In Re Neal
ORDER ON MOTION OF RAY W. NEAL TO AVOID LIEN OF SUNWEST BANK OF EL PASO IMPAIRING DEBTOR’S EXEMPTIONS
CAME ON for hearing the Motion of Ray W. Neal, Debtor, to Avoid Lien of Sunwest Bank of El Paso Impairing Debt- or’s Exemptions. Upon consideration thereof, the court finds and concludes that the Motion is well taken, and that the relief requested therein should be granted. The following Decision and Order constitutes the court’s findings of fact and conclusions of law.
JURISDICTION
This court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 157 and 1334. This matter is a core proceeding. 28 U.S.C. § 157(b); 11 U.S.C. § 522(f).
FACTUAL BACKGROUND
Ray Neal (“debtor”) is the sole proprietor of Diversified Design Services, a computer-aided drafting and scanning service; for the past two years, he has worked out of his home, using sophisticated computer equipment and software to generate engineering drawings and schematics. The drawings produced by the Debtor could be produced by hand, but time limitations and industry standards necessitate the use of computer technology to remain competitive. Specifically, Debtor’s clients require
In June 1991, Debtor borrowed approximately $10,060.30 from Sunwest Bank of El Paso. As security for the loan, Debtor gave Sunwest a security interest in various pieces of computer equipment used by the debtor in his business. 1 As of December 1991, Sunwest estimated the value of the collateral to be approximately $12,000.
Debtor filed for relief under Chapter 13 of the Bankruptcy Code on November 5, 1991. Subsequently, he filed this motion, seeking to avoid Sunwest’s lien against the computer equipment under § 522(f)(2)(B), to the extent that it impairs an exemption to which he may be entitled. At the hearing, all parties agreed to stipulate that Sunwest’s security interest is non-purchase money and non-possessory; the sole issue to be decided by the court is whether the computer equipment at issue qualifies as a “tool of the trade” for the avoidance purposes of § 522(f)(2)(B).
Sunwest Bank contends that the computer equipment at issue is not a “tool of the trade” within the plain meaning of those terms of federal law as contained in § 522(f)(2)(B). Sunwest urges the court to establish a narrow federal definition of the terms for purposes of lien avoidance, rather than relying on state law definitions developed under the rubric of broadly-construed exemption statutes. Sunwest also argues that the equipment is not of the “inconsequential value” contemplated by Congress in the enactment of § 522(f)(2). Finally, Sunwest argues that allowing the Debtor to avoid the lien on the computer equipment will severely limit, if not eliminate, the ability of sole proprietorships to obtain non-purchase money working capital financing.
Debtor argues that the equipment fits squarely within the definition of tools of the trade, as it has been applied under both federal and state exemption statutes and the lien avoidance statutes. Debtor further argues that, although the “inconsequential value” requirement is consistent with the purpose underlying subsection (f)(2)(A) (involving household goods), it is entirely inconsistent with the purpose underlying subsection (f)(2)(B), involving “books, implements, and tools, of the debt- or’s trade,” and should not be applied so as to deprive Debtor of the tools essential to his fresh start.
ANALYSIS
A debtor who files for relief under the Bankruptcy Code must surrender all of his property for the benefit of his creditors; the property so surrendered comprises the bankruptcy estate.
See
11 U.S.C. § 541;
see also In re Lucas,
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled to under subsection (b) of this section, if such lien is—
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(2) a nonpossessory, nonpurchase-mon-ey security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor
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11 U.S.C. § 522(f)(2)(A), (B). Thus, liens may only be avoided to the extent that they impair an exemption to which the debtor would be entitled under § 522(b). Under that section, a debtor may elect either the federal exemptions found in § 522(d), the federal exemptions as modified by the states, or state exemptions.
See
11 U.S.C. § 522(b), (d);
see also In re Taylor,
Texas created its own classes of exempt property, an exemption scheme with a long pedigree.
In re Leva,
The Texas exemption for tools, equipment, books, and apparatus used in a trade or profession has been limited to those items that are peculiarly adapted to the trade or profession.
See In re Weiss,
The computer equipment in the case
sub judice
is well within the scope of the Texas exemption for tools of the trade; it belongs just as fairly to Debtor’s trade today as would a T-square and drafting table forty years ago, and it is of considerably more than “merely general value” to the business. Indeed, Debtor testified that the equipment, both hardware and software, is designed specifically for computer-aided drafting and that without the equip
Having concluded that the Debtor is entitled to an exemption under § 522(b), the court now turns to § 522(f)(2)(B) to determine whether the Debtor is entitled to avoid Sunwest's lien on the equipment. While state law determines the availability of exemptions, it is federal law that determines avoidability of liens.
See In re Heape,
Many cases have applied an “inconsequential value” test to § 522(f)(2)(B) actions (involving items relating to a debt- or’s continuing in his or her line of work), without differentiating such actions from those brought under subsection (f)(2)(A) (involving household goods used for personal use), where that test is more easily justified by the legislative history’s express discussion.
Compare In re Sweeney,
Most of the circuit courts which have examined the issue have reached a different result, however.
See In re Heape,
Some courts which have engrafted the “of little resale value” gloss onto the language of § 522(b)(2)(B) have justified the gloss by trying to extend to tools of the trade the discussion of household goods found in the legislative history to § 522(f)(2), even though tools of the trade are clearly distinct in kind and purpose from personal items held for household use.
3
Harrell,
Courts which have insisted on glossing over the difference in kind between the kinds of things covered by subsections (A) and (B) have also had to ignore the common sense plain meaning of the term “tools of the trade,” in derogation of a basic principle of statutory construction.
