In The Matter Of: TOBY J. SINCLAIR v. Toby J. Sinclair

1
United States Court of Appeals
Fifth Circuit
F I L E D
July 19, 2005
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 04-30947
____________
In The Matter Of: TOBY J. SINCLAIR,
Debtor
____________
JOHN S. HODGE, Trustee,
Appellee,
v.
TOBY J. SINCLAIR,
Appellant.
_______________________
Appeal from the United States District Court
for the Western District of Louisiana
_______________________
Before BARKSDALE, DeMOSS, and PRADO, Circuit Judges.
PRADO, Circuit Judge:
Appellant, a debtor in bankruptcy, contends that Louisiana
law protects certain amounts of money in his checking account
from seizure because this money is attributable to his wages.
Although the bankruptcy court agreed with appellant, the district
court reached the opposite conclusion and ruled that the funds in
appellant’s accounts were not exempt from turnover. We agree
with the district court and so affirm.
Toby James Sinclair filed a Chapter 7 bankruptcy petition

-- 1 of 11 --

2
eight days after his monthly salary was direct-deposited into his
checking account. Sinclair, a teacher, received approximately
$1,843.02 in take-home pay each month. At the time Sinclair
filed for bankruptcy, his checking account contained $2,045.75.
In response to a turnover request by the trustee, Sinclair
claimed an exemption for 75% of the money in his checking account
based on LA. REV. STAT. ANN. § 13:3881, which he contended
protected 75% of his wages from any process.
The bankruptcy court agreed with Sinclair and declared an
amount equal to 75% of Sinclair’s most recent wages to be exempt.
The court concluded that the exemption covered wages in an
account “as long as the monetary sums representing such wages are
still intact and can be readily identified/traced to debtor’s
wages.” Based on this reading, the court ordered only 25% of the
funds from the recent wages (or $460.75) to be turned over. The
court also ordered Sinclair to turn over about $202.73 that was
already in his account when his most recent monthly salary had
been deposited.
The trustee appealed this ruling to the district court,
which disagreed with the bankruptcy court’s interpretation of the
exemption statute and so reversed the bankruptcy court’s order.
The district court determined that the disposable earnings
exemption only applied in the garnishment context and only to
wages that were still controlled by the employer. Accordingly,
the court held that the exemption did not apply to Sinclair’s

-- 2 of 11 --

3
wages once they were deposited into his checking account. The
district court also emphasized the potential for abuse in
Sinclair’s interpretation of the statute: before filing for
bankruptcy, debtors could shelter their wages in a separate
account, which would then become 75% exempt.
We review the district court’s decision under the same
standards that the district court used to review the bankruptcy
court’s decision. Kennard v. MBank Waco, N.A. (In re Kennard),
970 F.2d 1455, 1457 (5th Cir. 1992). Here, the only issue is a
legal one, which we review de novo. Id.
Louisiana has opted out of the federal bankruptcy
exemptions. LA. REV. STAT. ANN. § 13:3881(B)(1) (West 1991).
Instead, in bankruptcy cases “there shall be exempt from the
property of the estate of an individual debtor only that property
and income which is exempt under the laws of the state of
Louisiana and under federal laws other than Subsection (d) of
Section 522 of [the Bankruptcy Code].” Id. One specific
Louisiana law lies at the center of this case.
The disputed statute sets out several “[g]eneral exemptions
from seizure,” including the “disposable earnings” exemption:
The following income or property of a debtor is exempt
from seizure under any writ, mandate, or process
whatsoever, except as otherwise herein provided:
(1)(a) Seventy-five percent of his disposable earnings
for any week . . . .
(b) The term “disposable earnings” means that part of

-- 3 of 11 --

4
the earnings of any individual remaining after the
deduction from those earnings of any amounts required
by law to be withheld and which amounts are reasonable
and are being deducted in the usual course of business
at the time the garnishment is served upon the employer
for the purpose of providing benefits for retirement,
medical insurance coverage, life insurance coverage and
which amounts are legally due or owed to the employer
in the usual course of business at the time the
garnishment is served.
LA. REV. STAT. ANN. § 13:3881 (West Supp. 2005). Sinclair contends
that this statute continues to protect his wages after they are
deposited in his account. The trustee, on the other hand, argues
that the exemption only applies in garnishment actions when wages
still remain under the employer’s control.
To decide whether § 13:3881 creates an exemption for funds
in an employee’s bank account, we begin by examining the language
of the statute. Section 13:3881’s opening phrase is broad,
making property “exempt from seizure under any writ, mandate, or
process whatsoever.” Sinclair emphasizes this breadth in arguing
that the statute protects the amounts in his account from
turnover. But the language defining “disposable earnings,”
including the description “at the time the garnishment is served
upon the employer,” is much narrower. The trustee contends that
although the opening phrase of the statute applies to all forms
of attachment, the limiting language in the definition of
“disposable earnings” makes it clear that the disposable earnings
exemption only applies to attempts to garnish wages before they
have been paid.

