Johnny Howell and Brenda Glover Howell

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Case 07-01549-5-ATS Doc 34 Filed 11/29/07 Entered 11/29/07 17:33:12 Pagesb et 13

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SO ORDERED.

SIGNED this 29 day of November, 2007.

United States Bankruptcy J udge

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA

RALEIGH DIVISION
IN RE: CASE NO.
JOHNNY HOWELL 07-01549-5-ATS
BRENDA GLOVER HOWELL
DEBTORS

ORDER DENYING TRUSTEE’S OBJ ECTION TO AMENDED EXEMPTIONS AND
MOTION FOR TURNOVER

The matter before the courtis the objection to the debtors’ amended claim of exemptions and
motion for tumover filed by the trustee, Joseph N. Callaway. A hearing took place on November
8, 2007, in Raleigh, North Carolina.

Johnny Howell and Brenda Glover Howell filed a petition for relief under chapter 7 of the
Bankruptcy Code on July 19, 2007, followed by an amended Schedule C on September 18, 2007.
The trustee objects to two of the exemptions claimed by the debtors and seeks tumover of the
property in dispute. First, the trustee objects to Mr. Howell’s use of the “tool of the trade”
exemption found in N.C. Gen. Stat. § 1C-1601(a)(5) with respect to a truck used to haul and resell
furmiture. The debtors maintain that the exemption is proper, and counter that even if the truck is
not considered a “tool of the trade,” other exemptions are available to exempt the truck’ s value in

full. Second, the trustee objects to the debtor’ s use of N.C. Gen. Stat. § 1-362 to claim certain funds

