In re Erich Lantz And Cindy Lantz, 10–B–73859.

• Decision Date: 09 March 2011
• Docket Number: No. 10–B–73859.,10–B–73859.
• Citation: 446 B.R. 850
• Parties: In re Erich LANTZ and Cindy Lantz, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

446 B.R. 850

In re Erich LANTZ and Cindy Lantz, Debtors.

No. 10–B–73859.

United States Bankruptcy Court, N.D. Illinois, Western Division.

March 9, 2011.

Scott E. Hillison, Esq., for Debtors.Megan G. Heeg, Esq., Dixon, IL, for Trustee.

MEMORANDUM OPINION

MANUEL BARBOSA, Bankruptcy Judge.

This matter comes before the Court on the Trustee's objection to claim of exemption in two bank accounts and a table saw. However, today's ruling relates only to a single issue relating to the claim of exemption in the savings account at Associated Bank, which the parties agreed to submit to the Court for a ruling on that issue.

JURISDICTION AND PROCEDURE

The Court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

FACTS AND BACKGROUND

At issue in this case is whether a section of the Illinois homestead exemption statute which exempts the proceeds of the sale of a homestead for one year applies if the bankruptcy petition was filed before the one year period expired but either the debtor subsequently chose not to invest the proceeds in a new homestead or the debtor never had an intent to reinvest the proceeds in a new homestead.

The primary facts are not in dispute. The Debtors sold their homestead in Rockford, IL, on July 31, 2009, for which they received $53,746.86 at closing. They deposited these sale proceeds into a bank account at Associated Bank and claimed an exemption in the $9,000 remaining in the account when they filed for protection under Chapter 7 of the Bankruptcy Code just under a year later, on July 30, 2010.¹ The Debtors claimed the amount exempt under 735 Ill. Comp. Stat. 5/12–906, and the Trustee filed a timely objection. The Trustee argued first that the exemption did not apply because Debtor Cindy Lantz testified at the 341 meeting of creditors that she had no intent to use the remaining proceeds to invest in a new homestead, but might instead use it towards the purchase of a vehicle. Second, the Trustee argued that the exemption did not apply because as of the time she filed her objection on October 27, 2010, it had been over a year since the sale and the proceeds had not been reinvested in a homestead.

DISCUSSION

11 U.S.C. § 522(b)(3) allows bankruptcy debtors to exempt property that would be exempt under the laws of the state indicated by that section, which for this case is Illinois.² The purpose of Section 522(b)(3) “is to afford a state an opportunity to substitute its judgment for that of the Congress with respect to what property ought to be excluded from the bankruptcy estate.” In re Geise, 992 F.2d 651, 658 (7th Cir.1993). The basic task of the bankruptcy court in interpreting the state statute “is to discern the will of the state legislature: what was the exemption scheme that the legislature wished to make available to the state's residents as an alternative to the federal exemptions set forth in the Bankruptcy Code?” Id. As with any question of state law, “when the highest court in the state has not spoken we must attempt to predict how we believe that court would decide,” and in that endeavor we “look to decisions of intermediate appellate courts in the state for persuasive guidance.” Abstract & Title Guar. Co. v. Chicago Ins. Co., 489 F.3d 808, 811 (7th Cir.2007) (internal citations omitted).

Illinois provides for an exemption for every individual in a “homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence, or in a cooperative that owns property that the individual uses as a residence.” 735 Ill. Comp. Stat. 5/12–901. The same statute further provides:

When a homestead is conveyed by the owner thereof, such conveyance shall not subject the premises to any lien or incumbrance to which it would not be subject in the possession of such owner; and the proceeds thereof, to the extent of the amount of $15,000, shall be exempt from judgment or other process, for one year after the receipt thereof, by the person entitled to the exemption, and if reinvested in a homestead the same shall be entitled to the same exemption as the original homestead.

735 Ill. Comp. Stat. 5/12–906 (emphasis added).

(A) The Exemption for Proceeds Contains no Requirement that the Debtor Intend to Invest them in a New Homestead.

The homestead exemption statute does not contain an express requirement that the owner intend to use the proceeds to purchase a new homestead. It simply states that, if the proceeds are reinvested in a new homestead the new homestead will be entitled to the original exemption, and therefore debtors are not entitled to claim two homestead exemptions—in the remaining proceeds and in the new homestead—at the same time. No reported Illinois cases have read such an intent requirement into the statute. However, the Trustee cites a bankruptcy case from the Central District of Illinois which held that such a requirement is implied by the homestead statute taken as a whole. In re Ziegler, 239 B.R. 375 (Bankr.C.D.Ill.1999) (Altenberger, J.); see also In re Sizemore, No. 00–83455, 2001 WL 34079528 (Bankr.C.D.Ill. Apr.26, 2001) (Perkins, J.) (adopting the reasoning from In re Ziegler ).