-- 4 of 11 --

1The Louisiana statute also stands in contrast to a Florida
statute that expressly exempts wages after they have been
deposited in a bank account. See FLA. STAT. § 222.11(3). Before
the Florida statute was specifically amended, wages in an account
were not exempt. In re Ryzner, 208 B.R. 568, 569 (Bankr. M.D.
Fla. 1997).
5
The trustee also analogizes to the Louisiana exemption for
worker’s compensation benefits, which states, “Claims or payments
due under this Chapter . . . shall not be assignable, and shall
be exempt from all claims of creditors and from levy or execution
or attachment or garnishment, except under a judgment for alimony
in favor of a wife, or an ascendant or descendant.” LA. REV.
STAT. ANN. § 23:1205(A) (West 1998). Louisiana courts have
interpreted this provision as applying to benefits due, not
benefits received. LeBleu v. Deshotel, 628 So. 2d 1227, 1229
(La. Ct. App. 3d Cir. 1993); Hawthorn v. Davis, 140 So. 56 (La.
Ct. App. 1st Cir. 1932). On the other hand, there are Louisiana
statutes in which the legislature specifically exempted
accumulated funds or benefits “paid” to workers. See LA. REV.
STAT. ANN. § 13:3881(D)(1) (exempting “all proceeds of and
payments under all tax-deferred arrangements and annuity
contracts”); LA. REV. STAT. ANN. 11:405 (West 2002) (exempting
“any other benefit paid . . . under the provisions of this
Chapter”).1 These statutes protect funds in the hands of a
debtor. This kind of statutory language, specifically protecting
both amounts owing and amounts that have been paid, is absent

-- 5 of 11 --

2Cf. Philpott v. Essex County Welfare Bd., 409 U.S. 413,
415, 417 (1973) (protecting retroactive social security payments
that had been deposited into an account under broad statutory
language: “[N]one of the moneys paid or payable . . . under this
subchapter shall be subject to execution, levy, attachment,
garnishment, or other legal process . . . .”); Porter v. Aetna
Cas. & Surety Co., 370 U.S. 159, 159 n.1, 162 (1962) (holding
that veterans’ benefit payments retained their exempt character
after they were deposited into an account so long as those
accounts “retain[ed] the qualities of moneys;” statutory language
provided that those benefits “shall be exempt from the claim of
creditors, and shall not be liable to attachment, levy or seizure
. . . either before or after receipt by the beneficiary.”(quoting
former 38 U.S.C. §3101(a))).
6
from § 13:3881.2
Two Louisiana cases have interpreted § 13:3881's disposable
earnings exemption, each reaching a different conclusion. In
Legier v. Legier, the court held that “disposable earnings” do
not include accumulated vacation and holiday pay being held in a
fund. 357 So. 2d 1203, 1207 (La. App. 4th Cir. 1978). Legier
involved an employee’s former wife’s attempts to garnish the
amounts held in this fund to pay for child support. Id. at 1204.
The disposable earnings exemption “appl[ied] to garnishment of
weekly, biweekly or monthly earnings at the time they are paid to
the employee,” but not “to accumulated fringe benefits which have
accrued prior to the garnishment.” Id. at 1206. Of particular
significance was that “the accumulated fund is not a periodic
payment subject to exemption.” Id. at 1207. But in First
National Bank of Commerce v. Latiker, the same appellate court
concluded that accumulated vacation pay held in a fund

-- 6 of 11 --

3 The Legier court specifically noted that “we need not
address plaintiff’s argument that the exemption does not apply to
enforcement of an executory judgment for unpaid accumulated child
support.” 357 So. 2d at 1207.
7
constituted “disposable earnings” and thus was entitled to the
exemption. 432 So. 2d 293, 295–96 (La. App. 4th Cir. 1983). The
Latiker court did not overrule Legier. Instead, it distinguished
Legier “because that seizure was for payment of child support;
the policy considerations which presumably played a role in that
decision are not present in a case such as the instant one where
the garnishment and seizure seeks to satisfy ordinary debts.”3
Id. at 295. The Latiker court provided one other method for
distinguishing Legier: “the nature of the fund was not fully
explained in the Legier case,” whereas in Latiker the fund was
“nothing other than deferred payment of wages.” Id. The
distinction between the two cases is far from clear, and neither
one provides a clear answer to our question.
Courts outside Louisiana have interpreted similar statutes,
including the federal Consumer Credit Protection Act (“CCPA”),
which provides an exemption from garnishment for disposable
earnings. 15 U.S.C. § 1673. The CCPA defines “earnings” as
“compensation paid or payable for personal services, whether
denominated as wages, salary, commission, bonus, or otherwise,
and includes periodic payments pursuant to a pension or
retirement program.” 15 U.S.C. § 1672(a). In Kokoszka v.

