ORDER
Darrell and Rita Woller filed this case in July of 2011. Darrell is an over-the-road truck driver while Rita works for Regal Beloit Corporation. They struggled financially for a number of years before finally filing bankruptcy. Rita’s wages were periodically garnished and she sold some real estate to help support their family. In their schedules the Wollers utilized the Wisconsin exemption statute and claimed various items as exempt. The chapter 7 trustee has objected to their exemption claims for the following items: a semi-tractor valued at $15,000.00, a bank account with a scheduled value of $2,175.00, a retirement annuity of about $49,000.00, and $3,567.06 in income from Darrell’s trucking operation. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), and the Court has jurisdiction under 28 U.S.C. § 1334. The following constitutes the Court’s findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052, as applicable in a contested matter under Fed. R. Bankr.P. 9014(c).
Wis. Stat. § 815.18(3) provides specific exemptions for various categories of property. Some provisions contain specific maximum dollar amounts which may be claimed, while others are only restricted by perceptions of what might be “reasonably necessary” for the support of the debtor or the debtor’s dependents. The statute also provides that spouses are each allowed to claim an exemption and they may combine their exemptions together, effectively doubling the exemption amounts in joint cases. See Wis. Stat. § 815.18(8). These provisions are supposed to be liberally construed so that they “secure their full benefit to the debtor.” See Wis. Stat. § 815.18(1): Opitz v. Brawley,
Essentially, proper construction of the exemption statute requires both an interpretative generosity in favor of the debtors and a simultaneous recognition that the statute reflects a legislative choice to protect certain assets at the expense of others. The Wisconsin Constitution provides the legislature with “broad discretionary powers” to create exemptions for the benefit of debtors. See Wis. Const, art. I, § 17: see also North Side Bank v.
The trustee indicated that he did not believe an evidentiary hearing was necessary to support his objection and the parties submitted the matter to the Court on briefs and stipulated facts. As bankrupt debtors go, the Wollers are relatively fortunate. They have assets to protect and the “fresh start” of the discharge will allow them to eliminate a significant amount of unsecured debt. According to their schedules, they own a home worth about $172,000.00 and only owe about $81,000.00 on their mortgage. It appears that both Darrell’s semi-tractor and another vehicle (a 1999 Dodge Durango) are unencumbered. They have a modest amount of household goods and clothing and small life insurance policies. In addition to the annuity which is the subject of the trustee’s objection, Rita also has a 401(k) account with a balance of about $31,000.00.
They owed approximately $164,000.00 in unsecured debt as of the petition date. Prior to the filing, there were at least five judgments taken against them in the approximate total amount of $66,000.00. The earliest judgment appears to have been entered in September of 2008. The most recent judgment was entered in April of 2011, about three months before the filing. The filing was prompted by the fact that their financial situation had grown more difficult. Creditors garnished Rita’s wages and one judgment holder scheduled a supplementary proceeding in aid of execution which Darrell failed to attend. Rita had previously inherited 40 acres of vacant land from her father and she acknowledges that she did not want to lose it to creditors. In July of 2009, she sold the land and received approximately $62,000.00. The money was deposited into her attorney’s trust account, where it remained for approximately 18 months. A portion of the money was used to pay some creditors and buy a truck for Darrell. In March of 2011, she used the balance of the money to fund the annuity.
Some observers might be troubled by the fact that the Wollers hope to protect almost $200,000.00 in assets even as they extinguish $164,000.00 in unsecured debt through their bankruptcy discharge.
Exemption laws are an essential component to the achievement of that new opportunity, and debtors like the Wollers—peo-ple in difficult financial straits who actually have resources to protect—are the most likely candidates for a successful fresh start. As this Court has observed in another context, the amount of money the debtors hope to shield from creditors is far less relevant than the manner in which they go about doing so. Cirilli v. Bronk (In re Bronk),
1. The Semi-Tractor as Business Property
The debtors listed Darrell’s semi-tractor as community property in their schedules and claimed it as exempt business property under Wis. Stat. § 815.18(3)(b), which permits the debtors to claim “equipment, inventory, farm products and professional books used in the business of the debtor.”
The statute defines equipment as “goods used or bought for use primarily in a business,” while a motor vehicle is defined as a “self-propelled vehicle.” See Wis. Stat. §§ 815.18(2)(f) and (m). As the trustee notes, the statute also provides that (at least for purposes of exemption law), the term “motor vehicle” does not include “equipment.” See Wis. Stat. § 815.18(2)(m). The precise impact of this exclusion is unclear, although the trustee’s interpretation appears to be that all “self-propelled vehicles” must be claimed as motor vehicles rather than as equipment. The Wollers, in contrast, suggest that it simply excludes equipment that might be attached to a vehicle—for example, a hydraulic plow attached to a truck.