1While the Trevino opinion alludes to a potential exception where a motor vehicle is
specially outfitted for the debtor’s trade, there is no evidence that this truck is or even could be
specially outfitted for Mr. Howell’s trade.
2
as exempt wages. The debtors maintain that use of the wage exemption is proper because the funds
represent the debtors’ earnings from the pre-petition operation of their business.
The “Tools of the Trade” Exemption
The debtors own a 1999 Ford F350 “box” truck, which is used to haul and resell furniture.
Under North Carolina law, a debtor may exempt his interest (up to $2,000 in value) in any “tools
of the trade of the debtor.” N.C. Gen. Stat. § 1C-1601(a)(5). The debtors contend that the Ford
truck is a “tool” that is necessary to transport furniture in order to perform the “trade” of used
furniture resale. However, this court held in In re Trevino that a motor vehicle cannot qualify for
the tool of the trade exemption.1 In re Trevino, 96 B.R. 608 (Bankr. E.D.N.C. 1989). The court
therefore finds that the 1999 Ford F350 truck does not qualify as a tool of the trade. The trustee’s
objection to the use of the “tool of the trade” exemption under N.C. Gen. Stat. § 1C-1601(a)(5) is
allowed.
The Wage Exemption
On June 1, 2007, the debtors closed the furniture store that they previously owned and
operated. During the hearing, the debtors represented to the court that they worked in the store
regularly, both before and for a period of time after the closing of the business. Between May 20,
2007 (the beginning of the 60 day period prior to the debtors’ bankruptcy filing), and June 1, 2007,
when the store closed, the debtors deposited receipts into the store’s bank account totaling
$26,993.04. 	On July 2, 2007, the debtors paid themselves $8,766.92 from the store receipts as
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2Although the debtors’ amended Schedule C and the trustee’s motion reflect a slightly larger
figure ($8,993.79), neither party raised the discrepancy at the hearing.
3The debtors presented two exemption analyses during the hearing: one applying the motor
vehicle and tool of the trade exemptions to the value of Mr. Howell’s truck and another applying the
motor vehicle and wildcard exemptions. Because the tool of the trade exemption is not applicable
under these circumstances, the court followed the latter analysis, which resulted in a $3,691.92 cash
balance after the motor vehicle and wildcard exemptions.
4 “Subsequent to the enactment of N.C. Gen. Stat. § 1C-1601 et. seq., the North Carolina
Court of Appeals expanded the provisions of N.C. Gen. Stat. § 1-362 to hold that a debtor’s future
3
earnings for their work in connection with the store. 2 According to the debtors, this payment
represented the only wages earned by the debtors during the two months prior to filing for
bankruptcy. Each debtor claims a portion of this sum as exempt under the “wildcard” provision of
N.C. Gen. Stat. § 1C-1601(a)(2). Because the debtors also claim other items under the wildcard
provision, a balance of $3,691.92 remains out of the $8,766.92 in store receipts. 	The debtors
contend that the remaining $3,691.92 in store revenue is exempt under N.C. Gen. Stat. § 1-362
because it reflects earnings for work associated with the store during the 60 days prior to the
bankruptcy filing.3
N.C. Gen. Stat. § 1-362 reads as follows:
The court or judge may order any property, whether subject or not to be sold under
execution (except the homestead and personal property exemptions of the judgment
debtor), in the hands of the judgment debtor or of any other person, or due to the
judgment debtor, to be applied towards the satisfaction of the judgment; except that
the earnings of the debtor for his personal services, at any time within 60 days next
preceding the order, cannot be so applied when it appears, by the debtor’s affidavit
or otherwise, that these earnings are necessary for the use of a family supported
wholly or partly by his labor.
N.C.G.S. § 1-362 (emphasis added). This court has previously held in In re Austin, that “§ 1-362
is a wage exemption statute in addition to the exemption provisions of N.C. Gen. Stat. § 1C-1601
et. seq.” 4 In re Austin, Case No. 91-02288-ATS at 3-4 (Bankr. E.D.N.C. Nov. 7, 1991).5 This court
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earnings are excepted from execution by judgment creditors. See Harris v. Hinson, 87 N.C. App.
148, 360 S.E.2d 118 (1987).” In re Austin, Case No. 91-02288-ATS at 4 (Bankr. E.D.N.C. Nov. 7,
1991).
5 As Austin is not available through CM/ECF or Pacer technologies, a copy of the opinion
is attached to this order for reference.
4
has also previously stated that “North Carolina’s exemption laws are to be liberally construed in
favor of the exemption.” In re Laues, 90 B.R. 158, 161 (Bankr. E.D.N.C. 1988), citing Elmwood
v. Elmwood, 295 N.C. 168, 185, 244 S.E. 2d 668 (1978), and In re Mims, 49 B.R. 283 (Bankr.
E.D.N.C. 1985). 	The trustee contends that the $3,691.92 in store receipts does not represent
earnings, but rather it constitutes excess proceeds from the liquidation of the business. The trustee
further contends that the funds can be traced to proceeds placed in the store account more than 60
days prior to the bankruptcy filing. The latter contention, however, is not relevant because the key
in this matter is whether the debtors performed the services (for which they paid themselves on July
2, 2007) during the 60 days preceding the filing.
In Austin, the court held that a self-employed debtor’s “wages” can take the form of accounts
receivable, noting that “[i]f a debtor ‘lives out of the till,’ it is difficult to discern general receivables
from wages.” Austin at 4. In the present case, the debtors argue that they have something more
concrete than accounts receivable – they have actual revenues received. The court agrees and finds
that the $3,691.92 taken from store receipts represents earnings. The furniture business was not
incorporated and the debtors managed and worked in the store on a regular basis. After the doors
were closed to the public on June 1, 2007, the debtors continued to work in the store, cleaning and
moving the remaining inventory out of the leased commercial space. The $3,691.92 that the debtors
claim as wages equates to approximately $2,000 each for a month's work – an amount that is
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5
consistent with the debtors’ past wages and is in line with or lower than typical salaries received for
this type of work.
The court in Austin further held that “N.C. Gen. Stat. § 1-362 expressly excepts ‘earnings
of the debtor for his personal services.’ 	This language is explicit and should be given a liberal
construction favorable to the exemption.” 	Id. 	Accordingly, a debtor can apply exemptions to
maximize their effectiveness. Here, the debtors utilized both the wildcard exemption and N.C. Gen.
Stat. § 1-362 to use the full amount of available exemptions. There is nothing wrong with that in
the circumstances of this case. The debtors are of retirement age with limited resources and limited
prospects for earning a living. Their only regular current source of income is social security, and
the wages they claimed as exempt under N.C. Gen. Stat. § 1-362 will probably be the last wages
they will ever receive. The court finds that the $3,691.92 in question represents wages earned within
60 days prior to the debtors’ bankruptcy filing and that the wages are necessary for the support of
the family.
Accordingly, the trustee’s objection to the use of the wage exemption statute is DENIED.
The trustee’s motion for turnover is dismissed as moot, as the property sought is properly claimed
as exempt.
SO ORDERED.
END OF DOCUMENT
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UNITED STATES BANKRUPTCY COURT Ov! 7 (98

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EASTERN DISTRICT OF NORTH CAROLINAS. Banaaurrey’ caus
, (STRICT OF N.

IN RE: CASE NUMBER:

REX ROBERT AUSTIN, 91-02288-ATS
DEBTOR

. MEMORANDUM OPINION AND ORDER
DENYING TRUSTEE'S OBJECTION TO EXEMPTIONS
The matter before the court is the Trustee's Objection to
Debtor's Exemptions filed by Richard D. Sparkman, chapter 7
trustee, on July 10, 1991. A hearing was held on October 1, 1991,

in Raleigh, North Carolina.

