In re Erickson
| Decision Date | 20 May 2009 |
| Docket Number | No. HG 07-09179.,HG 07-09179. |
| Citation | 406 B.R. 522 |
| Parties | In re Larry D. ERICKSON, Jr. and Cindy L. Erickson, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Jeff A. Moyer, Esq., Grandville, MI, Chapter 7 Trustee.
Roger G. Cotner, Esq., Grand Haven, MI, attorney for Debtors.
Jeff A. Moyer ("Trustee") has objected to the Section 522(d)(5)1 exemption claimed by Larry and Cindy Erickson (the "Ericksons") in the 2006 and 2007 refunds they received from various taxing authorities. Trustee's objection is sustained.
When the Ericksons filed their Chapter 7 case on December 10, 2007, they indicated in their schedules that they were not owed any tax refunds for previous years and that they did not expect to receive a refund for the current year. However, five months later the Ericksons amended their schedules to include 2006 and 2007 tax refunds totaling $13,810. They also amended their Schedule C at that time to add the now disclosed refunds to the property they claimed as exempt.
Trustee had not raised an objection up to that point. However, the Ericksons' May 16, 2008 amendment prompted a response. Originally, Trustee objected on the theory that the Ericksons were time-barred as a matter of law from claiming any exemption in the tax refunds because they had not disclosed them at the outset of their case. However, that theory was rejected at a prior hearing.2 Consequently, Trustee has since proceeded against the Ericksons based upon the alternate theory that their exemption of the refunds should at least be partially disallowed because it exceeded the maximum amount permitted under the applicable statute.3
An evidentiary hearing was then held. Larry Erickson was the only witness and the Ericksons' original and amended Schedules B and C were the only exhibits offered.4
Although the Ericksons did not initially claim their 2006 and 2007 tax refunds as exempt, they did claim exemptions in other items of the estate's property. Specifically, the Ericksons claimed Section 522(d)(5) exemptions in cash and bank accounts and in a vacant parcel of land in Tawas Township, Michigan (the "Tawas property").5 According to Mr. Erickson, the Tawas property is unencumbered.
The Ericksons' original Schedule C itself discloses these claimed exemptions as follows:
Equating the value of the Tawas property with the exemption claimed suggests on its own that the Ericksons wanted to actually keep it as a so-called "in-kind" exemption.7 Moreover, Mr. Erickson himself confirmed at the ensuing evidentiary hearing that his intention at the outset of the case was in fact to keep the property. But Mr. Erickson also testified that he and his wife had had a change of heart sometime after they had attended the meeting of creditors on January 15, 2008.8 What had prompted this change was their discovery that the 2006 and 2007 tax refunds would be much larger than what they had originally anticipated. When exactly after the January 15, 2008 meeting the Ericksons learned of their good fortune is unknown. However, it is clear that the Ericksons did not attempt to include the tax refunds among the assets they claimed as Section 522(d)(5) exemptions until they filed their amended Schedule C on May 16, 2008.
The monetary limit imposed by Section 522(d)(5), though, precluded the Ericksons from simply adding these refunds to the Section 522(d)(5) exemptions they had already taken in the cash, the bank accounts, and the Tawas property. Specifically, the $13,810 tax refund, when combined with the values of this other property, totaled $26,547 and Section 522(d)(5) permitted the Ericksons a maximum of only $22,400.
The Ericksons' solution was to reduce the amount they had claimed as their Section 522(d)(5) exemption in the Tawas property from $12,500 to $5,853. In other words, when the Ericksons filed their amended Schedule C on May 16, 2008, their plan was 1) to still use $237 of their available Section 522(d)(5) exemption to keep the cash and bank accounts they had originally reported; and 2) to use another $13,810 of the available exemption to keep all of the 2006 and 2007 tax refunds that they were then disclosing for the first time; but 3) to now abandon what they had previously intended to be an "in-kind" exemption of the entire interest in the Tawas property and instead accept simply the balance of their available Section 522(d)(5) exemption, that being $5,853, from whatever Trustee himself might realize as proceeds from the sale of the same.9
Trustee, though, contends that the Tawas property had been already removed from the estate as a $12,500 exemption and, therefore, that the remaining Section 522(d)(5) exemption is not enough to cover the entire tax refund. Trustee asserts instead that the Ericksons can keep only $9,113 of the refund and that the remainder must be turned over for distribution to their creditors.10
May the Ericksons claim a Section 522(d)(5) exemption in the entire $13,810 of tax refunds now included in their amended Schedule C?