See United States v. Apfelbaum,
While we are at it, we might also look at the plain meaning suggested by the comma after the word “tools.” (“... implements, professional books, or tools, of the trade of the debtor ... ”)
See In re Ron Pair Enterprises, Inc.,
Nor is this court persuaded that the $750 limitation on the federal exemption for tools of the trade should apply to cases in which debtors have elected to proceed under state exemption statutes.
See
11 U.S.C. § 522(d)(6). The dollar cap is really just another way to restrict the term “tools.” The plain language of § 522(f)(2)(B) contains no reference to a dollar limitation on the avoidability of liens. 11 U.S.C. § 522(f)(2)(B). Indeed, the two subsections are identical with the exception of the $750 limitation in subsection (d)(6), suggesting that the failure to set a limit on the lien avoidance provision was deliberate.
See In re Thompson,
In the instant ease, the debtor is entitled to an exemption of at least $30,000 in personalty under the Texas exemption statute, and the value of this property does not cause the debtor to breach that limit. It is clear that the Debtor’s equipment comes within the definition of “tools, of the trade of the debtor” as envisioned by subsection (f)(2)(B). Therefore, to the extent that the lien of Sunwest Bank impairs that exemption, the lien can be avoided.
The court of course appreciates the potential adverse impact on nonpurchase-money financing if the “little resale value” limitation is not applied to lien avoidance under § 522(f)(2)(B). However, as noted by those courts which have refused to graft a limitation onto (f)(2)(B), it is not the function of this court to question why Congress has chosen to permit debtors to avoid the particular liens enumerated in subsection (f), nor can this court repair the provision by fashioning a “federal definition” of the term “tools, of the trade of the debtor” simply to avoid an unfortunate economic result.
See e.g., In re Thompson,
CONCLUSION
The computer equipment is exempt under the Texas exemption statute (including the various peripherals and software). The debtor may avoid Sunwest Bank’s lien thereon. There is no doubt that the Bank did not contemplate such a construction of the Bankruptcy Code at the time the loan was made, so this result is indeed unfortunate. However, this court declines to follow those cases which artificially define “tools, of the trade of the debtor” under (f)(2)(B) solely to avoid such unfortunate results. The plain language and legislative history of the Bankruptcy Code dictate the outcome of this ease.
The motion of the debtor is GRANTED.
So ORDERED.
Notes
. Sunwest claims a security interest in the following equipment: a DTK computer (Keen 2000) SN:G9020331; Calcomp 1025 Plotter SN:906YO7748; Hewlett Packard Laserjet II Printer Model 33471A SN:2940J26748; 101 Keyboard SN:00114111789; Digitizer Board SN:0101700097820373545; Houston Instrument LDS 4000 Scanner SN:409009-10042. The documentation on the loan and the security interest reflect that Sunwest regarded the loan as purchase money, although the Debtor contends that the equipment was purchased before the funds were received. For the purposes of this motion, and in order to have the court reach the lien-avoidance issue, Debtor and Sunwest have stipulated that the security interest is non-purchase money and non-possessory.
. Obviously, the court is not crafting a generalized exemption for personal computers, nor should one be inferred.
. In fact, if they were not, there would be little reason for Congress’ providing a separate subsection for each kind of item.
An examination of the legislative history reveals that Congress did indeed intend the lien-avoidance provision contained in § 522(f)(2)(A) to apply only to those items of little or no resale value. H.R.Rep. No. 595, 95th Cong., 2d Sess. 126-27 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6087-88;
see In re Thompson,
.Sunwest relies on the Oxford English Dictionary for authority that "tool" refers to hand tools and devices which directly “work” something (such as lathe). It further points out that “trade” suggests an artisan or craftsman, someone who works with one’s hands, as distinguished from the “professions,” again finding support in the OED. With the highest regard for this venerable work, the court is more persuaded by the general use dictionaries, because they tend to reflect general usage. As the editors of the American Heritage dictionary observed in their introduction,
To furnish the guidance which we believe to be an essential responsibility of a good dictionary, we have frequently employed usage-context indicators.... But going beyond that, we asked a panel of 100 outstanding speakers and writers a wide range of questions about how the language is used today.... After careful tabulation and analysis of their replies, we have prepared several hundred usage notes to guide readers.... As a consequence, this Dictionary can claim to be more precisely descriptive, in terms of current usage levels, than any heretofore published — especially in offering the reader the lexical opinions of a large group of highly sophisticated fellow citizens.
The American Heritage Dictionary of the English Language (W. Morris, ed.), Introduction, at vii (Houghton Miflin 1970). The OED, by contrast, tends to be more proscriptive in its approach, and also drags along with it usages from years, even centuries, past. When the task is to figure out the plain meaning of a term in a statute, a dictionary which attempts to describe common current usage will probably come closer to describing the sense given to a given term by a member of Congress.
. That common understanding is further bolstered by what else is included in subsection (B) — “implements" (which are usually related to farming or construction, and which are often expensive) and "professional books” (which by designation relate to the practice of a profession as opposed to a "trade”).
. Sunwest’s example is worth repeating. Imagine a table on which sit a computer, a screwdriver and a power drill. Were someone to ask, "Hand me those tools on the table,” she would be surprised indeed were she handed the computer.
. This court has rejected such "well-meaning foray[s] into judicial legislation” before, noting that the role of a bankruptcy judge is to interpret and apply the statute, not to rewrite it or abandon it in favor of equitable policy arguments.
In re Houston,