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In re Patterson

decided: July 30, 1987.

IN THE MATTER OF: RONALD AND MARJORIE PATTERSON, DEBTORS; APPEAL OF: ABBOTSFORD STATE BANK


Appeals from the United States District Court for the Western District of Wisconsin, No. 86 C 287, John C. Shabaz, Judge.

Posner and Coffey, Circuit Judges, and Grant, Senior District Judge.*fn*

Author: Posner

POSNER, Circuit Judge.

This farm bankruptcy case raises questions of interpretation under 11 U.S.C. § 522, the statute that governs the bankrupt's right to take some of his property out of the bankrupt estate and thus keep it after he is discharged from bankruptcy.

Mr. and Mrs. Patterson were engaged in dairy farming in Wisconsin. They rented rather than owned the farmland and buildings (including the house they lived in), but owned the cows and farm equipment, primarily a tractor. Like many midwestern farmers they fell on hard times in the 1980s, and in October 1983 they filed a petition for protection under Chapter 11 of the Bankruptcy Code, which authorizes reorganization under the protection of the bankruptcy court. In December 1985, having decided to quit farming because they couldn't afford feed for their cows, they converted their petition into one for liquidation under Chapter 7. See 11 U.S.C. § 348. They continued to live on the farm they had rented, and a neighboring farmer gave Mr. Patterson a part-time job as a dairy hand.

A month after the conversion, the Pattersons' cows and tractor were auctioned off. The auction netted $24,600, of which 51 cows accounted for $20,300 and the tractor for the rest. Among their debts, the Pattersons owed the Abbotsford State Bank some $82,000; and the bank had a non-purchase-money, nonpossessory lien in the cows and tractor, which it wanted to enforce against the proceeds of the auction. However, the Pattersons' petition to convert their bankruptcy from Chapter 11 to Chapter 7 had asked the bankruptcy judge to exempt all property to which they might be entitled by virtue of section 522(d), and now they moved to set aside the bank's lien to the extent of $17,300 of the proceeds of the auction. The judge granted the petition and motion, thereby entitling the Pattersons to retain this money free of the bank's claim.

The district judge affirmed this ruling except with respect to the cows, which he thought were not tools of the debtors' trade. 64 B.R. 120 (W.D. Wis. 1986). The bank has appealed, and the Pattersons have cross-appealed on the matter of the cows. The bank raises a procedural point that is insubstantial, and a constitutional point that was forfeited by not being argued to the district judge (or to the bankruptcy judge, for that matter).

The substantial issues involve the interpretation of 11 U.S.C. §§ 522(d) and (f). Subsection (d), when read in conjunction with (b)(1), allows the debtor to exempt from bankruptcy (i.e., keep out of the hands of the trustee in bankruptcy), the following property:

(1) The debtor's aggregate interest, not to exceed $7,500 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor's interest, not to exceed $1,200 in value, in one motor vehicle.

(3) The debtor's interest, not to exceed $200 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor's aggregate interest, not to exceed $500 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5) The debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property.

(6) The debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or ...


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