Is Arkansas's $500 personal property exemption an absolute cap, or can debtors protect more under specific statutes?

Plain-English summary

Article 9, Section 2 of the Arkansas Constitution lets a married person or head of family designate up to $500 of personal property as exempt from "seizure on attachment, or sale on execution or other process from any court, on debt by contract." Representative Karilyn Brown asked whether that $500 cap was absolute, given that statutes such as Ark. Code Ann. § 16-66-220 (pension and profit-sharing plans) and § 16-66-209 (life and health insurance proceeds) appear to allow exemption of much more.

The AG's answer was that the $500 number is not an absolute ceiling. Whether it caps the exemption depends on three things: whether the property qualifies as personal property; whether the underlying debt arose by contract; and how the creditor is trying to collect.

If a creditor pursues a debtor in bankruptcy or directly enforces a contract judgment, the $500 limit generally controls. The Eighth Circuit's decision in In re Holt held that § 16-66-209's "unlimited exemption" for life insurance proceeds was unconstitutional as applied to bankruptcy debtors because it conflicted with the constitutional cap.

But if a creditor goes after assets held by a third-party garnishee (a bank, a credit union, an employer), the rules change. The Arkansas Supreme Court held in Clinical Study Centers, Inc. v. Boellner that § 16-66-220's exemption of retirement-account assets, even at six-figure amounts, did not violate Article 9, Section 2 because that constitutional limit does not extend to garnishment-based exemptions. So a retirement account worth $325,000 was protected from garnishment even though it dwarfed the $500 cap.

The AG declined Question 2 (asking which other personal property could be exempted in excess of $500) as too fact-specific. Whether any particular state or federal exemption applies depends on the debtor's circumstances and the collection method.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Article 9, Section 2 of the Arkansas Constitution states in full: "The personal property of any resident of this State, who is married or the head of a family, in specific articles to be selected by such resident, not exceeding in value the sum of five hundred dollars, in addition to his or her wearing apparel, and that of his or her family, shall be exempt from seizure on attachment, or sale on execution or other process from any court, on debt by contract."

Two constraints in that text matter. First, the property must be personal property. Second, the debt must arise from a contract. A debt for delinquent taxes is not contractual; the Watson case holds that tax debts fall outside Article 9, Section 2 entirely.

Three threads of case law together produce the modern picture:

Sanford v. Otasco, Inc. (Ark. 1980) confirmed that personal property under Article 9, Section 2 includes cash and wages owed, not just tangible chattels.

In re Holt (8th Cir. 1990) addressed § 16-66-209, which says insurance proceeds "shall be exempt from liability or seizure." In bankruptcy, the Eighth Circuit treated that as an "absolute exemption" that conflicted with the $500 cap. Multiple bankruptcy court decisions (Williams, Hudspeth, Giller) applied the same logic to other state-law exemption statutes.

Clinical Study Centers, Inc. v. Boellner (Ark. 2012) drew the line. There, a creditor tried to garnish a credit union holding a debtor's IRA. The Arkansas Supreme Court explained that statutes exempting specific funds from garnishment are "process prohibitions," not absolute exemptions, because the creditor can still reach the funds once they leave the third party's hands. So the $500 cap does not apply in the garnishment context.

The AG also noted that bankruptcy debtors in Arkansas can elect federal exemptions under 11 U.S.C. § 522(d) instead of state-law exemptions, which avoids the Article 9, Section 2 problem entirely (subject to the federal scheme's own caps).

Common questions

Was the $500 limit a flat cap on what a debtor could keep?
No. The cap controlled when a debtor was in bankruptcy and elected state-law exemptions, or when a creditor reduced a contract claim to a judgment and collected directly. The cap did not apply to most garnishment exemptions.

Could a retirement account be protected from a creditor under this opinion?
According to Boellner, yes, when the creditor was using garnishment. The court upheld an exemption of $325,000 in retirement assets under § 16-66-220 against a garnishment.

