Summary of a Recent
Judicial Development in
Bankruptcy

Farm Program Payments Not Exempt as
"Public Assistance Benefits"

Harrison M. Pittman
Staff Attorney

Summary of Decision

In In re Wilson, No. C03-3079, 2004 WL 161343 (N.D. Iowa Jan. 27, 2004) the United States District Court for the Northern District of Iowa held in a matter of first impression that farm program payments received by Chapter 7 debtors were "public assistance benefits" under Iowa law and therefore exempt.

Background

Debtors Bruce and Janet Wilson filed a Chapter 7 bankruptcy petition and claimed that their farm program payments were exempt under Iowa Code § 627.6(8)(a), a statute that exempts from bankruptcy proceedings "any property that constitutes '[a] social security benefit, unemployment compensation, or any public assistance.'" In re Wilson, 2004 WL 161343, at *1. The bankruptcy trustee objected to the debtors' claimed exemption, arguing that farm program payments did not qualify for exemption under § 627.6(8)(a). See id. The United States Bankruptcy Court for the Northern District of Iowa held that farm program payments were not exempt under § 627.6(8)(a) as "public assistance benefits." Id. at *2. See In re Wilson, 296 B.R. 810 (Bankr. N.D. Iowa 2003). The debtors appealed the bankruptcy court's decision to the United States District Court for the Northern District of Iowa. See id.

Arguments

The debtors argued that the farm program payments they received are "public assistance benefits" under § 627.6(8)(a) for several reasons. See id. They asserted that the phrase "public assistance benefit" should be interpreted broadly and that farm program payments should be viewed in a manner similar to that of earned-income credits (EIC), which are viewed under Iowa law as "public assistance benefits" under § 627.6(8)(a). See id. at *3. See also In re Longstreet, 246 B.R. 611 (Bankr. S.D. Iowa 2000) (holding that an EIC is exempt as a "public assistance benefit"). The debtors also argued that the bankruptcy court "applied an ambiguous test to determine if the Farm Bill was appropriately tailored to assisting needy individuals" when it relied on the Farm Bill's requirement that a farmer not have an adjusted gross income in excess of $2.5 million in order to be eligible for farm program payments. Id. (citation omitted).

The trustee's main argument was that the debtors improperly relied on Longstreet because the purpose of farm program payments was entirely different from that of EICs. See id. In Longstreet the bankruptcy court held that "EICs were public assistance benefits . . . [since] the 'class of persons that Congress intended to benefit by creating the 'Earned Income Credit' Program of 1975 is composed entirely of low income families.'" Id. (citation omitted). More specifically, the trustee asserted that "'[t]he primary purpose of the [Farm Bill] is not to provide economic relief to a class composed entirely of low income families . . . [but] to benefit a broad range of individuals and businesses who operate (sic) a commercial enterprise of all sizes in the American economy." Id. It further asserted that because the farm program payment eligibility requirements are not based on low income, poverty, or disability, the payments cannot be properly classified as "public assistance benefits." Id.

Analysis and Holdings

Because the phrase "any public assistance benefit" is not defined in the Iowa Code, the district court adopted the definition of the phrase set forth in Longstreet: "'government aid to the needy, blind, aged, or disabled persons and to dependent children.'" Id. at *8 (quoting Longstreet, 246 B.R. at 614). See also id. (stating that "where a . . . phrase is not statutorily defined[,] the principles of statutory construction allow the presiding court to look to interpretations given to the terminology in prior court decisions."). After examining several statements made by members of Congress during debate over the 2002 Farm Bill and statements made by President George W. Bush about the purpose of the Farm Bill, the court stated that

[i]t is clear . . . that when the Farm Bill was enacted, the intent of Congress, at least in part, was to provide a financial "safety net" for farmers from fluctuating commodity prices, to preserve the lifestyle of family farmers and their communities, and to protect small, disadvantaged farmers from impoverishment during times of depressed market prices.

Id. at *11-12.

The court stated that contrary to the trustee's view that a debtor may only exempt "'[a] social security benefit, unemployment compensation and [federal earned-income credits],'" the Iowa legislature intended "to exempt payments under all types of programs having the same underlying purpose, regardless of the vehicle chosen to implement the program. Obviously, domestic commodity programs . . . implement a different vehicle than federal tax credits like EICs, but this does not disqualify . . . [them] from exempt status." Id. at *13 (citation omitted). See also id. (explaining that because the debtors are not blind, aged, disabled, or dependent children, the only question is whether the debtors' farm program payments constitute "government aid to the needy."). The court added that

[i]n the case of the EIC, the federal government determined that a class of low income families with qualifying children in the home were "needy." Likewise, in enacting Farm Bill payments Congress sought to benefit a class which in Congress' view was in need of federal assistance-that class being composed entirely of farmers producing certain commodities . . . . [I]t is clear that the underlying purposes of both EIC and Farm Bill payments are the same-both federal programs seek to assist those who are historically disadvantaged a/k/a "needy."

Id.

The case was decided on January 27, 2004; this summary was posted Mar. 8, 2004.