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13.2.5 Validity Under State Constitutions

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  4. 13.2 Constitutionality and Validity of Exemption Laws
  5. 13.2.5 Validity Under State Constitutions

13.2.5 Validity Under State Constitutions

In many states certain exemptions, most commonly the homestead exemption, are found in the state constitution. A constitutional exemption will be less subject to waiver or loss than a statutory exemption, and a statute that limits a constitutional exemption is likely to be found invalid.39 Some courts have also struck down statutory exemptions that were more generous than those in the state constitution.40 An unlimited exemption may violate a state constitutional provision for “reasonable” exemptions but can usually be saved by reading in a requirement that the amount exempted be reasonably necessary for the support of the debtor and dependents.41

Application of an increased exemption amount did not violate a state constitution’s prohibition of retroactive laws when the pre-amendment version of the exemption statute built in a reference to future changes by providing that the amount of the exemption would be determined at the time of a forced sale or bankruptcy filing.42

Footnotes

  • 39 Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) (legislature is powerless to subject constitutional homestead exemption to fraudulent transfer statute); Torgelson v. 17138 88th Ave., 749 N.W.2d 24 (Minn. 2008) (Minnesota’s constitutional homestead exemption, which protects against “debts or liabilities of every kind or description without exception,” bars state drug law forfeiture of homestead); Household Fin. Corp. v. Ellis, 419 S.E.2d 592 (N.C. Ct. App. 1992) (statute unconstitutional to extent it limits the claiming of constitutional exemptions to twenty days after service of notice), aff’d, 429 S.E.2d 716 (N.C. 1993) (per curiam); State v. One 1965 Red Chevrolet Pickup, 37 P.3d 815 (Okla. 2001) (home but not vehicle exempt from state criminal law forfeiture; homestead exemption found in state constitution, motor vehicle exemption and forfeiture provisions are statutory). See also Chames v. DeMayo, 972 So. 2d 850 (Fla. 2007) (waiver of homestead requires mortgage formalities; waiver in unsecured, adhesive contract was unenforceable because it is against public policy that waivers of constitutional rights must be knowing, intelligent, and voluntary).

  • 40 In re Holt, 894 F.2d 1005 (8th Cir. 1990) (statutory exemptions are limited by the lower ceilings in the Arkansas Constitution). But cf. Clinical Study Ctrs., Inc. v. Boellner, 411 S.W.3d 695 (Ark. 2012) (Arkansas exemption for IRAs does not violate state constitutional limit on personal property exemptions; exemption for specified type of fund, as opposed to unlimited exemption of personal property, is permissible).

  • 41 In re Cross, 255 B.R. 25 (Bankr. N.D. Ind. 2000) (unlimited exemptions violate state constitution unless debtor shows exemption is needed for necessities of life); Citizens’ Nat’l Bank v. Foster, 668 N.E.2d 1236 (Ind. 1996) (exemption for individual retirement accounts, which were limited by federal tax law, satisfied state constitutional provision for “reasonable” exemptions, but unlimited exemption for life insurance was questionable; debtor must show “reasonable necessity” of amount claimed); Estate of Jones by Blume v. Kvamme, 529 N.W.2d 335 (Minn. 1995) (exemption for individual retirement accounts and certain employee benefits that had no limit on amount and no reference to needs of debtor and family violated Minnesota constitutional provision requiring “reasonable exemptions”); In re Davis, 681 N.W.2d 452 (S.D. 2004) (increased homestead exemption for persons seventy or over permissible, but unlimited exemption violated state constitutional requirement of reasonable exemptions; legislature must provide cap). See also In re Bannourah, 201 B.R. 954 (Bankr. S.D. Ind. 1996) (state insurance policy exemption, construed so as to avoid state constitutional problem, exempted amount required to afford the necessities of life). But see In re Reiland, 377 B.R. 232 (Bankr. D. Minn. 2007) (unlimited exemption for disability insurance cannot be saved; reasonable exemption must prescribe dollar amount, objective criteria, or reference to other statute creating limits), vacated as moot, 2008 WL 4876758 (D. Minn. Nov. 12, 2008); In re Craig, 545 N.W.2d 764 (N.D. 1996) (limitation of $100,000 per item, $200,000 total for life insurance policies and certain retirement funds was reasonable within meaning of state constitution, which would bar an unlimited exemption).

  • 42 In re Davis, 539 B.R. 334 (Bankr. S.D. Ohio 2015).