The personal property of any resident of this State, to a value fixed by the General Assembly but not less than $500, to be selected by the resident, is exempted from sale under execution or other final process of any court, issued for the collection of any debt.
Cross References. - As to exempt property, see G.S. 1C-1601 et seq.
History Note. - The provisions of this section are similar to those of Art. X, § 1, Const. 1868.
Legal Periodicals. - For note on the non-purchase security agreement as a relinquishment of the personal property exemption, see 15 Wake Forest L. Rev. 708 (1979).
For note on enforcement of separation agreements by specific performance, see 16 Wake Forest L. Rev. 117 (1980).
For article on North Carolina's new Exemption Act, see 17 Wake Forest L. Rev. 865 (1981).
For article analyzing North Carolina's exemptions law, see 18 Wake Forest L. Rev. 1025 (1982).
CASE NOTES
Editor's Note. - Some of the cases cited below were decided under former Art. X, § 1, Const. 1868.
Exemption Is a Constitutional Right. - The right to the personal property exemption exists not by virtue of the allotment, but by virtue of the Constitution, which confers it and attaches the protection to the debtor before the allotment or appraisal. Lockhart v. Bear, 117 N.C. 298, 23 S.E. 484 (1895). See also, Crow v. Morgan, 210 N.C. 153, 185 S.E. 668 (1936).
This section and N.C. Const., Art. X, § 2 are explicit in guaranteeing to every resident of the State his homestead and personal property exemption of the value fixed, "to be selected by the owner thereof." McKeithen v. Blue, 142 N.C. 360, 55 S.E. 285 (1906).
Section 1C-1601(c) and Section 1C-1603(e)(2) are Unconstitutional. - Section 1C-1601(c) and section 1C-1603(e)(2), as they attempt to limit the claiming of constitutional exemptions to 20 days after notice to designate is served, are unconstitutional. HFC v. Ellis, 107 N.C. App. 262, 419 S.E.2d 592 (1992), cert. granted, 333 N.C. 167, 424 S.E.2d 909 (1992).
As to liberal construction of this section, see Hyman v. Stern, 43 F.2d 666 (4th Cir. 1930).
Law Protects Owner Only for Loss of Exempt Property Under Final Process. - The law protects the owner not from destitution, but only from loss of exempt property due to sale under final process for the collection of any debt. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
The exemption provisions in the Constitution do not make special allowances for a resident's sole remaining assets. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
Debtor Entitled to Exemption at All Times. - The $500.00 personal property exemption prescribed by this section entitles a judgment debtor to the amount of the exemption at all times, and such sum may be set apart for the comfort and support of the judgment debtor as often as the judgment debtor may be pressed with execution. Commissioner of Banks ex rel. Goldsboro Sav. & Trust Co. v. Yelverton, 204 N.C. 441, 168 S.E. 505, commented on in 12 N.C.L. Rev. 65 (1934).
And From Time to Time. - The $500.00 personal property exemption guaranteed by this section must be allotted from time to time as often as the judgment debtor might be pressed with execution, the policy being to enable him not only to have the exemptions allotted to him once, but to keep them about him all the time, for the comfort and support of himself and his family. New Amsterdam Cas. Co. v. Waller, 196 F. Supp. 780 (M.D.N.C. 1961), rev'd on other grounds, 301 F.2d 839 (4th Cir. 1962).
When any final process against the debtor's estate is to be enforced, that much of his estate must be allowed to remain with him as is not liable to sale. Gardner v. McConnaughey, 157 N.C. 481, 73 S.E. 125 (1911). See also, Campbell v. White, 95 N.C. 344 (1886).
But Exempt Funds on Hand May Not Exceed Constitutional Amount. - A judgment debtor may claim his exemption as against successive executions, but may not have exempt funds in his possession at any one time in excess of his exemption. Stated another way, a judgment debtor is privileged to make successive claims for his exemption, but may not hold free from execution at any one time an amount in excess of his exemption. New Amsterdam Cas. Co. v. Waller, 196 F. Supp. 780 (M.D.N.C. 1961), rev'd on other grounds, 301 F.2d 839 (4th Cir. 1962).