In Ziegler, Judge Altenberger reasoned, first, that Illinois case law had implied an intent requirement with respect to the general homestead exemption. Id. at 378. As he stated, “[i]ntent plays a critical role in the entitlement to a homestead exemption, both in its creation and in its abandonment.” Id. While the general homestead exemption statute does not refer to intent, it contains an express requirement that the property “be occupied” by the debtor “as a residence.” 735 Ill. Comp. Stat. 5/12–901. From this, Illinois courts have held that a “right to a homestead may be lost by voluntary abandonment without any intention of returning.” Rasmussen v. Rasmussen, 368 Ill. 137, 140, 13 N.E.2d 166, 168 (Ill.1938). The courts have held that a temporary absence will not necessarily result in abandonment, if when the debtor leaves he or “she intends to return and acquires no homestead elsewhere.” Id., 368 Ill. at 140–41, 13 N.E.2d at 168. However, a “removal from the homestead premises will be taken as an abandonment unless it clearly appears that there is an intention to return and occupy them.” Id. 368 Ill. at 141, 13 N.E.2d at 168. Such intent to return “must be unequivocal, for an equivocal intention to return is not sufficient.” Id. Therefore, in order to assert the general homestead exemption, the debtor must have intended the property at issue to constitute his or her residence.

Next, Judge Altenberger reasoned that Section 12–906 was not an independent exemption for proceeds. Rather, it had to be viewed as “a continuation or extension of the general homestead exemption granted by § 12–901.” In re Ziegler, 239 B.R. at 379. He cited People v. Stitt, 7 Ill.App. 294 (1880), for the proposition that the “aim of § 12–906 is to protect the proceeds from the sale of a homestead until they can be reinvested in another.” Ziegler, 239 B.R. at 379.³ Since Judge Altenberger viewed the purpose of the proceeds exemption as a statute “to aid homeowners in maintaining their status as homeowners,” he found that the purpose or policy would not apply if the debtor had no intent to purchase a new homestead. Id. Therefore, Judge Altenberger concluded that “under § 12–906, proceeds received upon the sale are entitled to protection only if there is a good faith intent to reinvest the proceeds in another homestead.” Id.

I respectfully disagree with Judge Altenberger's reasoning on this point. No Illinois court has read such an intent requirement into the exemption statute and, based on Illinois' principles of statutory construction, I do not believe the Illinois Supreme Court would acknowledge such a requirement if the issue was before it. Under Illinois law, the “plain language of a statute is the best indication of the intent of the legislature.” Maksym v. Bd. of Election Comm'rs of City of Chicago, 2011 WL 242421, at *8 (Ill. Jan.27, 2011) (citing Devoney v. Ret. Bd. of the Policemen's Annuity & Benefit Fund, 199 Ill.2d 414, 424–25, 264 Ill.Dec. 95, 769 N.E.2d 932 (Ill.2002)). Therefore, where “the statutory language is clear and unambiguous, we will enforce it as written and will not read into it exceptions, conditions, or limitations that the legislature did not express.” Id. No intent requirement appears in the language of Section 12–906. Instead, the statute simply says that “the proceeds ... shall be exempt ... for one year after the receipt thereof.” 735 Ill. Comp. Stat. 5/12–906. Although the statute makes reference to reinvestment, the reinvestment is not a condition to the exemption. Instead, the statute states that the proceeds shall be exempt for one year “ and if reinvested in a homestead the same shall be entitled to the same exemption as the original homestead.” Id. (emphasis added).

Furthermore, “this circuit and the courts in Illinois have consistently held that personal property exemption statutes should be liberally construed in order to carry out the legislature's purpose in enacting them-to protect debtors.” In re Barker, 768 F.2d 191, 196 (7th Cir.1985)(citing In Re Schriar, 284 F.2d 471, 473–74 (7th Cir.1960); In re Feilchenfeld, 99 F.2d 710, 711 (7th Cir.1938): Finlen v. Howard, 126 Ill. 259, 262, 18 N.E. 560, 561 (1888): Washburn v. Goodheart, 88 Ill. 229, 231 (1878); Burns v. Turner, 193 Ill.App. 172, 175 (1915); McClellan v. Powell, 109 Ill.App. 222, 225 (1902)). In line with the “clear legislative intent to grant protections to debtors and the courts' liberal construction of exemption statutes ... where an exemption statute...