In re Kyle

• Decision Date: 14 May 2014
• Docket Number: No. 13–31398.,13–31398.
• Citation: 510 B.R. 804
• Court: U.S. Bankruptcy Court — Southern District of Ohio
• Parties: In re Traci L. KYLE, Debtor.

510 B.R. 804

In re Traci L. KYLE, Debtor.

No. 13–31398.

United States Bankruptcy Court,

S.D. Ohio,

Western Division.

Signed May 14, 2014.

Brian E. Lusardi, Xenia, OH, Wayne P. Novick, Centerville, OH, Harry B. Zornow, Hamilton, OH, for Debtor.

John Paul Rieser, Dayton, OH, Trustee.

DECISION AND ORDER OVERRULING TRUSTEE'S OBJECTIONS TO DEBTOR'S CLAIMED EXEMPTION IN REAL ESTATE (docs. 18, 21)

LAWRENCE S. WALTER, Bankruptcy Judge.

On March 27, 2013, approximately a week before Debtor Traci Kyle (“Debtor”) filed her Chapter 7 bankruptcy case, Ohio House Bill 479 went into effect thereby amending Ohio Rev.Code § 2329.66(A)(1) to increase the Ohio homestead exemption from $21,625.00 to $125,000.00. Following the Debtor's bankruptcy filing, Chapter 7 Trustee John Rieser (“Trustee”), objected to Debtor's claimed homestead exemption in the amount of $125,000.00 (now $132,900.00 due to a statutory inflation adjustment) arguing that the Debtor is only entitled to the $21,625.00 (plus inflation adjustment) exemption afforded prior to the amendment. Because uncodified language governing the effective date of the recent amendment is ambiguous and because another section of the Ohio exemption statute and federal bankruptcy policies favor application of the amended exemption, the court overrules the Trustee's objection, as more fully discussed below.

This matter is before the court on the Trustee's Objection to Debtor's Claimed Exemption in Real Estate (doc. 18), the Debtor's Response (doc. 21), the Trustee's Second Objection to Debtor's Claimed Exemption in Real Estate (doc. 24), and the Debtor's Response (doc. 26). By order dated June 26, 2013 (doc. 28), the court set a deadline for the parties to request a hearing or additional briefing. A hearing was not requested, but a briefing schedule was set by an Agreed Order dated July 10, 2013 (doc. 32) resulting in Stipulations of Fact (doc. 37), a brief by the Trustee (doc. 38), a responsive brief by the Debtor (doc. 43), and a reply brief by the Trustee (doc. 44).

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

FACTUAL BACKGROUND

Unless otherwise stated, these facts are derived from the parties' Stipulations of Fact (doc. 37). The Debtor filed her Chapter 7 bankruptcy on April 5, 2013. She owns residential real estate located at 3789 Kyle Road, Cedarville, Ohio (“Real Estate”). The Real Estate has been appraised at a value of $139,000.00 (doc. 8). She acquired the Real Estate by inheritance evidenced by a Certificate of Transfer recorded on January 28, 2010. There are no liens on the Real Estate.

At the time of filing, the Debtor had no secured debt and only five unsecured debts. The following is a list of the Debtor's debts:

Name of Creditor

Amount due Per Sched F

Date Acct Opened

Acct Status

¹

Asset Acceptance LLC

$32,000.00 2

June 2008

Open; In Collection

Midland Funding 3

$5,828.00

August 2010/May 1, 1995 4

Open; In Collection

Citibank–Shell

$2,448.00

June 2002

Closed

Target, N.B.

$2,247.00

November 2003

Closed

GECRB/JCP

$0.00/$1,360.00 5

October 1988

Closed

According to the parties' stipulated facts, only one account, that of Target N.B., was not in arrears on or prior to April 5, 2013, the date that the Debtor filed her bankruptcy petition.⁶ The other four were in arrears prior to March 27, 2013, the effective date of the amendment to the Ohio homestead exemption, and remained in arrears on the date of the bankruptcy filing. Furthermore, Asset Acceptance LLC filed suit against the Debtor in the Greene County Common Pleas Court on October 22, 2012. The parties stipulated that all five accounts were opened prior to the real estate transfer to the Debtor on January 28, 2010.

QUESTIONS PRESENTED

There are no issues of fact presented to the court and the primary legal questions are the following:

A. Is the Debtor entitled to benefit from the Amended Ohio Homestead Exemption, codified at Ohio Rev.Code § 2329.66(A)(1), because the amendment's effective date was prior to the bankruptcy filing or does uncodified language enacted with the amendment apply in bankruptcy to prevent the application of the Amended Ohio Homestead Exemption to creditor claims that “accrued” before the effective date?

B. Does application of the Amended Ohio Homestead Exemption to bankruptcy cases filed after its effective date comply with Ohio constitutional and statutory requirements prohibiting the enactment of retroactive laws?

C. Assuming that the uncodified “claims accrued” language was intended to apply, do provisions of the Bankruptcy Code preempt its use in bankruptcy?