Neither this section nor § 1C-1601(a) confers any property exemptions on past residents of this State. Indeed, the constitutional and statutory provisions both contemplate the possibility that changes in the debtor's residency or other changing circumstances may warrant subsequent modification of the debtor's right to constitutional or statutory exemptions. First Union Nat'l Bank v. Rolfe, 90 N.C. App. 85, 367 S.E.2d 367 (1988).
Residency. - Irrespective of defendant's resident status previously, the trial court correctly determined defendant's residency based upon the evidence at the 1987 hearing. First Union Nat'l Bank v. Rolfe, 90 N.C. App. 85, 367 S.E.2d 367 (1988).
Where the only evidence supporting defendant's contention of residency was her statement that she "hoped" to return to this state as soon as her sister's estate in Ireland was settled, this general declaration did not of itself defeat the trial court's findings of nonresidency, in light of the other facts of the case, especially the undisputed evidence that defendant had moved to Ireland (her place of citizenship) at least one year previously, had no dwelling in this state, and offered no definite plan to return. First Union Nat'l Bank v. Rolfe, 90 N.C. App. 85, 367 S.E.2d 367 (1988).
Time for Claiming Exemption. - Until there has been a levy on personal property, no occasion for application of the constitutional exemption arises. New Amsterdam Cas. Co. v. Waller, 301 F.2d 839 (4th Cir. 1962).
The constitutional exemption can be claimed only at the moment of levy. New Amsterdam Cas. Co. v. Waller, 323 F.2d 20 (4th Cir. 1963), cert. denied, 376 U.S. 963, 84 S. Ct. 1124, 11 L. Ed. 2d 981 (1964).
It is only when property is about to be subjected to the payment of a debt by final process that the last opportunity is left to the defendant to claim his exemption. At any time before this stage of the proceeding is reached, he may make his demand and become entitled to an allotment of the exemption. Chemical Co. v. Sloan, 136 N.C. 122, 48 S.E. 577 (1904).
The defendant may demand his exemption when a warrant of attachment is levied on his property and it is taken out of his possession, or he may wait until the final process is issued and the property is about to be appropriated by sale to the satisfaction of the same. Chemical Co. v. Sloan, 136 N.C. 122, 48 S.E. 577 (1904).
A debtor may legally demand his personal property exemption at any time and up to the last moment before the appropriation thereof by the court, and the order of court directing a payment of the money derived from the sale of such property is final process within the meaning of the Constitution, giving the creditor such right until execution or other final process. Befarrah v. Spell, 178 N.C. 231, 100 S.E. 321 (1919); Crow v. Morgan, 210 N.C. 153, 185 S.E. 668 (1936).
Debtor May Voluntarily Bargain Away Exemption Right. - In cases of foreclosure of mortgages or of taking possession of collateral after default, no right to possession of property otherwise exempt remains in the debtor, who has voluntarily bargained it away. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
Legislature Has Not Prevented Debtor from Transferring Interest in Property to Another. - The legislature has seen fit to surround the family home with certain protections against the demands of urgent creditors to put it beyond the reach of those financial misfortunes which even the most prudent and sagacious cannot always avoid. It has not seen fit to prevent a debtor from "selling" or otherwise transferring an interest in that property to another, thereby giving the other priority of right to possession of the collateral. The constitutional exemption operates against general creditors so as to allow the debtor to retain his most valued $500.00 of property in the face of their executions. It does not operate so as to hinder secured creditors from realizing on the terms of their bargain. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
Security Interest Has Replaced Chattel Mortgage as Protection of Creditor. - Before the enactment of the Uniform Commercial Code, a debtor could subject his personal property to a chattel mortgage, and if he did so, the property was liable for the mortgage debt first and the debtor's exemption was allotted only in the amount of the surplus. An Article 9 security interest by the terms of the Uniform Commercial Code replaces the chattel mortgage as a method of protecting the creditor. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
Debtor divested herself of right to possession of personal property by terms of consumer loan contract with her creditor whereby the creditor obtained a security interest in all of her personal property, including her household furnishings. When the debtor defaulted, the creditor had an immediate right to possess all articles in which she had given a security interest. However, this right must be distinguished from any interest which a creditor might seek under an executory waiver of the right to exemption. It has long been held that a debtor cannot be bound by any agreement to waive his exemption in case of levy upon his property. Montford v. Grohman, 36 N.C. App. 733, 245 S.E.2d 219, appeal dismissed, 295 N.C. 551, 248 S.E.2d 727 (1978).