JURISDICTION

This bankruptcy court has jurisdiction over the parties and
the subject matter of this proceeding pursuant to 28 U.S.C. §§
1334, 151 and 157, and the General Order of Reference entered by
the United States District Court for the Eastern District of North
Carolina on August 3, 1984. This is a "core proceeding" pursuant
to 28 U.S.C. § 157(b)(2)(B), which this court may hear and

determine.

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BACKGROUND

The debtor, Rex Robert Austin, is self-employed and filed a
voluntary petition for relief under chapter 7 of the Bankruptcy
Code on May 20, 1991. At the § 341 meeting held on June 24, 1991,
the debtor sought to amend his exemptions by adding accounts
receivable that he had earned from his business. The trustee
objects to the debtor's amended exemptions, including accounts
receivable that were not scheduled, but were discovered by the
trustee at the § 341 meeting. The debtor seeks to exempt the
accounts receivable through the "wild card provision" of N.C. GEN.
STAT. § 1C-1601 to the extent of $2,500.00, and the balance of the
accounts receivable under N.C. GEN. STAT. § 1-362 as "wages of the
debtor necessary for support of family."

The parties have stipulated to the following facts: (1) that
the debtor is a self-employed tool and dye maker; (2) that as of
the bankruptcy filing date of May 20, 1991, the debtor had a total
of $4,932.50 in accounts receivable; and (3) that the debtor is
divorced, and does not have custody of any children. The debtor
furthermore pays no alimony or child support to his family.

The trustee's motion has presented four issues to the court:

(1) Are the accounts receivable "earnings" of the debtor

within the meaning of N.C. GEN. STAT. § 1-362?
(2) If so, were the earnings earned within sixty days next

preceding "the Order" within the meaning of N.C. GEN.
STAT. § 1-362?

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(3) If so, are the earnings necessary for the’ use of a family
supported wholly or partly by the debtor's labor as
contemplated by N.C. GEN. STAT. § 1-362?

(4) Notwithstanding the above, should the debtor be barred
from claiming the accounts receivable as exempt since
they were not scheduled on his petition, and were only
disclosed after inguiry by the trustee at the § 341
meeting?

N.C. GEN. STAT. § 1-362 reads as follows:

The court or judge may order any property, whether
subject or not to be sold under execution (except the
homestead and personal property exemptions of the
judgment debtor), in the hands of the judgment debtor or
any other person, or due to the judgment debtor, to be
applied towards the satisfaction of the judgment; except
that the earnings of the debtor for his personal servic-
es, at any time within 60 days next preceding the order,
cannot be so applied when it appears, by the debtor's
affidavit or otherwise, that these earnings are necessary
for the use of a family supported wholly or partly by his
labor.

EARNINGS OF THE DEBTOR

The trustee argues that N.C. GEN. STAT. § 1-362 is not an
exemption statute, but rather an execution statute. The trustee
further argues that our legislature completely revamped the state's
exemption statutes in 1981, without any mention of this statute.
Therefore, the trustee argues, this statute was never meant to be
encompassed into the other exemption statutes, but is limited to
sales under execution only, and therefore inapplicable in a
bankruptcy proceeding.

This court disagrees with the trustee and finds that N.C. GEN.
STAT. § 1-362 is a wage exemption statute in addition to the

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exemption provisions of N.C. GEN. STAT. § 1C-1601 et. segq.' .This
court has previously stated that "North Carolina's exemption laws
are to be liberally construed in favor of the exemption." In re
Laues, 90 B.R. 158, 161 (Bankr. E.D. N.C. 1988), citing Elmwood v.
Elmwood, 295 N.C. 168, 185, 244 S.E.2d 668 (1978); and In re Mims,
49 B.R. 283 (Bankr. E.D. N.C. 1985).

Wages of a self-employed debtor may take the form of accounts

receivable. If a debtor "lives out of the till," it is difficult

to discern general receivables from wages.
N.C. GEN. STAT. § 1-362 expressly excepts “earnings of the
debtor for his personal services." This language is explicit and

should be given a liberal construction favorable to the exemption.
WAGES WITHIN SIXTY DAYS

The trustee argues that N.C. GEN. STAT. § 1-362 is not capable
ef interpretation in a bankruptcy setting as it refers to the
exception of the debtor's earnings “at any time within sixty days
next preceding the order." The trustee argues that the "order"
referenced in the statute is an order of execution, and thus is a
limited purpose exemption statute for use in executions only. This

court, expanding upon its decision in In re Laves, 90 B.R. 158

‘Subsequent to the enactment of N.C. GEN. STAT. § 1C-1601 et.
seq., the North Carolina Court of Appeals expanded the provisions
of N.C. GEN. STAT. § 1-362 to hold that a debtor's future earnings
are excepted from execution by judgment creditors. See Harris v.
Hinson, 87 N.C. App. 148, 360 S.E.2a 118 (1987).

