In re Giffune

• Decision Date: 31 May 2006
• Docket Number: No. 05 B 54583.,05 B 54583.
• Citation: 343 B.R. 883
• Parties: In re Joseph William GIFFUNE, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

343 B.R. 883

In re Joseph William GIFFUNE, Jr., Debtor.

No. 05 B 54583.

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

May 31, 2006.

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COPYRIGHT MATERIAL OMITTED

Michael M. Schmahl, representing Richard J. Mason, Trustee, Patricia K. Smoots, representing Richard J. Mason, Trustee, August A. Pilati, representing Midwest Bank and Trust Company, Timothy L. Binetti, representing ABN/AMRO Mortgage Group, Inc. and LaSalle Bank National Association, Attorneys for Movants/Objectors.

Steven B. Towbin, Richard M. Fogel, Ann E. Stockman, Attorneys for Debtor/Respondent.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the objections of Richard J. Mason, the Chapter 7 trustee (the "Company Trustee") for the jointly administered estates of JII Liquidating, Inc., formerly known as Jernberg Industries, Inc., IM Liquidating, LLC, formerly known as Iron Mountain Industries, LLC, and JSI Liquidating, Inc., formerly known as Jernberg Sales, Inc. (collectively, the "Jernberg Companies"), Midwest Bank and Trust Company ("Midwest Bank"), ABN AMRO Mortgage Group ("ABN AMRO"), and LaSalle Bank National Association ("LaSalle Bank") to the claims of exemptions by Joseph William Giffune, Jr. (the "Debtor") in certain real properties located in the states of Illinois and Michigan and held in tenancy by the entirety. For the reasons set forth herein, the Court sustains the objections of the Company Trustee and Midwest Bank to the Debtor's claims of exemptions in the Michigan properties and overrules the objections with respect to the Debtor's Illinois property. The objection lodged by ABN AMRO and LaSalle Bank is untimely and therefore overruled.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain 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 under 28 U.S.C. § 157(b)(2)(B).

II. FACTS AND BACKGROUND

The relevant facts are undisputed. The Debtor filed a voluntary Chapter 11 bankruptcy petition on October 14, 2005. The Debtor was married at the time of the filing, but his spouse did not seek bankruptcy relief. The Debtor's Schedule A, as amended, reflects certain real properties that he owns with his wife as tenants by the entirety. (Docket No. 39.) These properties include real estate located in Naperville, Illinois, that is alleged to be the Debtor's residence (the "Illinois Property").¹ (Id.) Amended Schedule A reflects that the value of the Debtor's one-half interest in the Illinois Property is $375,000.00 and that the property is encumbered by a mortgage of $350,000.00. (Id.) The Debtor and his spouse also own the following unencumbered properties situated in New Buffalo, Michigan, as tenants by the entirety: (1) a cottage; (2) two vacant lots; (3) a condominium and a slip; and (4) a condominium (collectively, the "Michigan Properties").² (Id.) Together, the Debtor's interests in the Michigan Properties are valued at $930,000.00.³

The Debtor claims separate exemptions for his one-half interests in the Illinois Property and the Michigan Properties under each state's exemption laws. (Docket No. 44; Co. Tr. Objection ¶ 5.) Each exemption is based on the fact that the Debtor holds the property interests in tenancy by the entirety with his spouse. (Id.)

Sometime prior to filing the bankruptcy petition, the Debtor was an officer of the Jernberg Companies. (Debtor Reply Ex. B ¶4.) The Jernberg Companies are presently debtors in Chapter 7 cases that are being jointly administered. (Co. Tr. Objection p. 1.) Richard J. Mason was appointed the trustee for the Jernberg Companies' bankruptcy estates. (Id. ¶ 3.) On December 19, 2005, the Company Trustee filed a proof of claim in the Debtor's case (Debtor Reply Ex. B), which he subsequently amended on January 18, 2006. Also on December 19, 2005, the Company Trustee filed an objection to the Debtor's claimed exemptions in the Illinois Property and the Michigan Properties. (Docket No. 51.) The Company Trustee argues that the Debtor is prohibited from asserting exemptions under the statutes of two separate states. (Co. Tr. Objection ¶6.) He further contends that only Illinois exemptions apply because the Debtor is domiciled in Illinois and that state has "opted out" of the federal exemptions under 11 U.S.C. § 522(d). (Id.) Finally, the Company Trustee maintains that because Illinois law limits a married couple's exemption in property held in tenancy by the entirety to their homestead, the Debtor cannot exempt the Michigan Properties. (Id. ¶ 7.)

In response, the Debtor argues that the exemptions asserted under the laws of both Illinois and Michigan are proper and conform to the plain meaning of § 522(b)(2) of the Bankruptcy Code. (Debtor Reply ¶¶3-8.) According to his reading of the statutory provision, the laws of the state of a debtor's domicile control only those exemptions asserted in personal property and homesteads under § 522(b)(2)(A), not the exemptions asserted in real property held by a debtor under § 522(b)(2)(B). (Id. ¶ 6.) In addition, the Debtor claims that the Company Trustee does not have standing to raise his objection. (Id. ¶2.)