Forfeiture of Exemption. - A bankrupt who conceals assets exceeding in value his statutory exemption forfeits his right to such exemption. Hyman v. Stern, 43 F.2d 666 (4th Cir. 1930).
Exemption May Not Frustrate Laws Relating to Fraudulent Conveyances. - The constitutional exemption is not a sword for frustration of the laws relating to fraudulent conveyances. New Amsterdam Cas. Co. v. Waller, 323 F.2d 20 (4th Cir. 1963), cert. denied, 376 U.S. 963, 84 S. Ct. 1124, 11 L. Ed. 2d 981 (1964).
Exemption Ceases at Death of Claimant. - The personal property exemption provided for by this section and the laws passed pursuant thereto exists only during the life of the homesteader, and after his death passes to his personal representative to be disposed of in due course of administration. Johnson v. Cross, 66 N.C. 167 (1872).
One who is a fugitive from justice, even though he has left his family here, who cannot be found in this State and whose whereabouts are unknown, and the object of whose absence is to avoid serving a criminal sentence imposed by the courts, is not a resident of the State within the meaning of this section, and is not entitled to his exemptions in the absence of evidence or findings on the question of his animus revertendi. Cromer v. Self, 149 N.C. 164, 62 S.E. 885, 128 Am. St. R. 658 (1908).
The husband's duty to protect and provide for his wife is more than a debt in the ordinary acceptation of the word, or within the contemplation of this section and N.C. Const., Art. X, § 2(1). Anderson v. Anderson, 183 N.C. 139, 110 S.E. 863 (1922).
A husband's obligation to support his wife during the existence of the marital relation is not a "debt" within the meaning of this section and N.C. Const., Art. X, § 2(1). Barber v. Barber, 217 N.C. 422, 8 S.E.2d 204 (1940), citing White v. White, 179 N.C. 592, 103 S.E. 216 (1920).
Counterclaim and Setoff. - A party may not demand that his claim be allowed him as his personal property exemption so as to defeat the adverse party's right of counterclaim or setoff prior to rendition of the final judgment on his claim, since to permit the party to asset the exemption before judgment would enable him to obtain judgment in instances in which, if a balance were struck, nothing would be due him. Edgerton v. Johnson, 218 N.C. 300, 10 S.E.2d 918 (1940). For note on this case, see 19 N.C.L. Rev 227 (1941).
Where plaintiff moved that the judgment rendered against him in this cause on defendant's counterclaim should be offset by a judgment subsequently obtained by plaintiff against defendant in a separate action, contending that defendant was insolvent, and defendant demanded that the judgment rendered in his favor upon the counterclaim in the cause be allowed to him as his personal property exemption, it was held that to allow offset would amount to "final process" within the meaning of this section, and defendant's demand that the judgment in his favor on the counterclaim be allowed him as his personal property exemption precluded plaintiff's right of offset. Edgerton v. Johnson, 218 N.C. 300, 10 S.E.2d 918 (1940). For note on this case, see 19 N.C.L. Rev. 227 (1941).
Cited in In re Mims, 49 Bankr. 283 (Bankr. E.D.N.C. 1985); First Union Nat'l Bank v. Rolfe, 83 N.C. App. 625, 351 S.E.2d 117 (1986); Kroh v. Kroh, 154 N.C. App. 198, 571 S.E.2d 643 (2002).