In re Johnson, 593 B.R. 331

Debtors filed Chapter 7 and elected New Mexico exemptions; they claimed an exemption under N.M.S.A. § 35-12-7 (New Mexico wage garnishment statute) for funds in a Wells Fargo checking account.
Trustee and creditor Xerox objected, arguing the wage-garnishment statute cannot be used in bankruptcy to exempt already-paid wages deposited in a bank account.
Debtors amended Schedule C; parties stipulated that the checking account held $2,601.98 on the petition date, of which $1,819.02 was traceable to wages and $782.96 to non-wage sources.
Court examined New Mexico garnishment statutory scheme, rules, and related case law to determine whether the wage-garnishment exemption applies to wages already paid and deposited.
Court concluded the statute protects only wages still owed by an employer (i.e., exempting disposable earnings from an employer-garnishee), not proceeds of wages already paid and on deposit; accordingly it disallowed Debtors’ claimed exemption under § 35-12-7.

Issue	Debtors' Argument	Trustee/Xerox Argument	Held
Whether New Mexico's wage-garnishment statute (§ 35-12-7) allows a debtor in bankruptcy to exempt wages already paid and deposited in a bank account	§ 35-12-7 protects proceeds of wages and thus can be used to exempt traced wage deposits in a debtor's account	The statute protects only wages owed by an employer (pre-payment); once paid and deposited, funds lose wage character and are governed by general exemption statutes	Court held the wage-garnishment exemption applies only to wages due from an employer (pre-payment). Exemption for deposited wages was disallowed.
Whether non-wage funds on deposit can be exempt under the wage-garnishment statute	(Implicit) Tracing could identify wage-origin funds and exempt them; non-wage funds would not be covered	Non-wage funds are not covered by § 35-12-7 and must rely on New Mexico general exemptions (e.g., § 42-10-1)	Court held non-wage funds are not covered by the wage statute and must be claimed, if at all, under general exemption provisions.

In re Urban, 262 B.R. 865 (Bankr. D. Kan. 2001) (held state wage-garnishment statute could furnish a bankruptcy exemption)
In re Doughman, 263 B.R. 905 (Bankr. D. Kan. 1999) (held Kansas wage-garnishment statute does not create a bankruptcy exemption for deposited wages)
In re Thum, 329 B.R. 848 (Bankr. C.D. Ill. 2005) (concluded wage-garnishment statutes protect unpaid wages pre-payment but not wages once deposited in bank accounts)
In re Adcock, 264 B.R. 708 (D. Kan. 2000) (held wage-garnishment limits apply only before wages are paid to the employee)
In re Resler, 282 B.R. 246 (Bankr. D. Kan. 2002) (pre-petition earnings deposited before bankruptcy are not exempt under Kansas wage-garnishment statute)
Portal v. [sic] (In re Portal), 45 P.3d 891 (N.M. 2002) (New Mexico Supreme Court: exemption statutes construed liberally to effect legislative intent)