Under the Bankruptcy Act of 1898, the title to property of a
bankrupt which is generally exempted by the law of the state in
which the bankrupt resides, remains in the bankrupt, and does not
pass to the trustee, and the bankrupt court has no power to
administer such property even if the bankrupt has, under a law of
the state, waived his exemption in favor of certain of his
creditors.
The fact that the act confers upon the bankruptcy court
authority to control exempt property in order to set it aside does
not mean that the court can administer and distribute it as an
asset of the estate. The two provisions of the statute must be
construed together, and both be given effect.
The discharge of the bankrupt, however, can be withheld until a
reasonable time has elapsed to enable creditors to assert in a
state court their rights to subject exempt property in satisfaction
of their claims under waivers given as security therefor by the
bankrupt.
In this proceeding, upon certain questions being certified by
the United States Circuit Court of Appeals for the Fifth Circuit
for decision by this Court, a writ of certiorari was allowed, and
the entire record has been brought up for consideration.
The controversy is fully set forth in the following "statement
of case," embodied in the certificate of the circuit court of
appeals:
"On the 23d day of November, 1900, said Joel W. Lockwood was, on
his application, duly adjudged a bankrupt by the District Court of
the United States for the Southern District of Georgia. On December
6, 1900, F. T. Rape was duly appointed trustee for said bankrupt;
on the 16th day of December, 1900, the said F. T. Rape, trustee,
set aside and designated as an exemption all of the property
returned by the said bankrupt in his schedule of assets. On the 1st
day of January, 1901, the Exchange Bank of Fort Valley, a creditor
who had duly proven its debt as an unsecured claim, filed
exceptions to the trustee's
Page 190 U. S. 295
assignment of homestead and exemption upon the following
grounds:"
" (
a) That said creditor held a contract against the
bankrupt in which said bankrupt specially waived and renounced all
right to the homestead exemption allowed by the laws of Georgia or
the United States. Said waiver is contained in a note constituting
contract of indebtedness, and was made in accordance with the
provisions of the constitution and laws of said state, authorizing
and empowering the debtor to waive and renounce in writing his
right to the benefit of the exemption provided for by the
Constitution and laws of said state."
" (
b) That creditor's debt was unsecured, save and
except so far as a waiver of homestead and exemption may be
construed as a security."
" (
c) That the trustee has set apart all the property
of said bankrupt returned by him in bankruptcy."
" (
d) Under the laws of Georgia, the debtor's exemption
cannot be subjected to the payment of a debt containing a waiver of
homestead except by putting said debt in judgment, and afterwards
causing execution to issue thereon to be levied on the exempt
property, in accordance with the provisions of sections 2850
et
seq. of the Code of Georgia. If bankrupt court should approve
trustee's assignment in this case, without reserving to petitioner
the right to sue his claim and put same in judgment and without
itself giving judgment for said debt, creditor would be left
without means of enforcing his rights created and arising out of
the aforesaid waiver, and would be without remedy."
"(e) Creditor therefore prays equitable relief and such decree
as will protect his rights; that the homestead be set aside and
trustee be required to take charge of and administer the property
of said bankrupt so set apart, except so much as cannot be waived,
for the benefit of creditors holding waiver contracts."
"To these exceptions of the creditor, the bankrupt duly filed a
demurrer on the following grounds:"
" (a) That said exceptions are wholly insufficient in law to
defeat the report of the trustee. "
Page 190 U. S. 296
" (b) That the exceptions made are not such as, under the laws
of Georgia, will defeat the setting apart of the exemption, and
furnish no reason why the trustee should not assign the
exemption."
" (c) That the bankrupt court has no jurisdiction over exempted
property, and no authority to administer the same."
" (d) That there is no authority of law for the exceptions made,
nor for the relief sought."
