In re Gillissie
| Decision Date | 15 December 1997 |
| Docket Number | Adversary No. 97 A 00142.,Bankruptcy No. 96 B 28299 |
| Citation | 215 BR 370 |
| Parties | In re Raymond M. GILLISSIE, Debtor. Joseph T. VOILAND, Trustee, Plaintiff, v. Raymond M. GILLISSIE and Joanne C. Gillissie, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Joseph R. Voiland, Trustee, Aurora, IL, for Plaintiff.
David S. Argentar, Robbins, Salomon & Patt, Ltd., Chicago, IL, for Defendants.
These matters come before the Court on the objection to the claim of exemption and on the amended complaint to avoid the transfer of the homestead into an Illinois tenancy by the entirety and to sell the property, filed by Joseph T. Voiland, as trustee of the bankruptcy estate ("the Trustee") of the debtor, Raymond M. Gillissie ("the Debtor"). For the reasons set forth herein, the Court sustains the Trustee's objection to the Debtor's claim of exemption in his interest in the homestead property owned by him and his non-debtor spouse. The Court grants the Trustee's request to avoid the transfer of the property from joint tenancy to tenancy by the entirety as an actual fraudulent transfer under 11 U.S.C. § 544(b) and 740 ILCS 160/5(a). Further, the Court authorizes the Trustee to sell the property pursuant to 11 U.S.C. § 363(h).
The Court has jurisdiction to entertain these matters pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. These matters constitute core proceedings under 28 U.S.C. § 157(b)(2)(B), (H) and (M).
At the trial on these matters, counsel for the parties stipulated to the facts in lieu of any testimony and rested on their respective papers filed in support of their positions. All exhibits were stipulated to be admitted into evidence without objection.
From November 10, 1987 to August 29, 1994, the Debtor and his spouse were owners in joint tenancy of the property commonly known as 7N145 Fox Bend Drive, St. Charles, Illinois (the "Property"). See Stipulated Findings of Fact No. 4. On August 29, 1994, they conveyed the Property to themselves as tenants by the entirety. Id. at No. 5. The deed was recorded in the office of the Kane County, Illinois Recorder of Deeds on September 22, 1994. Id. They have at all relative times resided in the Property as their marital home. Id. at No. 6.
At the time of the transfer into the tenancy by the entirety, the Debtor was indebted to Shirley Gardner by virtue of a secured promissory note executed by the Debtor on or about December 6, 1991. Id. at No. 8. He was obligated in an amount in excess of $350,000.00. Id. at No. 9. The Debtor had ceased making payments to Ms. Gardner at the time of the transfer due to lack of funds. Id. at No. 10. On August 4, 1994, prior to the transfer, demand was made upon the Debtor for payment of monies due on the promissory note and litigation was threatened if payment was not made within ten days. Id. at No. 11. At the time of the transfer, the Debtor did not own any property or possess any assets other than his undivided one-half interest in the Property and those assets subsequently listed on the Schedule C of his bankruptcy petition. Id. at No. 12. On November 18, 1994, Ms. Gardner commenced an action against the Debtor and additional parties in the Circuit Court of the Eighteenth Judicial Circuit, Kane County, Illinois, by which she sought to recover $400,000.00 under the secured promissory note and guaranty executed by the Debtor. Id. at Nos. 13 and 14. The Debtor's spouse was not an obligor on either the note or the guaranty. Id. at No. 14.
The Debtor filed a voluntary Chapter 7 petition on October 23, 1996. On the Schedule C attached thereto, the Debtor claimed the Property exempt pursuant to 750 ILCS 65/22. Id. at No. 15. On May 9, 1997, the Trustee filed the instant adversary proceeding to sell the Property and to avoid the transfer as fraudulent under the Illinois Uniform Fraudulent Transfer Act, 740 ILCS 160/5. Id. at No. 16. The primary intent of the Debtor in transferring the Property to a tenancy by the entirety was to protect his home from creditors. Id. at No. 18. On June 6, 1997, the Debtor and his spouse filed their answer denying that the transfer making the change in the nature of the title by which they held the Property was made with the intent to defraud; that the change was a fraudulent transfer; and that such a change can ever be a fraudulent transfer under Illinois law. Id. At No. 17. After requesting additional briefing concerning the recent amendment to 735 ILCS 5/12-112, the Court took the matters under advisement.
