Unclear Guidance Within the Fourth Circuit Renews a Question of Whether Firearms Should Be Exemptible from the Bankruptcy Estate

The primary purposes of the bankruptcy process are to maximize the payments to a debtor’s creditors and provide debtors with a fresh start.[1] At first glance, the importance of firearm ownership appears unrelated to satisfy the purposes of the bankruptcy process. However, without the ability to exempt essential property from creditors, debtors would be left without the ability to achieve success with a renewed start. The next question then becomes, are firearms essential personal property? The answer to this question lies within subjective personal beliefs, with various degrees of an affirmation or refutation debated across the nation. This article provides insight into how states within the Fourth Circuit examine firearms as personal property for the purposes of exempting them from creditors during the bankruptcy process and highlights how a lack of uniformity toward exempting firearms leads to different outcomes on the same personal property.

An individual debtor may exempt property from the bankruptcy estate as outlined in 11 U.S.C. § 522(d). However, an individual state may forbid an individual debtor from exempting property under the federal exemptions by opting out of the exemption design of 11 U.S.C. § 522(d), and utilizing the chapter’s secession provision, by creating their own state exemptions.[2] North Carolina, like the other states in the Fourth Circuit, has opted out of the Bankruptcy Code exemptions in favor of their own enumerated exemptions.[3]

Currently, two of the five states within the Fourth Circuit allow for specific exemptions of firearms. South Carolina allows for an individual debtor to exempt any combination of up to three rifles, shotguns and pistols, as long as the value of the aggregate selection does not exceed $3,000.[4] Virigina allows an individual debtor to exempt one firearm, as long as that firearm does not exceed $3,000 in value.[5] The three remaining states within the Fourth Circuit, Maryland, North Carolina and West Virgina, do not have an enumerated exemption for firearms. However, all three remaining states provide an avenue whereby an individual debtor could exempt single or multiple firearms from the bankruptcy estate.[6] These states all require the courts’ through analysis and determination to decide whether an individual debtor’s interest in singular or multiple firearms is exemptible as generalized personal property or through a specific category, such as household goods.

Even though a debtor is required to comply with the state law in effect at the time of filing their petition, generally a party objecting to a claim of exemption bears the burden of proving that the exemptions are not properly claimed. In the event of an objection being lodged, bankruptcy courts, influenced by the U.S. Supreme Court’s decisions on the nature of the people’s right to “keep and bear arms,” as guaranteed by the Second Amendment, can be immediately thrust into the political arena in the event an individual debtor seeks to exempt firearms from the bankruptcy estate.

For instance, prior to the South Carolina Legislature codifying enumerated exemptions for firearms, the U.S. Bankruptcy Court for the District of South Carolina concluded that a magnum pistol and semiautomatic firearm were not exemptible as “household goods.”[7] The oft-cited opinion issued by the District Court of Maryland in McGreevy (applying Maryland law) affirmed the holding of the bankruptcy court on a motion to avoid a lien, holding that “household goods,” within the meaning of lien avoidance, does not extend to firearms, as firearms are not typically found in the home or facilitate the day-to-day living of the debtor.[8] Less than a decade after McGreevy, the U.S. Bankruptcy Court for the District of Maryland, applying Maryland law, held that an objecting creditor did not meet its burden of proof and therefore affirmed the debtor’s exemptions, which included firearms valued at $500.[9]

The posture of courts determining whether firearms are “household goods” thus results in different conclusions being reached on the same category of personal property. More recently, within the umbrella of the Fourth Circuit, a debtor unsuccessfully sought to exempt two firearms under the asserted qualification of “arms for muster.”[10] Rather than seeking to utilize an enumerated category of exemptions, such as “household goods,” the debtor argued that state common law provides for exemption from creditors firearms, as a civic requirement of North Carolinians is possession of operable firearms.[11] The court disagreed.[12] Nevertheless, the debtor’s argument renews the controversy caused by a state’s lack of explicit firearm exemptions.

With individual firearm ownership a hotly contested point within numerous larger issues nationwide, and bankruptcy courts and state legislatures offering conflicting guidance on whether firearms should be exemptible from creditors, debtors and courts alike would benefit from uniform guidance. The lack of uniformity will continue to place debtors and courts in a position of making determinations on the meaning of terms like “household goods” until the issue is placed squarely in front of an authoritative governing body. Until such time as the law becomes clear, concerns should be brought to the attention of counsel.