"The referee, Honorable Shelby Myrick, overruled the aforesaid
demurrer and directed the trustee to carve out of the said
exemption of property a portion of the same, amounting to $300.00,
which was to be free from the claims of all creditors. The residue
of the exempted property was to be sold, and the proceeds held by
the trustee for the benefit of creditors holding waiver notes. The
bankrupt was ordered to yield possession to the trustee for the
purpose of carrying out this order. The referee, at the request of
bankrupt, certified the record in said case, together with his
decision thereon, to the Honorable Emory Speer, judge of the
district court of said district, for final determination. On the
30th March, 1901, said case came on regularly to be tried before
said district judge, and, after hearing argument of counsel, his
honor Judge Emory Speer held and decided and adjudged the aforesaid
exceptions to the determinations and report of the trustee be
sustained, and that the exemptions set apart by the trustee in his
said report be denied and refused to the said bankrupt, save and
except the item of household furniture and wearing apparel, and
that the said bankrupt was not entitled to an exemption as claimed
by him, by reason of having waived and renounced in writing his
rights thereto, in accordance with the Constitution and laws of the
State of Georgia."
This judgment of the district court is the one complained of,
and which was sought to be revised in the circuit court of
appeals.
Page 190 U. S. 297
MR. JUSTICE WHITE, after making the foregoing statement,
delivered the opinion of the Court.
The general exemption of property from levy or sale, authorized
by article 9, § 1, par.1, of the present Constitution of the
State of Georgia (that of 1877), is "realty or personalty, or both,
to the value in the aggregate of $1,600." By article 9, sec. 3,
par.1, of the same constitution, a debtor is vested with power to
waive or renounce in writing this right to exemption, "except as to
wearing apparel, and not exceeding three hundred dollars worth of
household and kitchen furniture and provisions." The mode of
enforcement of a waiver of exemption is provided for in section
2850 of the Code of 1895, reading as follows:
"In all cases when any defendant in execution has applied for
and had set apart a homestead of realty and personalty, or either,
or where the same has been applied for and set apart out of his
property, as provided for by the constitution and laws of this
state, and the plaintiff in execution is seeking to proceed with
the same, and there is no property except the homestead on which to
levy upon the ground that his debt falls within some one of the
classes for which the homestead is bound under the Constitution, it
shall and may be lawful for such plaintiff, his agent, or attorney,
to make affidavit before any officer authorized to administer oaths
that, to the best of his knowledge and belief, the debt upon which
such execution is founded is one from which the homestead is not
exempt, and it shall be the duty of the officer in whose hands the
execution and affidavit are placed to proceed at once to levy and
sell as though the property had never been set apart. The defendant
in such execution may, if he desires to do so, deny the truth of
the plaintiff's affidavit by filing with the levying officer a
counter affidavit."
The question presented on the record before us may be stated in
similar language to that which was used by the district judge
--
Page 190 U. S. 298
the correctness of whose decision in the case at bar is now for
review -- in the course of his opinion in
In re Woodruff,
96 F. 317, as follows (p. 318):
"Has the bankruptcy court jurisdiction to protect or enforce
against the bankrupt's exemption the rights of creditors not having
a judgment or other lien, whose promissory notes or other like
obligations to pay contain a written waiver of the homestead and
exemption authorized and prescribed by the Constitution of the
state, or are such creditors to be remitted to the state courts for
such relief as may be there obtained?"
The provisions of the Bankruptcy Act of 1898 which control the
consideration of the question just propounded are as follows: by
clause 11 of section 2, courts of bankruptcy are vested with
jurisdiction to "determine all claims of bankrupts to their
exemptions." Section 6 provides as follows:
"SEC. 6. This act shall not affect the allowance are prescribed
by the state laws in which are prescribed by the state laws in
force at the time of the filing of the petition in the state
wherein they have had their domicil for the six months or the
greater portion thereof immediately preceding the filing of the
petition."
By clause 8 of section 7 the bankrupt is required to schedule
all his property, and to make "a claim for such exemptions as he
may be entitled to." By clause 11 of section 47, it is made the
duty of the trustees to "set apart the bankrupt's exemptions and
report the items and estimated value thereof to the court as soon
as practicable after their appointment." By section 67, it is
provided, among other things, that the property of the debtor
fraudulently conveyed, etc.,
"shall, if he be adjudged a bankrupt, and the same is not exempt
from execution and liability for debts by the law of his domicil,
be and remain a part of the assets and estate of the bankrupt,"
etc. In section 70 is enumerated the property of the bankrupt
which is to vest in the trustee as of the date of the adjudication
in bankruptcy, "except insofar as it is to property which is
exempt."
Under the Bankruptcy Act of 1867, it was held that property
generally exempted by the state law from the claims of
creditors
Page 190 U. S. 299
was not part of the assets of the bankrupt, and did not pass to
the assignee, but that such property must be pursued by those
having special claims against it, in the proper state tribunals.
