IN RE DUBROCK

MEMORANDUM AND ORDER

MERRITT S. DEITZ, Jr., Bankruptcy Judge.

The debtor, a real estate broker and salesman, seeks to avoid a lien on his automobile by claiming it as exempt under 11 U.S.C. § 522(f)(2)(B) as a "tool of the trade" essential for continuation of his occupational pursuits.

It is undisputed that the plaintiff, Credithrift of America, Inc., holds a non-possessory, non-purchase money security interest in the automobile of the debtor, Donald Dubrock. The balance outstanding on the debt secured by the automobile, a 1974 Cadillac, is $4,760.00.

Support for Dubrock's contention that his auto is a tool of the trade may be found in a number of state court decisions.1 These cases generally focus on state exemption laws which preclude tools or implements of one's trade from execution for judgment. Since these laws are generally the same as those used in a bankruptcy context2 the legal reasoning attending such decisions has vitality here.

Federal courts employing the Bankruptcy Act of 1898 have also examined the validity of exempting motor vehicles used for a business purpose as "tools of the trade".3 By virtue of Section 6 of that Act, reference in those cases was necessarily made to provisions of the state exemption statutes.

Whenever confronted with the question of whether an automobile qualifies for the tool-of-trade exemption, both state and federal jurists have rooted their conclusions in the fact of the case before them.4

Considering those facts, courts have generally held that an automobile may be a tool of trade if it is necessary for and is used in connection with one's trade.

Upon analysis of the case law, one can discern in which instances treatment of a car as a tool of the trade should be favorably received. Most like this case is Sun Ltd. v. Casey,5 where a real estate agent's automobile was declared a tool of the trade and thus exempt from an execution for judgment.

Sales managers,6 an insurance adjuster,7 and various trade workers8 have also been deemed sufficiently in need of a vehicle to carry on their professions so as to permit their car to be considered a tool of their trade.

Generally, a car is classified a tool of trade only if the occupation of its owner is uniquely dependent on its use. It is not sufficient if one's dependence on the car is limited to use for travel to and from work.9 The use of a car merely as a means of transportation to one's place of employment is hardly comparable to using it as an essential instrument of employment. That was the conclusion we reached today in considering a similar claim of exemption in a factually distinguishable case, First Hardin National Bank v. Damron, 5 B.R. 357.

Plaintiff relies upon Credithrift of America, Inc. v. Meyers10 for support of its contention that Dubrock's car is not a tool of the trade. In that case, however, the debtor needed his truck merely to go to and from work. The court thus declined to give the debtor a tool-of-trade exemption. It did not negate the possibility that a motor vehicle might in some circumstances be a tool of trade. Rather, it was recognized that "restricting a debtor's claim of exemption of a motor vehicle as a tool of trade to cases in which the motor vehicle is necessary to, and used by the debtor to carry on his trade, accomplishes what was intended by Section 522(f)".11

In every sense, Dubrock's use of his car is necessary to carry on his business. A salesman of real estate must have constant and immediate access to reliable transportation, for not only himself but his clients.

Credithrift asserts that the enumeration of an automobile elsewhere in the exemption provision12 precludes its classification as a tool of trade. It is further maintained that because a motor vehicle is not statutorily recognize as a tool of trade, its designation as such is inappropriate.

The well-settled rule that exemption statutes are to be liberally construed13 rang never more true than here. Congress, unwilling or unable to enumerate the countless items which, depending upon one's trade, might be "tools", left that determination to the judiciary.

The description of an object as a "tool" necessarily implies a classification based upon that object's functional and utilitarian purpose in the hands of its owner or user. While an automobile never ceases to be an automobile, its function may also require its designation as a tool of trade. Such is the case here.

The tool-of-trade exemption has heretofore been applied against the debtor's equity in the property he seeks to exempt. It was not employed as a means for lien avoidance. In this instance, Dubrock has no equity in his car, and attempts to avoid Credithrift's lien.

Section 522(f)(2)(B) of the Bankruptcy Code14 permits the avoidance of a lien on tools of a debtor's trade to the extent that the lien impairs an otherwise valid exemption. This is an exception to the general rule that valid liens are enforceable as against nonexempt property as well as exempt property.15

It should not automatically be presumed, however, that the application of § 522(f) necessarily permits total avoidance of a valid lien that is a non-possessory, non-purchase money security interest. The lien may be avoided only to the extent of the debtor's allowable exemption, with the remainder of the lien being otherwise enforceable.16

To determine the extent to which one is entitled to avoid a lien under subsection (f), reference must be made to either the state or Reform Act exemption schedule. This matter arising under the federal exemption schedule, we need only to consider the impact of subsection (f) on the exemptions provided in § 522(d).

Because § 522(f) is applied in conjunction with § 522(d), it must be determined what is, in the words of subsection (f), "an exemption to which the debtor would have been entitled".

Clearly, the avoidance of a lien against a tool of trade necessitates the application of the tool-of-trade exemption provision, Section 522(d)(6).17 Pursuant to this subsection, Dubrock may avoid Credithrift's lien to the extent of $750.

But neither the exemption provisions, nor Dubrock's lien avoidance capabilities, end there.

Under § 522(d)(5),18 a debtor may claim as exempt up to $400 in his interest in any property plus any portion of his unused homestead exemption. Where the debtor claims no homestead exemption, he is entitled to exempt up to $7,900 worth or property over and above the otherwise allowable exemptions that are specifically enumerated elsewhere in § 522(d).

In the instant case, personal property exemptions, including the debtor's automobile, total only $1,687.40. The debtor owns no realty.

As is indicated in the Congressional Report,19 subsection (f) permits a debtor to avoid a non-purchase money security interest "to the extent that the property could have been exempted in the absence of the lien."20

In this case, if Dubrock had full equity in his vehicle and its value exceeded a specific exemption, he could easily avail himself of § 522(d)(5) to exempt the car totally.

Likewise, the "spill-over" effect of paragraph (d)(5) permits the total avoidance of Credithrift's lien. In essence, the interplay between subsections (d) and (f) of § 522 has resulted in Dubrock's being furnished with full equity in his automobile. Credithrift is left with an entirely unsecured claim.

We note by way of obiter that the exemption schedule provided in 11 U.S.C. § 522(d) is no longer available to persons filing in this state. The General Assembly of the Commonwealth of Kentucky has made mandatory the application in bankruptcy of Kentucky's exemption provisions.21

Like the federal exemption, Kentucky allows an exemption for "the tools of any individual debtor necessary in his trade".22 Unlike the federal statute, Kentucky's tools-of-trade provision only allows a $300 exemption. Further, although there is a general exemption allowance of $1,000,23 there is no "spill-over" of the unused portion of the state homestead exemption.

The Kentucky exemption chapter co-exists with, but does not displace, the lien avoidance section of 11 U.S.C. § 522(f).24 The effect of § 522(f) is not, and cannot be, altered by Kentucky exemption provisions. In cases commenced after April 9, 1980, avoidance of a lien against a tool of trade will only be realized to a maximum of $1,300.

Upon the foregoing reasoning and authorities, it is hereby

ORDERED that the motion to avoid the lien on the debtor's automobile is sustained. It is further ordered that the complaint of Credithrift of America, Inc., to lift the automatic stay is dismissed. This is a final order. Judgment shall be entered accordingly.