If, as Trustee contends, the estate's interest in the Tawas property was removed by the Ericksons' unopposed exemption of the same in their original Schedule C, then it follows that the Ericksons could not later unwind what has already been done. Certainly, the Ericksons had the right to amend their Schedule C however they wished. FED.R.BANKR.P. 1009(a). Such an amendment, though, is meaningless if the subject property has already been removed from the estate, for the Bankruptcy Code provides no mechanism for a debtor to return already exempted property to the bankruptcy estate short of the trustee's agreement to accept it again, which is clearly not the case in this instance. Simply said, the Ericksons cannot, to use their own metaphor, "put the toothpaste back into the tube." See also, In re Brown, 375 B.R. 362, 376-78 (Bankr.W.D.Mich.2007).11
The question, then, turns on whether the Ericksons did in fact remove the Tawas property from the bankruptcy estate when, at the outset of their case, they claimed it as exempt without Trustee's objection. A considerable amount of controversy has erupted in this district, as well as in others, as to whether a debtor may take a so-called "in-kind" exemption of property from the estate and, if so, how is such an exemption accomplished. What often sets off the controversy is a dispute between the debtor and the trustee as to whether the trustee may still sell property on behalf of the estate that the debtor claims is no longer the trustee's to sell because of his already allowed exemption of the same. The instant case, of course, is different, for here it is the Ericksons who are asserting that the previously exempted property is still part of the bankruptcy estate whereas it is Trustee who is asserting that the subject property has been removed and now belongs to the Ericksons. The issues, though, are still the same. Therefore, it is appropriate to consider once again the various approaches the courts have taken. See, In re Cormier, 382 B.R. 377 (Bankr.W.D.Mich.2008),12 Klein v. Chappell (In re Chappell), 373 B.R. 73 (9th Cir.BAP2007),13 and In re Anderson (6th Cir. BAP 2007).14
Cormier most favors the Ericksons' position, for it holds that Section 522(d)(5) permits no "in-kind" exemption at all.
Based upon the explicit statutory language and the melange of interpretation principles, this court believes that § 522(d)(5) does not contemplate any "in-kind" exemption.
However, with all due respect, Cormier's conclusion is based more upon a variation of Anstotlean logic than statutory construction. That is, Cormier creates categories and then makes deductions from their comparison. Here is Cormier's reasoning:
To discern the importance of § 522(d)(5), it is worthwhile to quickly review § 522(d) in its entirety. Of its twelve subsections, only eight have a reference to a maximum monetary amount. The four other subsections have no monetary limitation. The exemptions without the monetary limitations might appropriately be described as "in-kind" exemptions. For purposes of construing § 522(d)(5), the comparison demonstrates that Congress treated different exemption subsections in different ways.... The language of § 522(d)(5), contrasted with the "in-kind" exemption subsections, encourages a reader to conclude that a difference must exist-the maximum stated amount must...
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IN RE BEAUDOIN, 07-21257 (ASD).
...Sixth Circuit has not addressed the issue, various courts within the circuit have done so, including one recently. See, In re Erickson, 406 B.R. 522, 524 fn. 6 (2009) ("Section 522(d)(5) is often referred to as the `catch all' or `wild card' exemption. It permits the debtor to exempt from t......
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In re Daniel And Debbie Magee
...There is no similar provision in the Code addressing exemptions in the context of a subsequent case. Kamco relies on In re Erickson, 406 B.R. 522 (Bankr.W.D.Mich.2009), in which the court discussed the effect of the debtors' initially exempting real property upon their attempt to exempt tax......
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In Re: Scott A. Beaudoin And Jennifer J. Beaudoin
...Sixth Circuit has not addressed the issue, various courts within the circuit have done so, including one recently. See, In re Erickson, 406 B.R. 522, 524 fn. 6 (2009) ("Section 522(d)(5) is often referred to as the 'catch all' or 'wild card' exemption. It permits the debtor to exempt from t......
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Postpetition Proceeds of Exempt Interests in Property: Who Owns the Appreciation?
...Kirresh (In re Gill), 574 B.R. 709, 714 (B.A.P. 9th Cir. 2017); Coslow v. Reisz, 811 Fed. App'x 980, 984 (6th Cir. 2020); In re Erickson, 406 B.R. 522, 530 (Bankr. W.D. Mich. 2009); In re Heflin, 215 B.R. 530, 532 (Bankr. W.D. Mich. 1997). But see In re Montanaro, 307 B.R. 194, 199 (Bankr. ......