What about life insurance proceeds?
At the time of this opinion, § 16-66-209 nominally protected all life insurance proceeds from "liability or seizure," but the Eighth Circuit had held that exemption was unconstitutional as applied to bankruptcy debtors. In a garnishment, the same statute would be valid.

Did Article 9, Section 2 apply to tax debts?
No. Watson held that the constitutional exemption applies only to contract debts. Statutory liabilities like delinquent taxes do not trigger the $500 cap.

Could a debtor in bankruptcy avoid the cap altogether?
By electing federal exemptions under 11 U.S.C. § 522(d), as Ark. Code Ann. § 16-66-217 expressly permits. The federal scheme has its own dollar limits but is generally more generous than the state $500 cap.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2017-082
November 2, 2017
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Karilyn Brown
State Representative
P. O. Box 6677
Sherwood, AR 72124-6677
Dear Representative Brown:

This is in response to your request for an opinion on the personal-property exemptions found in Article 9, section 2 of the Arkansas Constitution. Article 9, section 2 allows married individuals or heads of families to designate as "exempt from seizure on attachment, or sale on execution or other process from any court, on debt by contract" such personal property that does not "exceed[] in value the sum of five hundred dollars."

You ask two questions, which I have paraphrased as follows:

1) Is the five-hundred dollar sum stated in Ark. Const. art. 9, § 2 an absolute limit on personal-property exemptions, or can property in excess of five hundred dollars be exempted under a statute like Ark. Code Ann. § 16-66-209, which concerns proceeds of life, health, accident, and disability insurance?

2) If assets held in a pension or profit-sharing plan can be exempted at values over five hundred dollars pursuant to Ark. Code Ann. § 16-66-220, what other types of personal property can be exempted in excess of five hundred dollars?

RESPONSE

The applicability of Article 9, section 2 to a given debtor varies with the nature of the property to be exempted, the origin of the debtor's liability, and the basis of the creditor's claim. As an initial matter, the property to be exempted must qualify as "personal property," and the exemption must be asserted against a "debt by contract." If these prerequisites are satisfied, five hundred dollars is generally the maximum value of the exemption. For example, Article 9, section 2 may cap the personal-property exemptions of a debtor in bankruptcy at five hundred dollars. But in a garnishment proceeding, a debtor may be able to claim an unlimited exemption for certain personal property despite the constitutional maximum. Thus, the answer to your first question is "no." Article 9, section 2 is not an "absolute limit" on personal property exemptions.

Your second question, regarding the types of personal property to which the five-hundred dollar limit might not apply, is too fact-specific for a definitive answer. A multitude of personal-property exemptions might be available to a debtor under state or federal law. Whether a given exemption would have a maximum value of five hundred dollars cannot be assessed as a general matter.

DISCUSSION

Question 1: Is the five-hundred dollar sum stated in Ark. Const. art. 9, § 2 an absolute limit on personal-property exemptions, or can property in excess of five hundred dollars be exempted under a statute like Ark. Code Ann. § 16-66-209, which concerns proceeds of life, health, accident, and disability insurance?

The five-hundred dollar sum stated in Article 9, section 2 is not an absolute limit on the value of personal property that a debtor can claim as exempt. First, Article 9, section 2 is only triggered if the debt is one "by contract." Second, courts have applied the five-hundred dollar limit from Article 9, section 2 primarily in bankruptcy proceedings and contract judgments executed directly against the debtor. In these scenarios, debtors likely cannot rely on state law to exempt personal property "exceeding in value the sum of five hundred dollars."

However, Arkansas statutes exempting specific types (but unlimited amounts) of personal property from garnishment may circumvent the five-hundred dollar limit. So if a creditor attempts collection from a third-party garnishee, the debtor can generally claim as exempt personal property worth more than five hundred dollars.

Property exempted under Article 9, section 2 must be "personal property," and the debt in question must have arisen "by contract." While "[p]ersonal property is not defined in the constitutional exemption," courts have held that cash, wages owed, and a number of other non-real estate assets may qualify. But courts have taken care to constrain Article 9, section 2 to contractual debts. Thus, a debtor who fails to pay sales and income taxes cannot assert the five-hundred dollar exemption. A "debt for delinquent taxes" is statutory, and Article 9, section 2 "do[es] not apply to a liability created by statute."