Under the Bankruptcy Code, either the applicable state or the federal exemptions may be selected pursuant to 11 U.S.C. § 522 unless a state chooses to "opt out" of the federal exemption scheme. See 11 U.S.C. § 522(b)(1). The Illinois General Assembly "opted out" by enacting Ill.Rev.Stat. ch. 110, ¶ 12-1201, now recodified and cited as 735 ILCS 5/12-1201. Illinois exemption statutes are to be interpreted liberally in favor of the debtor. In re Barker, 768 F.2d 191, 196 (7th Cir.1985). The purpose of the exemption provision is to protect a debtor's fresh start in bankruptcy. In re Wright, 156 B.R. 549, 554 (Bankr.N.D.Ill.1992).
Federal Rule of Bankruptcy Procedure 4003 governs hearings on disputed claims of exemption and objections thereto. Section 522(l) of the Bankruptcy Code and Bankruptcy Rule 4003(a) require debtors to "list" the property claimed as exempt on the schedule of assets required to be filed. "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, 1647-48, 118 L.Ed.2d 280 (1992). Bankruptcy Rule 4003(b) establishes the time limits within which a trustee or any creditor may file objections to the list of property claimed exempt. Bankruptcy Rule 4003(c) expressly places the burden of proof on the objecting party to prove the exemptions are not properly claimed. See also In re Ritter, 190 B.R. 323, 325 (Bankr.N.D.Ill.1995). In the matter at bar, the Trustee, as the objecting party, has the burden of proving that the exemptions are not properly claimed. The standard of required proof is presumably a preponderance of the evidence. See 1 T. Salerno and J. Udall, Bankruptcy Litigation and Practice: A Practitioner's Guide § 8.65(11) (2d ed.1995).
The Trustee seeks to recover the subject transfer of the Property pursuant to the Illinois Uniform Fraudulent Transfer Act, 740 ILCS 160/1 et seq. (the "UFTA"), which provides in pertinent part:
740 ILCS 160/5(a)(1). The Trustee asserts that the transfer of the Property into tenancy by the entirety was made with the actual intent to hinder, delay or defraud Shirley Gardner, a creditor of the Debtor.
Section 5 of the UFTA is analogous to 11 U.S.C. § 548(a)(1).1 See Scholes v. Lehmann, 56 F.3d 750, 756 (7th Cir.), cert. denied, ___ U.S. ___, 116 S.Ct. 673, 133 L.Ed.2d 522 (1995). Therefore, precedent under § 548(a)(1) is equally applicable to the Illinois version of the UFTA. Martino v. Edison Worldwide Capital (In re Randy), 189 B.R. 425, 443 (Bankr.N.D.Ill.1995). The UFTA allows the Trustee to recover the transfer made by the Debtor if the Debtor made the transfer with actual intent to defraud a creditor. Id. The UFTA speaks to two types of fraud — "fraud in fact" and "fraud in law." Scholes, 56 F.3d at 756-57.
"Fraud in fact" or actual fraud occurs when a debtor transfers property with the intent to hinder, delay or defraud his creditors. The moving party must prove a specific intent to hinder, delay or defraud. Lindholm v. Holtz, 221 Ill.App.3d 330, 334, 163 Ill.Dec. 706, 709, 581 N.E.2d 860, 863 (2d Dist.1991) (citing Gendron v. Chicago & North Western Transp. Co., 139 Ill.2d 422, 437, 151 Ill.Dec. 545, 552-53, 564 N.E.2d 1207, 1214-15 (1990)). In determining whether a transfer is made with actual intent to defraud, the UFTA sets forth several factors — also known as the "badges of fraud" — from which an inference of fraudulent intent may be drawn. Section 5(b) of the UFTA sets forth the following indicia:
740 ILCS 160/5(b). When these "badges of fraud" are present in sufficient number, it may give rise to an inference or presumption of fraud. Steel Co. v. Morgan Marshall Indus., Inc., 278 Ill.App.3d 241, 251, 214 Ill. Dec. 1029, 1036, 662 N.E.2d 595,...
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