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13.2.2 Due Process and the Taking of Property

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  3. Chapter 13 Enforcement of Judgments: General Principles, Constitutional Issues
  4. 13.2 Constitutionality and Validity of Exemption Laws
  5. 13.2.2 Due Process and the Taking of Property

13.2.2 Due Process and the Taking of Property

Most courts agree that application of increased exemption amounts is not a taking of property without just compensation in violation of the Fifth Amendment, which is applied to the states through the Due Process Clause.24 A statutory “program adjusting the benefits and burdens of economic life to promote the common good” will be more deferentially reviewed than a physical taking.25 Courts will first decide whether an economic expectancy is solid enough to be treated as a property right protected by the takings clause and, if so, whether a statute’s impact is sufficiently serious to constitute a taking. As with impairment of contract claims, reasonable expectations are a key issue.26

An unsecured creditor’s hope that a debtor’s non-exempt property will be sufficient to cover the debt is generally not a property right.27 Even a judgment lien that has attached to specific property may not be protected.28 A security interest is more likely to be protected.29 Even if a property right is found, courts will weigh the severity of the impact against the public purpose served by the statute and may find a permissible adjustment of economic benefits and burdens, rather than a taking.30

Application of a new exemption statute to cases pending on the date of enactment is not a violation of due process.31 Whether garnishment and execution procedures comply with due process requirements is discussed in § 13.5, infra.

Footnotes

  • 24 1256 Hertel Ave. Assocs., L.L.C. v. Calloway, 761 F.3d 252 (2d Cir. 2014) (applying new exemption amount when statute changed between date on which lien was perfected and petition date; no taking when purpose of statute was to correct outdated exemption that was “tantamount to no exemption” and creditor could expect changes because 150-year-old statute had been periodically updated to reflect social and economic changes); In re McDole, 2008 WL 4330777 (W.D. Wash. Sept. 18, 2008) (increased homestead amount not a taking; creditor’s rights were subject to changes in state law); In re Davis, 539 B.R. 334 (Bankr. S.D. Ohio 2015) (judgment lien is protected property right, but no taking when increased exemption does not destroy all value of lien, and reasonable creditor should expect changes to exemptions); In re Trudell, 381 B.R. 441 (Bankr. W.D.N.Y. 2008) (application of increased homestead to avoid preexisting judgment lien not a taking; lien not a “vested right” under New York law); In re Brown, 2007 WL 2120380 (Bankr. N.D.N.Y. July 23, 2007) (increase of homestead amount made unrealistic by inflation simply adjusted economic benefits and burdens and served important public purpose; no unconstitutional taking); In re Larson, 260 B.R. 174 (Bankr. D. Colo. 2001) (security interest is property, but impairment, which resulted from “adjustment of benefits and burdens,” not severe enough to equal taking); In re Bartlett, 168 B.R. 488 (Bankr. D.N.H. 1994) (judicial liens; impairment was reasonable in light of public policy of bankruptcy and exemption laws; creditor did not have property right in assumption that collateral would be sufficient to pay off loan); In re Punke, 68 B.R. 936 (Bankr. N.D. Iowa 1987) (application of new exemption amounts to preexisting debts not a taking; statute adjusted benefits and burdens; change was within reasonable expectations of creditors). But see In re Sticha, 60 B.R. 717 (Bankr. D. Minn. 1986) (security interest in specific property); In re Fossum, 59 B.R. 820 (Bankr. D. Minn. 1986) (same).

  • 25 Pa. Cent. Transp. Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978).

  • 26 Hertel Ave. Assocs., L.L.C. v. Calloway, 761 F.3d 252 (2d Cir. 2014) (creditor could not reasonably expect exemption to remain unchanged); In re McDole, 2008 WL 4330777 (W.D. Wash. Sept. 18, 2008) (increased homestead amount not a surprise); In re Trudell, 381 B.R. 441 (Bankr. W.D.N.Y. 2008) (application of predictably increased homestead to avoid preexisting judgment lien not a taking); In re Betz, 273 B.R. 313 (Bankr. D. Mass. 2002); In re Johnson, 69 B.R. 988 (Bankr. D. Minn. 1987) (bank could not reasonably expect that exemption laws would remain unchanged).

  • 27 In re Varanasi, 394 B.R. 430 (Bankr. S.D. Ohio 2008); In re Johnson, 69 B.R. 988 (Bankr. D. Minn. 1987).

  • 28 In re McDole, 2008 WL 4330777 (W.D. Wash. Sept. 18, 2008) (judgment lien not vested right); In re Calloway, 423 B.R. 627 (Bankr. W.D.N.Y. 2010) (judgment lien not a vested property right under New York law; application of increased homestead limit to judgment lien perfected before effective date of amendment not unconstitutional taking); In re Trudell, 381 B.R. 441 (Bankr. W.D.N.Y. 2008) (judgment lien not a vested right under New York law); In re Longey, 2008 WL 2074041 (Bankr. W.D. Wash. May 14, 2008) (judgment lien not a vested right; allowing retroactive application of increased homestead, but distinguishing cases in which lien was completely eliminated). See also In re Davis, 539 B.R. 334 (Bankr. S.D. Ohio 2015) (lien is a property right, but no violation of state constitution’s prohibition of retroactive laws when pre-amendment exemption statute provided that amount of exemption would be determined at the time of forced sale or bankruptcy filing); In re Bartlett, 168 B.R. 488 (Bankr. D.N.H. 1994) (judicial liens; creditor did not have property right in assumption that collateral would be sufficient to pay off loan). But cf. State ex rel. Six v. Mike W. Graham & Assocs., 220 P.3d 1105 (Kan. Ct. App. Dec. 4, 2009) (statute that retroactively invalidated judgment liens on cemeteries is unconstitutional).

  • 29 In re Larson, 260 B.R. 174 (Bankr. D. Colo. 2001) (security interest is property); In re Sticha, 60 B.R. 717 (Bankr. D. Minn. 1986) (security interest in specific property).

  • 30 See, e.g., In re Brown, 2007 WL 2120380 (Bankr. N.D.N.Y. July 23, 2007) (adjustment of homestead amount made unrealistic by inflation served important public purpose), aff’d, 2007 WL 4560671 (N.D.N.Y. Dec. 18, 2007); In re Larson, 260 B.R. 174 (Bankr. D. Colo. 2001) (security interests were property but impairment here, which resulted from an adjustment of economic benefits and burdens, did not have sufficient impact to be a taking).

  • 31 Reliance Ins. Co. v. Ziegler, 938 F.2d 781 (7th Cir. 1991). See also In re Starns, 52 B.R. 405 (S.D. Tex. 1985) (rejecting debtor’s due process challenge to amendment to Texas exemption statute that protected more property for most debtors but, as applied, disadvantaged this debtor).