Even for debtors claiming personal-property exemptions against a contractual liability, the five-hundred dollar constitutional limit does not apply uniformly. If the debtor is in bankruptcy, Article 9, section 2 may limit the value of personal property that can be claimed as exempt under Arkansas law. Noting that unsecured creditors have "no means of reaching the proceeds or cash value of [life-insurance] policies" once a bankruptcy debtor is discharged, the Eighth Circuit held that an "absolute exemption" for the insurance proceeds would interfere with the five-hundred dollar limit "controlled by the constitution." The Court reached this result notwithstanding Ark. Code Ann. § 16-66-209, which provides that "all moneys paid or payable" under a life-insurance policy "shall be exempt from liability or seizure." The Court found that this "unlimited exemption" for life-insurance proceeds "conflict[ed] with the overriding $500 limitation imposed by article 9, section 2." Section 16-66-209 was therefore "unconstitutional as applied to debtors in bankruptcy."

With respect to garnishment, however, an "unlimited exemption" statute such as section 16-66-209 is a valid expression of legislative authority. In bankruptcy proceedings, exemptions claimed under state law must be consistent with the maximum amounts "permitted by the Arkansas Constitution." There is no such restriction on the value of property that can be exempted from garnishments, a distinction the Arkansas Supreme Court found crucial when holding that a debtor could exempt retirement-account assets in excess of five hundred dollars.

And rather than implicating Article 9, section 2 by purporting to exempt "all personal property" from collection, section 16-66-209 and similar provisions only exempt "certain funds from general garnishment statutes." That is, in the garnishment context, these exemption statutes amount to a "process prohibition" instead of an "absolute exemption" that would conflict with Article 9, section 2. If a debtor claims an exemption when a third party is garnished, "in the future the creditor may reach the funds [once they are] in the possession of the debtor." The creditor would not be foreclosed from collection, as might be the case after discharge if an unlimited exemption were claimed by a debtor in bankruptcy.

For these reasons, a statute "exempt[ing] only a certain type of fund from garnishment . . . does not offend article 9, section 2 of the Arkansas Constitution."

It is therefore my opinion that the five-hundred dollar sum from Article 9, section 2 cannot be characterized as a "maximum cap on exemptions." Assuming the debtor has a contract-based liability and the property to be exempted qualifies as personal property, the question of whether exemptions will be limited to five hundred dollars is dependent on the circumstances of the case. A debtor in bankruptcy may be constrained to five-hundred dollars' worth of state-law exemptions. But a debtor whose property is garnished from a third party can likely claim exemptions (under Ark. Code Ann. § 16-22-209, for example) in excess of five hundred dollars.

Question 2: If assets held in a pension or profit-sharing plan can be exempted at values over five hundred dollars pursuant to Ark. Code Ann. § 16-66-220, what other types of personal property can be exempted in excess of five hundred dollars?

Because it calls for a fact-intensive analysis beyond the scope of an opinion response, I cannot conclusively answer your second question. The Boellner Court held that assets in a pension or profit-sharing plan were properly exempt under Ark. Code Ann. § 16-66-220 when a creditor tried to garnish those assets from a third-party credit union. But the fact that the creditor targeted "assets ... in an IRA account" was not dispositive of whether the debtor could exempt the property at values over five hundred dollars. Instead, the Court confirmed that Article 9, section 2 simply does not apply to garnishments. The "unlimited exemption" under section 16-66-220 was constitutional due to the method of collection, not because of the property involved.

A statute exempting a certain type of property might be valid in the garnishment context and invalid (assuming the debtor elected state-law exemptions) in the bankruptcy context. Thus, even an exhaustive list of the personal-property exemptions available under Arkansas law would not necessarily depict the types of property that can be exempted at values over five hundred dollars. For these reasons, I must decline to respond further to your second question.

Sincerely,

LESLIE RUTLEDGE
Attorney General