Bankruptcy

Guns and Bankruptcy

By Adam Levitin

Mike Konczal at Rortybomb has an interesting post about the Protecting Gun Owners in Bankruptcy Act of 2010 (the Pro-GOB Act).  This legislation would make firearms exempt from creditors' claims in bankruptcy.  I'm still not sure if it is a joke or real legislation; I haven't been able to find the text of a proposed bill.  Even if one thinks this legislation is a good idea (which it isn't), it is all sizzle, no steak.  It would be inapplicable to almost all bankruptcy cases.  It would only affect Chapter 7 debtors who own firearms and live in 16 states.  

To the uninitiated, certain property of consumer debtors is "exempt" from creditor' claims, meaning that the creditors cannot levy on and sell off the property.  State law exempts certain property as does federal bankruptcy law.  There is tremendous variation in exemptions, which range from generous (unlimited dollar value homestead exemptions in a few states and DC) to quite stingy (Delaware & Wyoming, e.g.).  A debtor who files for bankruptcy can choose between the applicable state and federal exemptions, unless the state has opted out of the federal exemptions.  Exemptions matter little except in Chapter 7 cases, and most of those are "no asset" cases where expanding the potential exemptions doesn't make any difference; it is just political show.  

Even for those handful of Chapter 7 cases that involve assets, a federal firearms exemption would be worthless for the residents of the 34 states that have opted out of the federal exemptions.  (This presumes that the legislation wouldn't trample on state sovereignty by creating a mandatory federal exemption.)  So this amendment would help debtors who (1) own firearms, (2) file for bankruptcy, (3) live in the 16 opt-in states (or really the 14 opt-ins that don't have state firearm exemptions already), and (4) would be "Asset" Chapter 7s.  We're talking probably under 1,000 people/year.  

[Query whether it does any good to exempt the gun, but not the license (if the license is property of the estate).] 

OK, so the proposed legislation is pretty useless, even if you think it's a good idea.  But is it?  I think there are two major knocks on it.  

Knock 1:  Paternalism.

There's a very strange bit of paternalism involved in exempting firearms.  Most gun-rights advocates cringe at anything that smacks of paternalism, but a firearms exemption in bankruptcy basically tells debtors that the government thinks that they should spend their income on firearms, rather than other forms of property.  A far better approach would be to increase the federal wildcard exemption by the cost of a handgun.  Let's put that generously at $1,000.  Gun owners who really value their guns can use it to exempt a firearm (or several, depending on valuation), while gun owners who want to hang on to their laptops or their jalopy can use it on something they value more than their gun.  Why not let people decide what they value most?  There's a right to bear arms, not an individual mandate to do so.  

Knock 2:  Allows for Gaming

Nine states currently have explicit firearm exemptions:  Iowa, Idaho, Montana, Nevada, Ohio, Oklahoma, Oregon, Texas, & Wisconsin.  That's fewer (I think) than the number of states with horse exemptions, and sewing machine exemptions might be running close behind.  A number of other states have exemptions for sporting goods or household goods or furniture or tools of the trade that might arguably cover a firearm, and some states have wildcard exemptions that could be used to cover a firearm.  This alone suggests that there's not a lot of popular interest in having a firearm exemption.  

It's notable, however, that only Iowa has an unlimited firearm exemption, like that in the proposed legislation.  Every other state either limits the number of firearms (1 or 2), their value ($200-$5000), or both.  The Pro-GOB Act woud exempt all firearms held "primarily for the personal, family or household use of the debtor."  Not even Texas gives debtors as broad of a firearm exemption as the legislation proposes.  Texas exempts two firearms (a house gun and a car gun, as it has been explained to me).  

The Pro-GOB Act would allow a debtor to retain not just their .22 for hunting or a Glock for self-defense, but an entire arsenal.  Beyond the sheer ridiculousness of this (surrender the house and the car, but keep the guns), it sets up a situation in which debtors can game the bankruptcy system.  Guns don't depreciate super fast, so a clever debtor would simply load up on guns before filing and then sell off the guns after getting a discharge.  

If you've borne with me this far, be warned--I'm shifting topics to truly academic questions:  

While I'm on the exemption theme, here's a nice statutory interpretation question:  do exemptions for "Bibles" cover Korans or Vedas or other sacred texts?  And do they cover books with the title "Bible" (the Chef's Bible, e.g.) that are not holy scriptures?  On the one hand, it would seem that legislatures wanted Scriptures generally exempted (maybe avoiding a modern Donatist controversy?) because of the social/moral value they impart.  On the other hand, it's questionable whether state legislatures intended for anything other than Christian scripture (in a non-denominational sense) to be exempted.  There are underlying free exercise and equal protection issues, of course, and I don't think this issue is likely to come up, but I might torment students with it in the future...  

A final ghoulish exemption thought---burial plots are exempt federally and in some states.  But Hawaii specifically exempts tombstones.  Could creditors haul off a tombstone?   Consider cases where a spouse or child has predeceased or even when the debtor has died.  I would assume that tombstones only have hostage value (maybe they can be recut), but that could be powerful leverage to shake out some dollars from a debtor or his/her relatives.  This isn't as strange an idea as it seems.  In ancient Egypt creditors used to take ancestors' remains (mummies!) as collateral.  Subsidiary thought--are tombstones realty or personalty or fixtures?  How does one perfect in a tombstone or burial plot or mausoleum?

Full post as published by Credit Slips on June 29, 2010 (boomark / email).