In an opinion allowing the stacking of exemptions, Bankruptcy Judge Cathleen D. Parker allowed the debtor to exempt almost $140,000 in wages.

In her May 23 opinion, Judge Parker explained why the outcome was not “strange” but reflected how the Colorado Supreme Court has been interpreting the state’s wage exemption for 150 years.

The debtor was a physician who filed a chapter 7 petition with $11 million in debt, mostly arising from personal guarantees of his corporate medical practice. At filing, the debtor had about $28,000 a month in net income.

Before bankruptcy, judgment creditors had been garnishing his salary, taking 20% as allowed by Colorado law. On advice of counsel, the debtor opened a new bank account before filing and began depositing his net earnings into the account. From the account, he transferred whatever he needed into a preexisting bank account to pay expenses. Judge Parker said there was no evidence that the debtor concealed the existence of the new account.

At filing, the debtor had more than $170,000 in the new account. Colorado has opted out of federal exemptions. The debtor claimed that 80% of the $170,000 was exempt under the state statute.

The trustee objected to the exemption claim, contending that the debtor could only exempt 80% of wages earned one week before filing. Wyoming’s bankruptcy judge, Judge Parker was sitting in Denver and overruled the objection.

The Colorado statute allows an exemption for the “maximum part of the aggregate disposable earnings of an individual for any workweek that . . . may not exceed . . . [t]wenty percent of the individual’s disposable earnings for that week.” The statute defines “earnings” as “[c]ompensation paid or payable to an individual employee or independent contractor for personal labor or services.”

Judge Parker began with the proposition that exemptions in Colorado must be interpreted liberally in favor of debtors. In an 1885 decision, the Colorado Supreme Court held that wages are exempt if they are capable of identification. The statute at the time, like the current statute, did not specify in whose hands the wages must be held to be exempt.

Although old, Judge Parker said that the 1885 decision has not been overruled but rather has been continually cited. For example, she mentioned a Colorado district court decision holding that wages remained “earnings” even after being deposited into a bank account. Similarly, the Tenth Circuit held that accumulated pension benefits remained exempt after being deposited into a bank account.

Like the earlier statute, Judge Parker said that “the current form of the earnings exemption statute is devoid of any temporal or monetary limitations.” She said that courts in some other states have held otherwise but were “driven by differences in statutory language.”

Judge Parker alluded to a Nevada Supreme Court decision that did not limit the exemption to one week’s wages because the statute did not say so. She similarly held that she would “not add words to the current version, which is devoid of any temporal or monetary limitations on the earnings claimed to be exempt.”

Judge Parker noted that the only limitation in the Colorado statute is the 20% cap on garnishments. “By its language,” she said, “even the highest-income earners in Colorado could retain 80% of their disposable earnings.”

Given the mandate to interpret exemptions liberally, Judge Parker said that courts in Colorado permit stacking except when expressly prohibited by statute, like for tools of the trade and automobiles. “Because the legislature has not expressly prohibited the stacking of the deposit account exemption with any other exemption, this court will not do so,” she said.

In his schedules, the debtor had claimed an exemption over 80% of the funds in the new account, but at the hearing, the debtor advanced a new theory to cover 100%. The debtor claimed that 20% had been garnished before the remainder had been deposited into the new account.

The new theory might have prevailed, but Judge Parker rejected the idea because there was “insufficient evidentiary support” to prove that 20% had in fact been garnished before deposit.

Judge Parker allowed an exemption for 80% of the funds in the account, or about $140,000.