In re DeMeter

• Decision Date: 31 August 2012
• Docket Number: No. 12–44593.,12–44593.
• Citation: 478 B.R. 281
• Parties: In re James Louis DEMETER, and Glory Lee Demeter, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

478 B.R. 281

In re James Louis DEMETER, and Glory Lee Demeter, Debtors.

No. 12–44593.

United States Bankruptcy Court,

E.D. Michigan,

Southern Division.

Aug. 31, 2012.

William R. Orlwo, Pleasant Ridge, MI, for Debtors.

OPINION REGARDING TRUSTEE'S OBJECTION TO DEBTORS' CLAIM OF EXEMPTIONS UNDER 11 U.S.C. § 522(d)(1)

THOMAS J. TUCKER, Bankruptcy Judge.

In this case, the Chapter 7 Trustee has objected to the Debtors' claim of exemption in a home that the Debtors own at 5192 U.S. 23, Cheboygan, Michigan (the “Cheboygan Property”). The joint Debtors, James and Glory Demeter, each claim an exemption in the Cheboygan Property as a “residence,” under 11 U.S.C. § 522(d)(1). The Trustee argues that this property does not qualify as property “that the debtor or a dependent of the debtor uses as a residence,” within the meaning of § 522(d)(1), primarily because this property is not the Debtors' principal residence. The Court held an initial hearing, and then held an evidentiary hearing on July 9, 2012.

This case raises the question whether a bankruptcy debtor who owns two homes as of the petition date, and who has regularly lived in each home part of each year, may claim the “residence” exemption under § 522(d)(1) only in the home which is the debtor's principal residence; or whether instead, the debtor may claim the exemption in either home. For the reasons stated in this opinion, the Court holds that such a debtor may claim the “residence” exemption in either home. The Court will overrule the Trustee's objection, and allow Debtor's § 522(d)(1) exemptions.

I. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D.Mich.). This contested matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O). This matter also is “core” because this matter is “created or determined by a statutory provision of title 11,” namely, 11 U.S.C. § 522(d)(1). See generally Allard v. Coenen (In re Trans–Industries, Inc.), 419 B.R. 21, 27 (Bankr.E.D.Mich.2009).

II. Background and facts

Based on the evidence presented at the evidentiary hearing, including the testimony of the Debtors, the Court finds the following facts.

The Debtors, James Demeter and Glory Demeter, are husband and wife, and they filed their joint Chapter 7 petition in this case on February 28, 2012. For many years before filing their petition, and continuing to the present, Debtors have owned two homes. The first is their home in the Detroit area, located at 14249 Greentrees, Riverview, Michigan (the “Riverview Property”). The Debtors' second home is the property at issue, the Cheboygan Property. Each property consists of a single-family home.

The Debtors purchased the Riverview Property in 1972, when the house was built. The Trustee presented substantial evidence which arguably shows that from 1972 through the petition date, and continuing thereafter, the Riverview Property has been the Debtors' principal residence. Among other facts tending to show this are that the Debtors have always used the Riverview Property, not the Cheboygan Property, as their only mailing address, and as their home address for many purposes, including voting, as the address on their tax returns, and as the address for receiving all of their bills and bank statements. The Debtors were physically occupying the Riverview Property on the petition date.

The Debtors have not claimed any exemption for the Riverview Property, and their Schedules A and D indicate that the balance owing on the mortgage loan on the Riverview Property substantially exceeds the value of that property.¹ The creditor holding the mortgage on the Riverview Property moved for and has obtained, without objection, relief from the automatic stay, to enable it to pursue foreclosure against the Riverview Property.²

With respect to the Cheboygan Property, the Debtors listed it in their Schedules as their “Second Residence.” ³ The Trustee asserts that this property is a vacation home. The property is located in Northern Michigan, on Lake Huron, and faces toward Mackinac Island, Michigan. The Debtors have owned the Cheboygan Property since 1996. As of the petition date, they had listed that property for sale, for several months, and had received a couple of offers on the property, but had found the offers inadequate and rejected them.

