Bieging Shapiro
& Burrus LLP

4582 S Ulster St Pkwy
Suite 1650
Denver, CO 80237

phone: 720.488.0220
fax: 720.488.7711

Map/Directions

Ruling on Exemptions to Ag Lender's Liens

BY: John Burrus, Esq.

Agricultural lenders should be aware of a recent decision by the United States Bankruptcy Court for the District of Colorado in which a farming couple was successful in avoiding perfected bank security interests in farming equipment and breeding stock totaling $70,000. In re: Larsen, Case No. 00-20711-SBB (Bankr.D.Colo. March 12, 2001).

The case turned on the interpretation of § 522(f) of the Bankruptcy Code and C.R.S. §§ 13-54-102(1)(g) and 13-54-102(1)(i). Section 522(f) permits a debtor to avoid a non-possessory, non-purchase money security interest in certain types of exempt property notwithstanding the debtor's express waiver of the exemption. The types of property on which liens can be avoided include "tools of the trade of the debtor" if state law makes this property exempt from execution. C.R.S. 13-54-102(1)(g) exempts $25,000 worth of various types of farm equipment from execution, and the first issue before the court was whether this type of equipment constituted "tools of the trade" within the meaning of § 522(f) of the Bankruptcy Code. The court held that it did and that the bank's lien could therefore be avoided up to the $25,000 exemption amount.

The next issue was whether C.R.S. § 13-54-102(i), which exempts up to $10,000 of the debtor's "tools," covers breeding stock, and whether breeding stock would also be considered "tools of the trade" within the meaning of Bankruptcy Code § 522(f). The court again answered each of these questions in the affirmative. Finally, the court held that each of the debtors could separately claim these exemptions. Thus, the end result was to remove from the bank's perfected lien $50,000 in farm equipment and $20,000 in breeding stock.

The lesson to be learned is that in evaluating an agricultural credit application a lender must discount the value of farming equipment by $25,000 per debtor and that of breeding cattle by $10,000 per debtor, and that no waiver of these exemptions will be effective in bankruptcy under current law.

Contact John E Burrus at jeb@bsblaywers.com

Back to Banker's Desk Reference