Although it mentions motors and self-propulsion, the exemption statute does not define what constitutes a vehicle, which typically means that the Court
Wis. Stat. § 990.01(1) also provides that “technical words and phrases” and words which have “a peculiar meaning in the law” shall be construed according to such meaning.
Context and circumstance may also play a role. For example, the Wisconsin Supreme Court once held that a farm tractor — when operated on public roads — constituted a “motor vehicle” for purposes of certain statutes. See Snorek v. Boyle,
Clearly Darrell’s semi-tractor is a vehicle — and a motor vehicle — as those terms are commonly understood because it is a self-propelled form of conveyance used for the transport of people or goods across the public roads. To the trustee, this means that the semi-tractor must be regarded as a motor vehicle for purposes of Wisconsin’s exemption laws, while the debtors believe they can still claim it as “business property” because it is used in Darrell’s business. The trustee’s argument makes two presumptions: first, that something is either a motor vehicle or equipment; and second, if something qualifies as a motor vehicle, it cannot be considered equipment. The first contention may be true, but the second is far more problematic.
As the Wollers note, numerous cases treat tractors and similar items as equipment or tools of the trade, notwithstanding the fact that they might also fit under the ordinary concept of a “vehicle.” See Thompson,
Resolution of the question whether automobiles and trucks can be trade exemptions must be made upon the facts of each particular case; and the resolution should be based upon their connection with the particular trade or business, not upon their connection with an individual debtor. Thus, where the business is selling real estate, it is reasonable to conclude that an automobile is not reasonably necessary in the trade, even though it may be necessary to a salesperson in pursuing the trade. It is incidental to the trade. The business isselling real estate, not driving an automobile.
Id. at 583.
Other cases also illustrate that the treatment of vehicles as tools of the trade or “implements” is often tied to whether the vehicle in question is necessary to the performance of the particular profession. For example, a plumber’s van did not fall within the protection of the Minnesota trade exemption because the van did not assist the debtor “in the actual performance of his plumbing work” but merely provided the means by which he traveled to work sites. In re Johnson,
Certainly a debtor, in order to be an over-the-road trucker and continue in that field of trucking, would have to have the cab-tractor available to him to make his living as much as any printer would need his printing tools, or an electrician his electrical tools, or any other mechanic the tools used by him in making a living.
In re Pockat,
As the trustee notes, the Wisconsin business property exemption does not specifically reference vehicles. However, this absence seems easily explained. The exemption statute simply defines equipment as “goods used or bought for use primarily in a business.” See Wis. Stat. § 815.18(2)(f).
In fact, one possible explanation for the exclusion of “equipment” from the definition of “motor vehicle” is that items which might otherwise fall under the common definition of “vehicles” should be exempted under the business property exemption when they are held primarily for business use.
For example, in Laube the court liberally construed the Wisconsin exemptions and the definition of a “dwelling” in allowing a semi-tractor to be claimed as a homestead because the debtor demonstrated that he lived in it.
Wisconsin case law directs that when deciding whether items are held “primarily” for personal, family, or household use (as opposed to a “business” purpose), courts are obligated to consider the actual use of the items. See Tralmer Sales and Serv. v. Erickson,
That said, the Court notes that even if the law required treatment of the semi-tractor as a motor vehicle rather than business equipment, it appears that the debtors would be able to amend their motor vehicle exemption to protect their equity interest. The trustee cannot have it both ways: either the semi-tractor is “equipment” and may be exempted as business property, or it is a “motor vehicle.” According to their schedules, they have only claimed $1,800.00 of their available consumer goods exemption. The joint remaining balance available to them under that exemption is $22,200.00. Pursuant to Wis. Stat. § 815.18(3)(g), the unused portion of the consumer goods exemption may be added to increase the aggregate exempt value of the motor vehicle exemption. Together, that amount is more than sufficient to exempt the value of the semi-tractor.
II. The Bank Account: Business or Personal?
The second disputed exemption is for the funds held in a bank account. Darrell is a truck driver and works as an independent contractor. His truck driving fees were deposited into one bank account and then transferred to another account used for personal or family expenses. Wis. Stat. § 815.18(3)(k) provides an exemption for depository accounts in the amount of $5,000.00, but “only to the extent that the account is for the debtor’s personal use and is not used as a business account.” The trustee contends that the bank account—which was apparently exclusively used for the deposit of Darrell’s receipts from his profession—is a business account and cannot be exempted under this section.
