Summary of a Recent
Judicial Development in
Secured Transactions

"Tools of the Trade" Exemption Requires Debtors to be
Engaged Principally In Farming

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Hintzman, No. 05-61378, 2007 WL 80964 (Bankr. D. Minn. Jan. 8, 2007), the United States Bankruptcy Court for the District of Minnesota held that the debtors were not "engaged principally in farming" nor were they likely to become "engaged principally in farming," so they could not use Minnesota "tools of the trade" exemption to avoid their creditor's lien on their farm equipment.

Background

Chapter 12 Debtors sought to avoid the Farm Service Agency's (FSA) lien on their farm equipment. Id. at *1. As of the date of filing, the Debtors' livestock inventory included two pigs, two goats and two calves. Id. They did not own or rent any crop or pasture land and had no interest in any crops, farm supplies, feed, chemicals or any other farm inventory. Id. The Debtors told the FSA that the animals belonged to their six-year-old son. Id. After filing their petition, the Debtors bought and raised thirteen cattle and eight chickens, and raised corn and alfalfa on the Debtor's father's land in the following year. Id. The Debtors' six-year-old son also sold a few animals at livestock auctions that year. Id. at *1-2. Both Debtors worked for Meadowlark Dairy; the husband worked 80 hours each week as a mechanic/feed man, and the wife worked 20 hours each week as a herdsman assistant. Id. at *2. They raised their beef cattle on a relative's property. Id.

Arguments

Debtors argued that they were entitled to avoid the FSA's lien on their farm equipment pursuant to Minn.Stat. § 550.37, Subd. 5. Id.

The FSA argued that the Debtors were not "engaged principally in farming" when their petition was filed. Id.

Analysis and Holdings

Minn.Stat. § 550.37, Subd. 5, allows debtors who are "engaged principally in farming" an exemption in farm equipment, implements, tools and machinery; however, the FSA contended that the Debtors were not "engaged principally in farming" at the time of filing. Id. The court stated that debtors did not have to be for the application of the statute, but rather that both historic involvement in farming and future intentions are relevant in making the determination. Id. "Courts take into account the intensity of a debtor's past farming activities and the sincerity of his intentions to continue farming, as well as evidence that debtor is legitimately engaged in a trade which currently and regularly uses the specific implements or tools exempted and on which lien avoidance is sought." Id. After considering the circumstances, the court concluded that "it cannot be said here that the debtors were 'engaged principally in farming,' or that they had any realistic prospect to become 'engaged principally in farming' when the case was filed." Id. at *3. Therefore the court held that the Debtors could not avoid FSA's lien. Id.

The case was decided on January 8, 2007.