On January 31, 2006, Midwest Bank filed an objection wherein it joined the Company Trustee's objection in the event that he lacks standing to object to the Debtor's exemptions. (Midwest Bank Objection ¶ 11.) Midwest Bank filed a proof of claim in the Debtor's case on December 20, 2005 in the amount of $757,781.25. (Id. ¶ 6.) An additional objection was filed jointly by ABN AMRO and LaSalle Bank on April 12, 2006, whereby they joined and adopted the objection raised by the Company Trustee. (ABN AMRO & LaSalle Bank Objection ¶ 8)⁴ ABN AMRO and LaSalle Bank also filed proofs of claim in the Debtor's case. (Id. ¶ 4.)

III. APPLICABLE STANDARDS

A. Contested Claims of Exemptions

A bankruptcy estate is created upon the filing of a bankruptcy petition. 11 U.S.C. § 541(a). With certain exceptions not applicable here, the estate is composed of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1); see also Koch Refining v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1343 (7th Cir.1987) (noting that whatever legal or equitable interests "the debtor had in property as of the filing of the bankruptcy petition [constitute] property of the bankruptcy estate"). Once a bankruptcy estate is created, debtors are permitted to claim exemptions in certain property. 11 U.S.C. § 522(b). "An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor." Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). A debtor's exemption rights are determined as of the date the bankruptcy petition was filed. See 11 U.S.C. § 522(b)(2)(A); Williams v. Giamanco (In re Starr), 123 B.R. 314, 316 (Bankr.S.D.Ill.1991); In re Summers, 108 B.R. 200, 203 (Bankr.S.D.Ill.1989).

Federal Rule of Bankruptcy Procedure 4003 governs hearings on claims of exemptions and objections thereto. Section 522(l) of the Code and Bankruptcy Rule 4003(a) require debtors to "list" the property claimed as exempt on the schedule, of assets. 11 U.S.C. § 522(l); FED. R. BANKR.P. 4003(a). "Unless a party in interest objects, the property claimed as exempt on such list is exempt." 11 U.S.C. § 522(l); see also Taylor v. Freeland & Kronz, 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). Bankruptcy Rule 4003(b) establishes that an objection to the list of property claimed exempt must be filed within 30 days after the conclusion of the meeting of creditors or within 30 days after any amendment to the list of claimed exemptions is filed, whichever is later. FED. R. BANKR.P. 4003(b); see also Taylor, 503 U.S. at 643-44, 112 S.Ct. 1644 (finding that failure to object within the 30 days provided by Rule 4003(b) waives the right to object); In re Salzer, 52 F.3d 708, 712 (7th Cir.1995) (same). An objecting party has the burden of proving by a preponderance of the evidence that a debtor's exemptions are not properly claimed. FED. R. BANKR.P. 4003(c); In re Doyle, 209 B.R. 897, 900 (Bankr.N.D.Ill.1997); In re Ritter, 190 B.R. 323, 325 (Bankr.N.D.Ill.1995).

B. Tenancy by the Entirety

The bankruptcy estate consists of all property of the debtor, including any interests he may hold in property as a tenant by the entirety. In re Hunter, 970 F.2d 299, 305 (7th Cir.1992). A tenancy by the entirety is "a common law form of marital ownership that creates between spouses joint ownership of an undivided interest in property which may not be transferred or encumbered by either spouse acting alone." In re Paeplow, 972 F.2d 730, 733 (7th Cir.1992) (defining tenancy by the entirety under Indiana law); see also Lee Supply Corp. v. Agnew (In re Agnew), 818 F.2d 1284, 1287-88 (7th Cir. 1987) (same). Whether such an interest has been created is defined by state law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Although both Illinois and Michigan allow for the creation of tenancy by the entirety property, each state differs in how it treats the estate for purposes of its exemption laws.

In Illinois, the Joint Tenancy Act, 765 ILL. COMP. STAT. 1005/0.01 et seq. (2004), provides for the creation of tenancy by the entirety. Premier Prop. Mgmt., Inc. v. Chavez, 191 Ill.2d 101, 245 Ill.Dec. 394, 728 N.E.2d 476, 479 (2000). An estate held in tenancy by the entirety, however, is limited to "homestead" property held by a husband and wife "during coverture." 765 ILL. COMP. STAT. 1005/1c. Under Illinois law, property held in tenancy by the entirety cannot be sold to satisfy the debt of only one spouse. 735 ILL. COMP. STAT. 5/12-112 (2004); Premier Prop. Mgmt., 245 Ill.Dec. 394, 728 N.E.2d at 479. That is, property is not exempt from any...