As indicated previously, when deciding whether items are held “primarily” for personal, family, or household use (as opposed to a “business” purpose), courts are obligated to consider the actual use of the items. See Tralmer Sales,
The Court agrees with the trustee that this initial account appears to be business-related and would not qualify for exemption. Darrell did not use the account for personal use. He simply deposited his trucking fees into the account. In their schedules, the Wollers indicated that there was $2,175.00 in this account. In their briefs, they allege that on the date of filing there was actually only $100.00 in the account, as the balance had been previously transferred to their personal account in accordance with their customary practice. They have supplied the Court with a bank account statement supporting this contention. To the extent that the funds were held in a personal account on the date of filing (i.e., the second or transferee account), it appears the Wollers would be entitled to exempt them under Wis. Stat. § 815.18(3)(k). That account satisfies the statutory requirement that it is “for the debtor’s personal use” as the money deposited into the account was principally used to pay general living expenses. The exemption of the business account is disallowed, but the trustee may only recover the amount actually in the account on the date of filing.
III. Trucking Receipts as Net Income
The next objection relates to an exemption for $3,567.06 generated from Darrell’s trucking operation. According to the debtors, this was the amount Darrell was owed for work performed prior to the bankruptcy filing. The debtors did not initially claim these amounts as exempt but have now done so. They believe that they can claim this amount as exempt under Wis. Stat. § 815.18(3)(h), which permits debtors to exempt 75% of their net income for “each one week pay period.” Under Wis. Stat. § 815.18(2)(n), “net income” is defined.as gross receipts “paid or payable for personal services or derived from rents, dividends, or interest.” The trustee contends that this statute protects wages, not an account receivable owed to an independent contractor.
As with the discussion of the meaning of a motor vehicle, it is necessary to consider the “common and approved usage” of the phrase “personal services.” See Wis. Stat. § 990.01(1). A personal service is “an act done personally by an individual.” Black’s Law Dictionary 1180 (8th ed. 1999). It is also described as “an economic service involving either the intellectual or manual personal effort of an individual, as opposed to the salable product of the person’s skill.” Id. One online dictionary describes the concept of personal services in the context of contract law as “the talents of a person which are unusual, special or unique and cannot be performed exactly the same by another.”
With their brief the debtors filed a copy of a document titled “accounts payable open invoice report” from Goeman Trucking, Ltd. This report appears to cover the two-week period prior to the filing. It shows two invoice dates for Darrell’s
The debtors contend that the statute does not limit “income” to “wages” from employment. Certainly the statute includes passive sources of income such as rents, dividends, or interest. As the debtors note, Wis. Stat. § 812.18(2m)(b) provides that in the context of a garnishment action, the garnishee is expected to pay the defendant “any exempt amount” under Wis. Stat. § 815.18(3)(h) from the proceeds of crops, livestock, dairy products, or the like. The debtors argue that if a dairy farmer is entitled to exempt 75% of his weekly milk check from garnishment, a trucker ought to be able to exempt his freight charges. But at the same time it must be acknowledged that to the extent that the garnishment statute protects non-employment income, it is limited by its own terms to “the sale of crops, livestock, dairy products or another product grown or produced by a person or by his or her minor children.” See Wis. Stat. § 812.18(2m)(b). This means that to the extent the two statutes should be read together, there is clear statutory support for a net income exemption which covers the following things: (i) receipts payable for “personal services”; (ii) receipts derived from rents, dividends, or interest; and (iii) the proceeds of the sale of crops, livestock, dairy products, or another similar product.
The debtors cite several cases in support of the proposition that exemption provisions like Wisconsin’s “net income” exemption cover the income of independent contractors as well as employees. For example, in one recent case an Arizona bankruptcy court concluded that the state’s exemption scheme protected compensation for personal services “regardless of whether it is in the form of wages earned by an employee or a commission earned by an independent contractor.” In re Roetman,
Obviously, the Wisconsin statute varies linguistically from the Arizona statute. For purposes of the present dispute, Wis. Stat. § 815.18(2)(n) defines net income simply as “gross receipts” which are paid or payable for “personal services.” One has no doubt that Darrell was owed the invoiced amount as of the date of filing (rendering the money “payable”). The statute does not define “gross receipts,” although that is presumably a reference to the total amount received by the debtor. As indicated previously, “personal services” relate to the efforts (or labor) of an individual. Darrell’s individual labor created the funds paid by the trucking company. Under the facts of this case, the Court finds it appropriate to view this as “net income.” The exemption is granted, although the debtors are obligated to justify their calculation of the total “net income” which can be exempted.
