By the various state laws, certain property is exempt from seizure for debt. These laws differ in the various states. They are based upon the theory that it is a sound public policy to prevent the debtor from being absolutely stripped of all his possessions and therefore becoming a charge upon the state. The National Bankruptcy Act gives a debtor the exemptions he is allowed by the law of his state.
The law deems it advisable to assure to a person a certain amount of property which cannot be taken from him by his creditors. This protects the debtor from being utterly deprived of his property and therefore tends to prevent him and his family from becoming paupers242 and also enables him the better to get a new start, and is supposed to beget within him a spirit of independence making him a better citizen.
242. Wright v. Piatt, 31 Wis. 99; Hughes v. Hodges, 102 N. C. 236.
The exemption laws of the different states vary quite widely. In all the states, a homestead is allowed, but the value or amount thereof differs. Thus in Texas a homestead of 200 acres is allowed to a farmer regardless of its value, or the value of buildings on it, while in Illinois a homestead of the value of $1000 is allowed, regardless of its physical extent. The exemption laws of some states are reasonable but in others they seem to go beyond the point of a reasonable protection to debtors. While it is a salutary provision to protect debtors and their families from complete divestment, it is nevertheless also true that creditors should be paid. A law which allows a debtor to enjoy wealth in complete immunity from creditors is unjust.
Exemptions may usually be divided into three well known classes:
(1) Exemptions in Personal Property. The exemptions in personal property differ very widely in the different states.
(2) Homestead. A homestead is allowed to debtors who are householders or heads of families.
(3) Exemption in Salary or Wages. This varies in different states.
Besides these exemptions there may be others provided, as, for instance, insurance policies to a certain extent. We will consider these exemptions in detail.
(A) Certain Exemptions Considered.
A homestead is an estate in real property made exempt from seizure for debts that the debtor may use the same for residence purpose. It usually exists only in favor of one who is a head of a family and who is actually occupying the estate for home purposes.
The term homestead may be used in a broad sense to signify that place upon which the home is situated including the land around it, the various outbuildings used in connection with it, etc. In the law of exemptions it has much this same meaning except that the law usually confines the homestead to a certain value or physical extent, and grants it only upon certain conditions, that is, for instance, that the homesteader shall be the head of a family and that he and his family shall be actually residing upon the homestead. Some homestead laws are more liberal than others and do not require so much. We will consider a few particulars in the law.243
"SEC. 1. That every householder having a family, shall be entitled to an estate of homestead, to the extent in value of $1000, in the farm or lot of land, and buildings thereon, owned or rightly possessed, by lease or otherwise, and occupied by him or her as a residence; and such homestead, and all right and title therein, shall be exempt from attachment, judgment, levy or execution sale for the payment of his debts, or other purposes, and from the laws of conveyance, descent and devise, except as hereinafter provided."
243. Barney v. Leeds, 51 N. H. 293 (history of homestead law).
"(To Continue After Death of Householder.) SEC. 2. Such exemption shall continue after the death of such householder, for the benefit of the husband or wife surviving, so long as he or she continues to occupy such homestead, and of the children until the youngest becomes twenty-one years of age; and in case the husband or wife shall desert his or her family, the exemption shall continue in favor of the one occupying the premises as a resident."
"(Proceeds Exempt.) SEC. 6. When a homestead is conveyed by the owner thereof, such conveyance shall not subject the premises to any lien or incumbrance to which it would not have been subject in the hands of such owner; and the proceeds thereof, to the extent of the amount of $1000, shall be exempt from execution or other process, for one year after the receipt thereof, by the person entitled to the exemption, and if reinvested in a homestead the same shall be entitled to the same exemption as the original homestead.
"SEC. 7. Whenever a building, exempted as a homestead, is insured in favor of the person entitled to the exemption, and a loss occurs, entitling such person to the insurance, such insurance money shall be exempt to the same extent as the building would have been had it not been destroyed."
It is usually required that a debtor who claims a homestead be the head of a family.
The laws differ to some extent in this respect. It is commonly provided, however, that the homesteader must be the head of a family and residing with the same. A "head of a family" is usually a married man. But under this description it has been held that any one who is maintaining a household in which there are relatives dependent upon him to some extent for support, or who constitute a family, may be entitled to a homestead. A widower living at home with his children; a young man supporting his unmarried sisters in a home maintained by them; a man supporting his mother in his home, have been held to be entitled to the exemption of homestead as "heads of families." An unmarried man maintaining a retinue of servants would not be a homesteader.
Those entitled to a homestead may usually waive it by complying with the law which sets forth how it shall be waived.
We shall find in studying the law of exemptions in personal property that the exemptions may be lost by failure to claim them; but in the law of homestead, the homestead is not lost or waived except by actual waiver in the manner prescribed by law. In some states, the constitution provides that a homestead may not be waived, though of course everywhere it may be sold. Usually however, it may be waived. Thus in Illinois it is waived by a statement in the deed to that effect, together with an acknowledgment of the waiver before a notary public or other officer. The owner of the land and also the spouse would have to join in such waiver.
(b) Exemptions in personal property.
The various state laws define that certain kinds of personal property to a certain amount shall be exempt from seizure for debt.
It is the policy of the law to prevent creditors from seizing all of the debtor's personal property. The law, therefore, provides that certain of a debtor's property shall be exempt from seizure for debt. What one is entitled to may depend on whether he is the head of a family. Thus in Illinois a debtor has $100 worth of exempt personal property (besides his wearing apparel, etc.) while one who is head of a family has $400 in exempt personal property. In some states, as in Illinois, the law provides for a certain amount (as above stated) to be selected by the debtor. In other certain kinds of property are specified, as follows:
1. Necessary wearing apparel. A debtor is entitled to necessary wearing apparel in every state.
2. Tools of trade. A debtor needs his tools of trade to rebuild his fortunes and make a living. Consequently they are frequently exempted under the law. Tools of trade do not include machinery of an expensive sort.
3. Work animals. The debtor is often allowed a work horse or mule as exempt property.
4. Household furniture. Some statutes provide that the furniture used in the house for household purposes shall not be seized.
In some states a debtor cannot waive his exemptions by executory agreement though in others he may, and a distinction is made in some states between those exemptions which are merely for his own benefit and those for the benefit of his family. But usually a debtor when property is seized or about to be seized must claim and assert his right to his exemptions.
We have seen that a homestead is not waived or lost unless waived in some affirmative way as provided by the statute. But in respect to personal property the law is not so strict. While it is true that some decisions deny that a debtor may waive his exemptions in his personal property by mere executory contract, as where the waiver is included in a note, yet he may unquestionably by chattel mortgage, pledge and the like forego his exceptions. So where his property is about to be seized for debt the debtor must assert his exemptions, and in some states it is provided he must do it in a particular way, as in Illinois, where he must within 10 days after the writ of execution is served upon him file a schedule with the officer, therein claiming his exemptions.
(c) Exemptions in income.
In almost all the states wages or salary is exempt up to a certain amount or covering a certain period.
In some states a debtor may claim so much a week in exemptions, as, for instance, $15. In others he may claim whatever he has earned within a certain period, as say, 90 days. In some states he has no exemptions in income unless he is the head of a family.