LEGAL ANALYSIS

In bankruptcy, a debtor is able to claim certain property considered necessary for the survival of a debtor and the debtor's dependents as “exempt” thereby moving that property beyond the reach of most creditors. Menninger v. Schramm (In re Schramm), 431 B.R. 397, 400 (6th Cir. BAP 2010); In re Pursley, 2014 WL 293557, at *2 (Bankr.N.D.Ohio Jan. 23, 2014). Although the Bankruptcy Code creates a list of exempt property in 11 U.S.C. § 522(d), it also allows a state to “opt-out” of the federal list in favor of its own exemption framework. 11 U.S.C. § 522(b); Schramm, 431 B.R. at 400. Ohio is an “opt-out” state and, consequently, a debtor properly domiciled in Ohio may only take exemptions authorized under Ohio or nonbankruptcy law. Ohio Rev.Code § 2329.662. See also Schramm, 431 B.R. at 400. “In order to effectuate the goals of providing honest debtors a fresh start and affording debtors life's basic necessities, Ohio courts follow the rule that exemption statutes are to be construed liberally in favor of the debtors, and that any doubt in interpretation should be in favor of granting the exemption.” In re Wengerd, 453 B.R. 243, 247 (6th Cir. BAP 2011) (relying on Daugherty v. Central Trust. Co. of N.E. Ohio, N.A., 28 Ohio St.3d 441, 504 N.E.2d 1100, 1104 (1986)).

Many of the exemptions that a debtor properly domiciled in Ohio could take are found in the “Ohio Exemption Statute,” Ohio Rev.Code § 2329.66. One is a homestead exemption allowing a person to exempt his or her “interest,” up to a specific monetary amount, in a parcel of property that the person or a dependent of that person uses as a residence. Ohio Rev.Code § 2329.66(A)(1). On March 27, 2013, approximately a week before the Debtor filed her bankruptcy petition, the Ohio Exemption Statute was amended by Ohio House Bill 479 (“H.B. 479”) to significantly increase the Ohio homestead exemption from $21,625.00 to $125,000.00 (the “Amended Homestead Exemption”). ⁷Id.

The controversy between the Debtor and Trustee focuses on how this amendment to the Ohio Exemption Statute applies in bankruptcy and whether the Debtor is entitled to claim the significantly higher Amended Homestead Exemption. The Debtor argues that she is entitled to the higher exemption amount because the statutory change went into effect prior to her bankruptcy filing date. The Trustee objects asserting that the bankruptcy petition filing date is not the relevant date for determining whether the Amended Homestead Exemption applies. The Trustee highlights uncodified language enacted by the Ohio General Assembly with the Amended Homestead Exemption that limits the statutory amendment's application to “claims accruing” on or after the March 27, 2013 effective date. Although the uncodified language does not mention bankruptcy, the Trustee asserts that the “claims accruing” language is broad and encompasses creditor claims in bankruptcy. Consequently, the Trustee's position is that the Debtor cannot claim the Amended Homestead Exemption with respect to her four creditor claims that “accrued” prior to the March 27, 2013 effective date. After careful review of how the codified and uncodified language adopted by the Ohio General Assembly fits within the existing framework for use of state law exemptions in bankruptcy, the court rejects the Trustee's position. The court concludes that the Debtor is entitled to take the higher Amended Homestead Exemption that went into effect prior to her bankruptcy filing date.

A. Plain Language in Federal and State Statutes Supports that the Bankruptcy Filing Date Determines State Law Exemptions

The court begins its analysis by noting that the Amended Homestead Exemption was not enacted in a vacuum. Instead, the statutory amendment was adopted in an already existing framework for the use of state law exemptions in bankruptcy created through the mutual workings of the Bankruptcy Code and state law. Within this framework, provisions in the Bankruptcy Code and the Ohio Exemption Statute address how to determine the state law exemptions that a debtor is entitled to claim. Section 522 of the Bankruptcy Code provides that it is the state exemption law applicable on the date of the bankruptcy filing that determines what property a debtor may exempt. 11 U.S.C. § 522(b)(3)(A). See also In re Jaber, 406 B.R. 756, 762 (Bankr.N.D.Ohio 2009). Furthermore, the Ohio legislature has enacted a provision in the Ohio Exemption Statute stating that the “interest” in which a bankrupt debtor may claim an exemption is to be determined as of the bankruptcy petition filing date. Ohio Rev.Code § 2329.66(D). In other words, both the Bankruptcy Code and Ohio Exemption Statute point to the bankruptcy petition filing date as the crucial date for determining a debtor's entitlement to specific exemptions, including the homestead exemption, and the appropriate amount. Wengerd, 453 B.R. at 250 (“... the Sixth Circuit Court of Appeals long ago recognized that a debtor's right to a homestead exemption under Ohio law is determined as of the date of the bankruptcy.”); Jaber, 406 B.R. at 762 (concluding that a debtor was entitled to claim the higher amount in a 2008 amendment to the Ohio homestead exemption because the effective date of the 2008 amendment was...