IV. The Annuity
Finally, the trustee contends that the exemption for the annuity should be denied. The Wollers acknowledge that the annuity was funded with money received from the sale of real property Rita inherited from her father. The funds were held in her attorney’s trust account for approximately 18 months before they were transferred into the annuity. The annuity was funded only a few months before the case was filed. The trustee objects to the exemption because the annuity does not provide benefits “by reason of age, illness, disability or death” as required by the statute, and that the exemption should be limited to $4,000.00 because the annuity was created within two years of the bankruptcy filing. In the alternative, the trustee says that the debtors obtained the annuity through fraudulent conduct and the exemption should be denied.
Wis. Stat. § 815.18(3)(j) provides an exemption for retirement benefits that allows debtors to exempt “assets held or amounts payable” under anything “similar” to a retirement plan which provides benefits “by reason of age, illness, disability, death or length of service.” The statute expressly includes annuities. It also states that the plan or contract must comply “with the provisions of the internal revenue code.” The trustee contends that the annuity in this case is not intended to provide benefits for retirement, but rather simply serves as a place to “park” the funds during bankruptcy. He also argues that the annuity does not provide benefits “by reason of’ age, illness, or the like. This Court has previously ruled that an annuity qualifies for the exemption under Wis. Stat. § 815.18(3)(j) as long as it satisfies the general provisions of the internal revenue code regarding tax-deferred status. See In re Bruski,
The Wollers note that this annuity complies with section 72 of the IRC, a fact that the trustee does not appear to dispute. It is also structured to provide payments over time and is envisioned as a mechanism to provide the debtors with something for later in life. It is a retirement annuity that satisfies the requirements of the IRC regarding the deferral of taxes. The Wisconsin legislature did not expressly mandate compliance with the requirements of §§ 401^109 of the IRC (which cover pension, profit-sharing, stock bonus,
Further, this Court has also rejected the idea that an annuity which qualifies under § 815.18(3)(j) is subject to the limitations found in § 815.18(3)(f). See Cirilli v. Bronk (In re Bronk),
However, an otherwise valid exemption may still be denied under Wis. Stat. § 815.18(10) if the debtor is found to have “procured, concealed, or transferred assets with the intention of defrauding creditors.” See In re Vangen,
In Bronk, this Court reviewed the case law regarding the denial of a debtor’s exemption claims. Under relevant Seventh Circuit precedent, so-called exemption planning only rises to the level of fraudulent conduct if there is evidence that the debtor committed some act “extrinsic to the conversion” which hinders, delays, or defrauds creditors. In re Smiley,
After all, the use of exemptions is at least a legitimate form of asset protection, and debtors should only be penalized when they go beyond taking advantage of the exemption laws themselves. In Smiley, for example, the debtor was able to forestall creditors from filing an involuntary petition against him by misrepresenting both the value of his assets and his intentions; this gave him the breathing room necessary to establish residency in Kansas and claim the Kansas homestead exemption. This conduct — and a pattern of “sharp dealing” — -justified a finding that he acted to hinder or delay creditors.
While the trustee raises some questions about the Wollers’ conduct, the Court finds that there is not sufficient evidence of “extrinsic” activity which was actually intended to hold creditors at bay while the Wollers purchased the annuity. They admit that the sale proceeds were held by a lawyer for about 18 months before the money was placed in the annuity. But there is no evidence that they made any attempt to hide the sale from creditors or to forestall creditors from inquiring about the funds. In First Tex. Sav. Ass’n v. Reed (In re Reed),
Accordingly,
IT IS ORDERED that the trustee’s objection is denied as to the exemption of the semi-tractor, the net income from Darrell’s trucking services, and the annuity. The objection is sustained as to the business account, although the trustee may only recover the amount actually in the business account on the date of filing.
Notes
. The total of exempt assets includes the approximately $90,000.00 in equity in their home (protected by Wisconsin's homestead exemption), the $31,000.00 in Rita's 401(k) (protected by Wisconsin’s exemption for retirement benefits), their life insurance policies (totaling about $8,000.00 and protected by the exemption for life insurance), and the 1999 Dodge Durango (valued at $3,775.00). The trustee has not objected to these exemptions. He has objected to additional exemptions which total approximately $70,000.00.
. The current aggregate limit on this exemption is $15,000.00, or $30,000.00 in a joint case.
. Under Wis. Stat § 815.18(3)(g), joint debtors may exempt motor vehicles with an aggregate value of $8,000.00, plus any unused portion of the "consumer goods” exemption available under another subsection of the statute. The Wollers have already used roughly $4,000.00 of this exemption to cover a 1999 Dodge Durango valued at $3,775.00 and approximately $300.00 of equity in a 2002 Chevrolet TrailBlazer which was otherwise subject to a valid lien.
