Gift cards purchased before bankruptcy won’t qualify for an exemption beyond whatever cash the debtor could exempt, according to Chief Bankruptcy Judge Dale L. Somers of Topeka, Kan.
The husband and wife debtors were defendants in several lawsuits, and the wages of both were being garnished. In what he called “creative pre-petition planning,” Judge Somers said the debtors purchased $4,000 in gift cards from three retailers.
In bankruptcy, the debtors dutifully listed the gift cards among their assets but claimed they were exempt under the Kansas exemption for household furnishings and supplies. Kansas has opted out of federal exemptions.
The trustee objected to the exemption, contending that the gift cards were the equivalent of cash that would not be exempt. The debtors argued the cards were exempt because they could only be exchanged for household goods that would be exempt.
In his December 12 opinion, Judge Somers quoted the Kansas statute exempting “furnishings” that are “in the person’s present possession and [are] reasonably necessary at the principal residence of the person for a period of one year.” He said there is no limit on the amount of the exemption, nor is the exemption limited to “indispensable” goods.
Even though Kansas requires the liberal construction of exemptions in favor of the debtor, Judge Somers nonetheless denied the exemption claim. He said that gift cards were not “furnishings . . . that are in a debtor’s present possession.”
Judge Somers saw the gift cards as being no different than cash that could be used to purchase “lots of things that are not ‘reasonably necessary at the principal residence . . . for a period of one year.” He also could not understand how gift cards would satisfy the “present possession” requirement in Kansas law.
Judge Somers found no precedents in Kansas nor in the Tenth Circuit, but he cited two Arizona cases where gift cards were found to be nonexempt.
Question: For debtors with outstanding judgments or the prospect of judgments, could purchasing gift cards constitute evidence of attempts to hinder or delay the judgment creditor and result in the denial of discharge? In other words, bankruptcy planning could backfire and turn out to be worse than no planning, if it’s too creative.
Gift cards purchased before bankruptcy won’t qualify for an exemption beyond whatever cash the debtor could exempt, according to Chief Bankruptcy Judge Dale L. Somers of Topeka, Kan.
The husband and wife debtors were defendants in several lawsuits, and the wages of both were being garnished. In what he called “creative pre-petition planning,” Judge Somers said the debtors purchased $4,000 in gift cards from three retailers.