's intermediate courts offered little guidance on the subject, the court examined how Louisiana's bankruptcy courts had historically applied the exemption statute in similar situations. Unfortunately, the court determined that those courts applying the exemption statute to school buses and similar vehicles have reached conflicting results.
According to the court, in cases in which courts have found that school buses or similar vehicles fell under the motor vehicle exemption, these courts typically focused on the plain meaning of the statute and applied the statutory language strictly. One court, relying on Louisiana law, found in In re Vicknair that "when a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretations may be made."
Another court found, in In re Crawford, that although the debtor's automobile was clearly a necessary tool of his trade, "[t]he Louisiana legislature . . . has seen fit to amend the exemption statute so as to specifically delete the automobile from the classification of tool or instrument of trade or profession. The wording of the statute is so specific that it leaves no room . . . for interpretation by a court."
On the other hand, where courts have exempted vehicles under the tools of the trade exemption, these courts have based their decision on the broader purpose of the statute, i.e., the debtor's fresh start. The court of appeals explained that because the tools of the trade exemption does not define the term "tool," Louisiana courts have crafted a test for determining what qualifies as a "tool." According to the court, the test is "whether the tool or instrument is necessary for the exercise of the profession" or, put another way, "whether or not the debtor will be prevented from exercising his trade or profession if he is deprived of the tool or instrument."
The court found that while a school bus may fit the "functionality test" just described, such an approach ignores the plain meaning of the statute because the statute clearly establishes two separate and distinct categories: tools and motor vehicles.
In her appeal, the debtor argued that the Louisiana Legislature did not intend for buses to be considered motor vehicles, since Louisiana law defines "bus" and "motor vehicle" as two separate and distinct terms. The court dismissed this argument because the applicable statutory definition of "school bus," which the debtor had failed to call to the court's attention, is "every motor vehicle that complies with the color, equipment and identification requirements . . . and is used to transport children to and from school."
The debtor also argued that the Legislature did not intend that buses be part of the motor vehicle exemption because the motor vehicle exemption is based upon National Automobile Dealers Association (NADA) retail values, which do not include values for buses. The circuit court found this argument to be without merit as well. According to the court, the motor vehicle exemption does not require the debtor to set forth the motor vehicle's NADA retail value as a condition of the exemption. The court also found some merit to the appellants' counter-argument that such an interpretation would effectively exempt new model cars from the definition of "motor vehicles," since NADA retail values only apply to used vehicles.
Accordingly, based on the plain language of the statute, the court found that the debtor's bus qualified as a "motor vehicle" and not a "tool" under Louisiana's exemption statute. Consequently, the debtor could take only a $7,500 exemption in her bus.
The Belsome case presents a relatively straightforward set of facts. It serves as a reminder to all debtors and their counsel the importance of pre-bankruptcy planning and also highlights the importance of statutory construction by the courts. The lessons: Spot all potential obstacles that stand in the way of your debtor's fresh start and address them before the debtor files; and to the extent possible, understand how the court in your district will rule on key issues in your case.
Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.