The Debtors' home in Cheboygan is a 3 bedroom house, is fully furnished, and at all times has had all the basic utilities operating year-round. Debtors keep clothing there, along with other personal property. Debtor James Demeter, whose testimony the Court credits, testified that the Debtors have lived in the Cheboygan house for about half of the year for each year since that they have owned it. Debtors considered the Riverview Property a “starter home,” and lived in Riverview because of work. But the Debtors always considered the Cheboygan Property their home, and had planned to live there full-time ultimately, until recent financial problems prompted them to try to sell the home. James Demeter testified that in the past he had tried to purchase businesses in the Cheboygan area, so that he and his wife could live in the Cheboygan Property full time. Even while working in the Detroit area, James Demeter was able to do some of his work while staying at the Cheboygan Property. And the Debtors always lived in the Cheboygan home for about half of the time each year, and at all times of the year, including winter, and including winter holidays like Christmas and New Years Day. That home was never winterized, and the Debtors never rented it out.

The Court credits the following testimony from James Demeter's supplemental affidavit, dated June 1, 2012, which was admitted into evidence as Trustee's Exhibit 18: ⁴

5. Since 1996, my wife and I have spent about half the year at the Cheboygan Property. This includes almost the entire summer, as well as weekends and holidays year round. In particular, my wife and I often resided at the Cheboygan Property for almost an entire month in and around the Christmas holidays, entertaining various friends and family during those times.

6. There were many instances where my wife continued to reside at the Cheboygan Property during the week, sometimes accompanied by my daughter or others, while I travelled back to the Riverview Property in order to work.

III. Discussion

Section 522(d)(1) provides:

(d) The following property may be exempted under subsection (b)(2) of this section:

(1) The debtor's aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

11 U.S.C. § 522(d)(1)(emphasis added). The dispute in this case concerns the meaning of “residence” in this section. The Bankruptcy Code does not define the word “residence.”

A. The Trustee's position

The Trustee argues that the undefined word “residence” as used in § 522(d)(1) is ambiguous. And, relying on Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), the Trustee argues that the Court must look to the law of the state of Michigan to determine whether the Cheboygan property is a “residence.” ⁵ But, the Trustee says, “residence” is not a defined property interest under Michigan law. For these reasons, the Trustee argues that the Court should resort to legislative history to determine Congress's intended meaning of the word “residence.”

The Trustee argues that the legislative history shows that Congress intended a residence under § 522(d)(1) to be the equivalent of a “homestead” under state exemption law.⁶ Michigan's exemption statutes do not use the word “residence,” but they provide an exemption for a debtor's “homestead.” The Trustee argues that under Michigan's statutory exemption for debtors in bankruptcy,⁷ just as under the exemption statutes of many other states, a “homestead” is a person's principal residence. SeeMich. Comp. Laws Ann. §§ 600.5451(1)(n) and 600.5451(5)(d) (granting a debtor in bankruptcy a “homestead” exemption from property of the estate, among other exemptions, and defining “homestead” as one of several types of residential dwellings, “owned or being purchased under an executory contract by the debtor that the debtor or a dependent of the debtor occupies as his or her principal residence”)(emphasis added). The Trustee points out that under Michigan law, a debtor can only have one homestead, citing Kleinert v. Lefkowitz, 271 Mich. 79, 259 N.W. 871, 874 (1935)(citing Wheeler v. Smith, 62 Mich. 373, 28 N.W. 907 (1886)(“A person may not have two homesteads at the same time.”)).⁸

The Trustee argues that as of the petition date, the Riverview Property was the Debtors' principal residence, and that the Cheboygan Property was only a seasonal and lesser-used vacation home. Therefore, according to the Trustee, Debtors cannot claim an exemption in the Cheboygan Property under § 522(d)(1).⁹

In the alternative, the Trustee argues that even if the Court does not rely on Michigan law to define “residence,” the Cheboygan Property is not the debtor's residence “under the ordinary or natural meaning of the term ‘residence’ because the Debtors[ ] did not live at the Cheboygan [p]roperty on the petition date and had no intent to return [there].” ¹⁰

B. Debtors' position

Debtors argue that both the Riverview Property and the Cheboygan Property are their residences, and that they may claim an exemption in either property under § 522(d)(1). This is so, Debtors argue, because there is no requirement under § 522(d)(1) that a debtor have only one residence, or that the residence claimed as exempt be the debtor's principal residence.¹¹ Debtors argue further that even if § 522(...