Associates Financial Services Co. v. Dahdah (In Re Dahdah) , 1982 Bankr. LEXIS 4579 ( 1982 )

OPINION

Before KATZ, GEORGE and HUGHES, Bankruptcy Judges.

KATZ, Bankruptcy Judge:

Esperanza and Hugo Dahdah, a married couple, filed a Chapter 7 petition as joint debtors. She elected the California exemptions; he chose the federal exemptions. All the household furnishings were claimed by Ms. Dahdah under California Code of Civil Procedure Section 690.1.

Appellant Associates Financial Services Co. (Associates), a creditor of the Dahdahs, filed an objection to the exemptions claimed and at trial raised other objections. The trial court found in favor of the Dahdahs on all contested matters. Appeal was taken on three issues. The Panel affirms the holdings of the trial court.

The first issue raised is the propriety of the election and stacking of federal and state homesteads. This Panel recently analyzed this situation in In re Ageton, 14 B.R. 883 (Bkrtcy.App.1981). Although Ageton involved Arizona homestead law, the rationale developed there is fully applicable here. Hence that issue has been resolved in favor of the debtors. See In the Matter of Cannady, et al., 653 F.2d 210, 4.

In the absence of state law prohibiting the election of the federal exemptions of § 522(d), the policies of liberal construction of the exemptions and a fresh start for joint debtors requires that each joint debtor be allowed to elect federal or state exemptions independently pursuant to § 522(m). Just as the personal property exemptions are cumulatively applied to withdraw property from the estate, so too are the homestead exemptions applied to the residential real property. Therefore, the election and stacking of federal and California homesteads were proper.

The second issue concerns whether California Code of Civil Procedure Section 690.52 limits the exemptions available to a debtor who elects the state exemptions. Associates asserts that election of the state exemptions subjects the debtor to all limitations therein. The debtors believe that 11 U.S.C. § 522(f) allows a debtor to alter a state exemption scheme. We believe the debtors are correct.

The bulk of the California exemptions available to a debtor are found in Code of Civil Procedure Sections 690 to 690.29. Section 690 describes the statutory scheme: “Except as otherwise specifically provided, the property mentioned in Sections 690.1 to 690.29, inclusive, is exempt from execution when claim for exemption is made. . . . ” A primary limitation on exemption is Section 690.52: “No article, however, or species of property, mentioned in Sections 690.1 to 690.29, inclusive, of this Code is exempt from execution issued upon a judgment recovered for its price, or upon a judgment of foreclosure of a mortgage or other lien thereon.” Associates argues that the Section 690.52 limitation on exemption applies here and limits a debtor’s ability to exempt property under 11 U.S.C. § 522(b)(2). Their proposition is that the Code cannot give more than the state law. This view is erroneous, for it overlooks the potent effect of pairing the Supremacy Clause of the Constitution with 11 U.S.C. § 522(f).

The Supremacy Clause gives effect to federal law when it conflicts with state law. State law is suspended, and the federal law is applied. Section 522(f) allows a debtor to avoid the fixing of a lien on otherwise exempt property if the lien is judicial or nonpossessory, nonpurchase-money security interest in the debtor’s household furnishings and goods. As described in In re Pape, 7 B.R. 443 (Bkrtcy.1980), these liens are avoidable if the property would be exempt but for the lien. In other terms, where such a lien works a waiver of exemption, the debtor can receive the full exemption without restriction because the Code will not recognize a waiver resulting from either lien.

Section 690.52 denies the debtor the right in California to exempt property from execution on a judgment for a lien thereon. That section is at best a waiver of exemption which is not enforceable in bankruptcy. Here, Associates admits that its interest in the furniture is nonpossessory and nonpur-chase-money. In California, Associates has a claim on the furniture which the debtors cannot avoid. In the bankruptcy court, the debtor is not similarly disadvantaged. Associates has precisely the lien on household furnishings which § 522(f) allows the debt- or to avoid. Their property, but for the lien, is exempt. Therefore, the fixing of the lien can be and has been avoided and the exemption restored.

Finally, Associates argues that Ms. Dahdah cannot claim an exemption for all the household furnishings because Mr. Dahdah technically owns a one-half interest therein. Apparently the property was acquired during marriage. If so, it is presumptively community property under California Civil Code § 5110.

A spouse is limited by community property law in what he or she can exempt under § 522(d). In re Skipworth, 9 B.R. 730 (1981), held that a joint debtor could only exempt one-half of any community property claimed under § 522(d)(5). This subsection allows the exemption of “the debtor’s aggregate interest” in any property. Judge Meyers held that California law vested in one spouse a one-half interest in community property. Therefore, one spouse’s aggregate interest for § 522(d) purposes cannot exceed 50 percent of value. Associates claims that similar restrictions operate when the California exemptions are applied. This claim is erroneous.

At issue here is the exemption of all household furniture by one spouse under California Code of Civil Procedure Section 690.1. This exemption protects: “Necessary household furnishings and appliances and wearing apparel, ordinarily and reasonably necessary to, and personally used by, the debtor and his resident family. .. . ” No community property limitation appears in the statute. Once reasonable necessity and personal use by the debtor and family are established, no attack is possible on the exemption. Associates argues that only “vested property rights” can be exempted. This overlooks the provisions of the California statute. The focus is on family need and use in establishing the exemption, not on the debtor as an individual. Associates’ argument has no basis. We read this section to allow Ms. Dahdah to exempt all necessary household furnishings used by herself and her family.

Affirmed.