. Indeed, according to Wikipedia — that massive Internet compendium of information— vehicles are "mobile machines” which are "designed or used to transport people or cargo,” and include bicycles, cars, motorcycles, trains, ships, boats, and aircraft. See http:// www.en.wikipedia.org/wiki/vehicle (last accessed May 31, 2012).
. In this context, peculiar as in “specific,” rather than "odd."
. This definition is for purposes of title and vehicle registration. The same statute describes a motor vehicle as a vehicle which is self-propelled and incorporates all commercial motor vehicles and vehicles which are "propelled by electric power obtained from overhead trolley wires but not operated on rails.” Wis. Stat. § 340.01(35). It also provides that snowmobiles and all-terrain vehicles "shall only be considered motor vehicles for purposes made specifically applicable by statute.” Id.
.For example, Wis. Stat. § 344.01(2)(b) defines “motor vehicle” for purposes of financial responsibility and excludes "farm tractors, well drillers, road machinery or snowmobiles.” However, chapter 346 of the Wisconsin statutes, which deals with the "rules of the road,” reverts to use of the definitions found in Wis. Stat. § 340.01 (i.e., the one that does not exclude tractors, well drillers, or road machinery). In addition, Wis. Stat. § 346.02 provides that certain rules apply to snowmobiles, all-terrain vehicles, and “personal assistive mobility devices.”
. The court also interpreted "motor vehicle” according to its ordinary and accepted meaning, observing that the term was commonly used "to describe vehicles propelled by motor power on land, of the nature of the automobile, motor truck and motorcycle.” Snorek,
. As will be seen, resolution of this case does not require a precise delineation of the motor vehicle exemption, and the Court declines to make the attempt.
. Even when a vehicle is used in the performance of official duties, it may not be a tool of the trade. See Bank of Edgar v. Nowak (In re Nowak),
. As with many of these cases, the debtor in Pockat utilized the federal exemption for "implements” or “tools of the trade” and the case involved the question of lien avoidance under 11 U.S.C. § 522(f). As such, it is not controlling as to the interpretation of Wisconsin's exemptions, even though the basic observation about the importance of a semi-tractor to a truck driver is well taken.
.Intriguingly, two other components of the business property exemption-farm products and inventory — are defined by relation to the Uniform Commercial Code. See Wis. Stat. §§ 815.18(2)(i)and (j). The UCC defines equipment somewhat vaguely as goods other than inventory, farm products, or consumer goods. See Wis. Stat. § 409.102(i). Apparently, the Wisconsin legislature decided that the exemption statute should clearly identify that "equipment” requires a business use, rather than simply rely upon the UCC’s negative inference (under the UCC, consumer goods are held for personal, family, or household purposes; by definition, "equipment” must therefore be held for a non-consumer purpose).
. Perhaps the legislature contemplated that the motor vehicle exemption would be generally used by debtors to protect their means of personal transportation or other self-propelled vehicles held for personal use. Such an interpretation would be consistent with the fact that any unused portion of the consumer goods exemption found in Wis. Stat. § 815.18(3)(d) may be added to the motor vehicle exemption. See Wis. Stat. § 815.18(3)(g). Regardless, the exclusion of "equipment” from the definition of "motor vehicle” does not justify a corresponding limitation on the definition of "equipment.” The only statutory restriction on the type of "goods” which can be "equipment” is the actual use of the item.
. The Wollers claimed the semi-tractor as community property on their schedules and the trustee has not alleged that it should be regarded as Darrell’s separate property. The fact that Rita has little, if any, involvement in Darrell’s trucking business would seemingly have no bearing on whether she can claim a motor vehicle exemption in community property, even if it might impact her ability to claim a "business property” exemption.
. "Personal Services," http://legal-dictionary.thefreedictionary.com/personal + services (last accessed June 8, 2012).
. Given that Darrell operates as an independent contractor, it appears he is personally responsible for payment of taxes and that there are no “federal and state tax deductions required by law to be withheld” from his gross receipts. However, the nature of the two offsets (which are cryptically referenced as "T-CHEK” on the invoice report) may be relevant in determining the true "gross receipts” payable to Darrell. If, for example, part of Darrell’s contract requires that he pay certain business-related charges, it would seem that the amount "payable” to him would be $3,567.06 and the debtors could only exempt 75% of that amount (i.e., $2,675.30). For purposes of this decision, the question is whether the Wollers may claim any of this money as "net income,” not the precise calculation of the exemption.
. When the matter was argued, the Court initially considered this to be an account receivable. Further review of the nature of "personal services,” however, justified reconsideration and a decision that the debtors were entitled to the exemption.