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(Bankr. E.D. N.C. 1988), holds that N.C. GEN. STAT. § 1-362 is an _
exemption statute available to debtors in addition to the provi-
sions of N.C. GEN. STAT. § 1C~1601 et. seq., and available to
debtors for wages and earnings within sixty days next preceding the

bankruptcy petition filing date.
NECESSARY FOR SUPPORT OF FAMILY

The last element of N.C. GEN. STAT. § 1-362 is "that these
earnings are necessary for the use of a family supported wholly or
partly by his labor."

"The meaning of word 'family' necessarily depends on field of
law in which word is used, purpose intended to be accomplished by
its use, and facts and circumstances of each case." Black's Law
Dictionary, at 543 (5th ed. 1979), citing LeRoux v. Edmundson, 276
Minn. 120, 148 N.W.2d 812, 814 (1967).

Although family most commonly refers to a group of people
consisting of parents and children, the debtor points out that the
Internal Revenue Code also recognizes a family of one for tax
purposes in claiming exemptions and dependents.

The trustee's position is that N.C. GEN. STAT. § 1-362 has
historically been construed to except from execution for wages for

the support of a family, meaning wife and children.”

According to Motor Finance Company v. Putnam, 229 N.C. 555,

50 S.E.2d 670 (1948) citing In re Trustees of Board of Publication
and Sabbath School Work, 22 Misc. 645, 50 N.Y¥.S. 171 (1898), N.C.
GEN. STAT. § 1-362 was modeled after New York supplemental

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This court holds that for exemption and Bankruptcy Code
purposes, a family can consist of one person, and can fully avail
himself of the provisions of N.C. GEN. STAT. § 1-362 to the extent

reasonably necessary for the support of himself.
EXEMPTION OF UNSCHEDULED PROPERTY

The trustee's last argument is that, even if this court finds
that N.C. GEN. STAT. § 1-362 is in fact a wage exemption statute,
and that the accounts receivable are, in fact, earnings of the
debtor necessary for the use and support of a family incurred
within Sixty days of the bankruptcy petition, the exemption should
not be allowed in this case as a matter of public policy since the
wages not disclosed in the debtor's schedules. The court dis-
agrees.

‘The debtor has amended the schedules and may now use N.C. GEN.
STAT. § 1-362 to claim his wages as exempt. The trustee's motion
is therefore DENIED.

The court finds that the debtor failed to schedule the

receivables and made no mention of them until the § 341 meeting.

proceeding and execution statutes. "The intent of the legislature
is plain. A debtor's duty to his family is recognized so far that,
if he has a family wholly or partly supported by his labor, he may,
if necessary, always have 60 days‘ back earnings exempt; and [it
has been] held that this was a humane provision, and should be
liberally construed in favor of the debtor." Harris v. Hinson, 87

N.C. App. 148, 151; 360 S.E.2d 118, (1987), citing, In re
Trustees of Board of Publication and ‘Sabbath School Work, 22 Misc.
645, , 5O N.Y.S. 171, 173 (1898).
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Further, the court finds that the debtor's failure to properly
schedule the receivables prejudiced the trustee in this case. For
these reasons, the court concludes that the trustee is entitled to
the attorney's fees and costs that the trustee incurred in bringing
this objection. The debtor must reimburse the trustee, Richard D.

Sparkman, $350.00 for attorney's fees and costs.

chao ho—~

A. Thomas Small

80 ORDERED.

DATED: nov 7 Bn

Bankruptcy Judge

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‘U. 8. Bankruptcy a Nt for the Eastern pistric!’ of North Carolina
-S. BANKRUPTCY COURT, Fu DRAWER 2807, 1760 PARKWOOD BLVD., WILSON, NC 27894
n “ke a Petition for Relief under chapter 7 of Title 11, U.S. Code, filed by or
against the below-named Debtor(s) on May 20, 1991:
DEBTOR : Rex Robert Austin of 8611 Cocoa Rd., Liberty, Nc 27298
, SSAN:166-66-0550

CASE NO. 91-02288-ATS

ORDER AND NOTICE
BY THE COURT

CERTIFICATE OF SERVICE

I am a regularly appointed and qualified deputy clerk in the
office of the clerk, in and for said court and district, and I
hereby certify that a copy of the attached document was mailed in
a postage prepaid envelope addressed to the following at their
respective addresses, by placing said envelope in the regular
mail in Wilson, North Carolina, on this date.

NOV 7 1981 | rc
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DATED:

DEPUTY CLERK

Rex Robert Austin
8611 Cocoa Road
Liberty, NC 27298

John T. Orcutt

Attorney at Law

6616 Six Forks Rd., Suite 203
Raleigh, NC 27615

Richard D. Sparkman
Attorney at Law

PO Drawer C

Angier, NC 27501

Bankruptcy Administrator

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