Thus, speaking of the act of 1867, Mr. Justice Bradley (
In re
Bass, 3 Woods 382, 384) said:
"Not only is all property exempted by state laws, as those laws
stood in 1871, expressly excepted from the operation of the
conveyance to the assignee, but is added in the section referred
to, as if
ex industria, that"
"these exceptions shall operate as a limitation upon the
conveyance of the property of the bankrupt to his assignee, and in
no case shall the property hereby excepted pass to the assignee, or
the title of the bankrupt thereto be impaired or affected by any of
the provisions of this title."
"In other words, it is made as clear as anything can be that
such exempted property constitutes no part of the assets in
bankruptcy. The agreement of the bankrupt in any particular case to
waive the right to the exemption makes no difference. He may owe
other debts in regard to which no such agreement has been made. But
whether so or not, it is not for the bankrupt court to inquire. The
exemption is created by the state law, and the assignee acquires no
title to the exempt property. If the creditor has a claim against
it, he must prosecute that claim in a court which has jurisdiction
over the property, which the bankrupt court has not."
We think that the terms of the Bankruptcy Act of 1898, above set
out, as clearly evidence the intention of Congress that the title
to the property of a bankrupt, generally exempted by state laws,
should remain in the bankrupt, and not pass to his representative
in bankruptcy, as did the provisions of the act of 1867, considered
in
In re Bass. The fact that the act of 1898 confers upon
the court of bankruptcy authority to control exempt property in
order to set it aside, and thus exclude it from the assets of the
bankrupt estate to be administered, affords no just ground for
holding that the court of bankruptcy must administer and
distribute, as included in the assets of the estate, the very
property which the act, in unambiguous language, declares shall not
pass from the bankrupt, or
Page 190 U. S. 300
become part of the bankruptcy assets. The two provisions of the
statute must be construed together, and both be given effect.
Moreover, the want of power in the court of bankruptcy to
administer exempt property is, besides, shown by the context of the
act; since, throughout its text, exempt property is contrasted with
property not exempt, the latter alone constituting assets of the
bankrupt estate subject to administration. The act of 1898, instead
of manifesting the purpose of Congress to adopt a different rule
from that which was applied, as we have seen, with reference to the
act of 1867, on the contrary, exhibits the intention to perpetuate
the rule, since the provision of the statute to which we have
referred in reason is consonant only with that hypothesis.
Though it be conceded that some inconvenience may arise from the
construction which the text of the statute requires, the fact of
such inconvenience would not justify us in disregarding both its
letter and spirit. Besides, if mere arguments of inconvenience were
to have weight, the fact cannot be overlooked that the contrary
construction would produce a greater inconvenience. The difference,
however, between the two is this: that in the latter case -- that
is, causing the exempt property to form a part of the bankruptcy
assets -- the inconvenience would be irremediable, since it would
compel the administration of the exempt property as part of the
estate in bankruptcy, whilst, in the other, the rights of creditors
having no lien, as in the case at bar, but having a remedy under
the state law against the exempt property, may be protected by the
court of bankruptcy, since, certainly, there would exist in favor
of a creditor holding a waiver note, like that possessed by the
petitioning creditor in the case at bar, an equity entitling him to
a reasonable postponement of the discharge of the bankrupt, in
order to allow the institution in the state court of such
proceedings as might be necessary to make effective the rights
possessed by the creditor.
As, in the case at bar, the entire property which the bankrupt
owned is within the exemption of the state law, it becomes
unnecessary to consider what, if any, remedy might be available in
the court of bankruptcy for the benefit of general creditors,
Page 190 U. S. 301
in order to prevent the creditor holding the waiver as to exempt
property from taking a dividend on his whole claim from the general
assets, and thereafter availing himself of the right resulting from
the waiver to proceed against exempt property.
The judgment of the district court is reversed, and the
proceeding is remanded to that court with directions to overrule
the exceptions to the trustee's assignment of homestead and
exemption, and to withhold the discharge of the bankrupt, if he be
otherwise entitled thereto, until a reasonable time has elapsed for
the excepting creditor to assert, in a state tribunal, his alleged
to the satisfaction of his claim. And it is so ordered.