-- 7 of 11 --

8
Belford, the Supreme Court examined whether a tax refund
constituted “disposable earnings” under the CCPA. 417 U.S. 642,
649 (1974). The Court concluded that it did not, even though the
refund had its source in wages. Id. at 652. Earnings “were
limited to ‘periodic payments of compensation and (do) not
pertain to every asset that is traceable in some way to such
compensation.’” Id. at 651 (quoting In re Kokoszka, 479 F.2d
990, 997 (2d Cir. 1973)). In fact, the Court warned that
“‘[j]ust because some property interest had its source in wages .
. . does not give it special protection, for to do so would
exempt from the bankrupt estate most of the property owned by
many bankrupts, such as savings accounts and automobiles which
had their origin in wages.’” Kokoszka, 417 U.S. at 648 (quoting
Kokoszka, 479 F.2d at 995). More directly on point, the Ninth
Circuit has held that under this statute, wages did not retain
their status as “earnings” once they were deposited into an
employee’s bank account. Usery v. First Nat’l Bank, 586 F.2d 107
(9th Cir. 1978).
Yet courts are not unanimous in concluding that disposable
earnings exemption statutes do not continue to apply to wages
once they have taken another form, such as by being placed in an
account or being held in a retirement fund. For example, in
Guidry v. Sheet Metal Workers National Pension Fund, a union
tried to garnish the pension benefits of one of its former

-- 8 of 11 --

4The Guidry court limited its holding to uncommingled funds.
Id. at 1086 n.10.
9
officials. 39 F.3d 1078, 1080–81 (10th Cir. 1994). These
benefits were placed in a fund, which the official claimed was
exempt under a Colorado statute that exempted 75% of “disposable
earnings” from garnishment. Id. at 1084. Under that statute,
“earnings” included “compensation paid or payable for personal
services, whether denominated as . . . avails of any pension or
retirement benefits, or deferred compensation plan . . . or
otherwise.” Id. (quoting COLO. REV. STAT. § 13-54-
104(1)(b)(1987)). The Tenth Circuit, relying on a Colorado
Supreme Court case, concluded that the money in the fund was
exempt from garnishment. Id. at 1086 (citing Rutter v. Shumway,
16 Colo. 95, 26 P. 321 (1891)). The court noted that the
Colorado court emphasized the lack of any statutory language
specifically limiting the exemption to funds in the employer’s
hands. Id. at 1086. The Guidry court also used the
“compensation paid” language to conclude that pension benefits
remain exempt.4 Id. at 1087.
The Ohio Supreme Court, too, concluded that under Ohio law,
traceable wages retain their exempt character after they are
deposited into a checking account. Daugherty v. Central Trust
Co., 504 N.E.2d 1100, 1103 (Ohio 1986). The Ohio statute
provided:

-- 9 of 11 --

10
Every person who is domiciled in this state may hold
property exempt from execution, garnishment,
attachment, or sale to satisfy a judgment or order, as
follows: . . . personal earnings of the person owed to
him for services rendered within thirty days before the
issuing of an attachment or other process, the
rendition of a judgment, or the making of an order,
under which the attempt may be made to subject such
earnings to the payment of a debt, damage, fine, or
amercement . . . .
OHIO REV. CODE ANN. § 2329.66. The Ohio court concluded that the
broad introductory language “exempt from execution, garnishment,
attachment, or sale” indicated that the Ohio legislature meant
for the exemption to continue after receipt. Daugherty, 504
N.E.2d at 1103. The court distinguished the Ohio statute from
the CCPA, with its narrower emphasis on garnishment. Id.
These cases point to some clear distinctions. In contrast
to the Ohio statute, § 13:3881’s broad introductory statement is
limited by the specific reference to garnishment in the
definition of “disposable earnings.” Likewise, the Louisiana
statute differs from the Colorado statute in Guidry because it
lacks similar language to Colorado’s “compensation paid.” And
unlike in Guidry, here we have no statement from the state’s
highest court compelling a certain interpretation, but only two
conflicting appellate court opinions.
Moreover, the language of other Louisiana statutes provides
a key to interpreting the language here. The disposable earnings
exemption resembles the statute exempting workers’ compensation
benefits in that it does not specifically refer to benefits that

-- 10 of 11 --

5 We also note that Sinclair’s position lacks a cut-off
point——many of a debtor’s assets are ultimately traceable to
wages. Cf. Kokoszka, 417 U.S. at 648 (emphasizing that an
asset’s source in wages does not necessarily provide special
treatment). Sinclair offers no point at which these assets stop
being protected.
11
have been received. We will follow the Louisiana courts’
interpretation of the workers’ compensation exemption as not
applying to benefits that have been received. Therefore,
consistent with the statute’s plain language, we conclude that
the disposable earnings exemption does not protect wages once
they have been paid.5
For these reasons, we conclude that the disposable earnings
exemption found in LA. REV. STAT. ANN. § 13:3881(1)(a) does not
protect wages once they have been deposited into a bank account,
and thus we affirm the judgment of the district court.
AFFIRMED.

-- 11 of 11 --