Friday, February 16, 2007

Response to JM's Exemption Suggestions

Reader JM asked me to comment on some suggested changes that he proposed in Oklahoma exemptions in light on the BAPCPA changes in bankruptcy law. Here are his suggestions that he posted on a Okie 100 website and my responses.

1. Abolish wage garnishments — Many states don’t have them (including Texas) and they get by just fine.

I would rather exempt the first, say, $2000 per month of wages and salary from creditors, and index it for inflation. This insures that a person has enough income to pay for some kind of housing, food, insurance, health care, utilities and the like. Currently, Oklahoma law allows a worker to exempt the first 75% of wages, but if someone is making only $1000 per month (full-time minimum wage, roughly) then a $250 garnishment (plus $5 fee) has more impact than 25% from someone making $10,000 per month.

2. Double the exemption amounts for tools of the trade and farm equipment.

This was implemented last year, if I remember correctly. The exemption was $5K, now it is $10K, if I remember it correctly. Interesting story: my law school classmate, Clark Jolley, who is now a State Senator, became a bankruptcy lawyer after law school. He is a hardcore conservative on every issue except on the bankruptcy deform. It has been my observation in life that people tend to become politically progressive in areas where they have life experiences. The only exception to that is when you become a victim of crime, then you have a tendency to become "lock 'em up and throw away the key" on your own case. (See my post Lex Taliones.) Revenge may be a powerful motivator, but it can be just as destructive.

3. Add an exemption for inventory for small businesses.

There is no practical way to implement this. Furthermore, it is too open to fraud and abuse by less-than-honorable people. The current ability to create a business as a corporation (within the time limits of bankruptcy law) is plenty of protection.

4. Increase the urban homestead exemption to 10 acres (to protect small truck farms that are located in OKC & Tulsa city limits).

Oklahoma law currently exempts 1 acre of land within city limits. The one area where people are punished is when they own manufactured homes. Zoning requirements mandate 5 acres for manufactured homes (at least the last time I checked). I think it would be better to reduce the zoning requirement to 1 acre so as not to waste so much space for a manufactured home.

See Oklahoma's exemptions here.

Actually, Oklahoma is considered to have the 3rd best exemptions in the country behind Texas and Florida. No one ever moved here to file bankruptcy under the previous law because our property values aren't great compared to south Florida or certain parts of Texas. The new law effectively did away with that kind of forum shopping because it changes the length of time required to reside in a state to take advantage of its exemptions. So if you think that Oklahoma's exemptions are weak, you ought to see other states' exemptions!

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