In re Shell
| Citation | 478 B.R. 889 |
| Decision Date | 14 August 2012 |
| Docket Number | No. 11–22848 JPK.,11–22848 JPK. |
| Parties | Deborah Rosetta SHELL, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
OPINION TEXT STARTS HERE
Laura R. Rochet, Peter Francis Geraci, Attorney at Law, Chicago, IL, for Debtor.
The matter before the Court is a contested matter arising from the objection of Trustee Stacia Yoon (“Trustee”), as trustee of the Chapter 7 bankruptcy estate of Deborah Rosetta Shell (“Shell”), to the exemptions the Debtor claimed in her Schedule C. Shell filed her petition for relief on July 22, 2011, at which time she was a resident of the state of Indiana; however, she didn't reside in Indiana for the full 730 days prior to filing of her petition, and pursuant to 11 U.S.C. § 522(b)(3)(A), Shell had to refer to the exemption law of the state in which she had resided previously—which was Illinois. In claiming her exemptions, Shell utilized the federal exemptions set out in 11 U.S.C. § 522(d) under the theory that Illinois' opt-out law only applies to the residents of that state, and she wasn't a resident of Illinois on the date of filing of her bankruptcy petition. On September 2, 2011, the Trustee objected to Shell's exemptions on the basis that she must claim the exemptions established under Illinois law.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a) and N.D.Ind.L.R. 200.1. The matter before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).
The Trustee and Shell filed a stipulation of facts on November 16, 2011, which constitutes the entire record upon which this contested matter is to be determined. The stipulation states:
1. On July 22, 2011, the Debtor filed a petition for relief under Chapter 7 of the United States Bankruptcy Code.
2. As disclosed on the Debtor's Statement of Financial affairs # 15, and at the first meeting of creditors, the Debtor lived in Illinois from 2005 until April 2011.
3. The Debtor resided in Indiana on her petition date.
4. On her Schedule C, the Debtor invoked the exemptions set out in 11 U.S.C. § 522.
5. On September 2, 2011, the Trustee filed an objection to the Debtor's exemption, arguing that she should have used the State of Illinois exemptions.
Pursuant to an order of the court dated October 21, 2011, on January 13, 2012, each party filed a memorandum of law concerning their respective positions.
The issue is quite simply the exemption law applicable to Shell's circumstances pursuant to 11 U.S.C. § 522(b)(3)(A).
Pursuant 11 U.S.C. § 522(b) a debtor can exempt certain property from the bankruptcy estate. Under § 522(b)(1), the debtor may utilize either the exemptions established by federal law, or the exemptions established by the particular state in which the debtor is domiciled, as determined under 11 U.S.C. § 522(b)(3)(A). If the state so determined has “opted-out” of the federal exemption scheme and establish its own exclusive exemptions [ See,11 U.S.C. § 522(b)(2) ], a debtor is primarily limited to the exemption laws of that particular state. The state whose exemption laws apply, based upon the debtor's domicile, is provided for by 11 U.S.C. § 522(b)(3)(A), which states:
3) Property listed in this paragraph is— (A) subject to subsections ( o) and (p), any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located in a single State for such 730–day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730–day period or for a longer portion of such 180–day period than in any other place;
The final or “hanging sentence” of § 522(b)(3) provides as follows:
If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d). [i.e., the federal exemptions].
In this case, Shell filed her petition for relief under Chapter 7 of the United States Bankruptcy Code on July 22, 2011. There is no dispute that at that time of filing she was a resident of the State of Indiana. However, as reflected in the Stipulation, Shell was unable to utilize the exemptions established by the state of Indiana due to the fact that she was a resident of, and domiciled in, Illinois from 2005 all the way up to April 2011 (less than three months prior to the bankruptcy filing). As a result, Shell must refer to Illinois law in order to determine the property which she could exempt from her bankruptcy estate.
The issue formed is the effect of 11 U.S.C. § 522(b)(3)(A) with respect to Shell's exemption elections.
Illinois is an “opt-out” state. The Illinois opt-out statute, found at 735 ILCS § 5/12–1201, provides as follows:
§ 12–1201. Bankruptcy exemption. In accordance with the provision of Section 522(b) of the Bankruptcy Code of 1978, (11 U.S.C. 522(b)), residents of this State shall be prohibited from using the federal exemptions provided in Section 522(d) of the Bankruptcy Code of 1978 (11 U.S.C. 522(d)), except as otherwise may be permitted under the laws of Illinois.
This provision prohibits residents of the state of Illinois from utilizing the federal exemptions.
Shell first cites authority in support of the proposition that Illinois' exemptions have an implied residency requirement—in other words, if the debtor is residing in another state, the exemptions cannot be used. Next, Shell posits that since Illinois' opt-out statute does not expressly prohibit non-residents from claiming the federal exemptions, she can choose whether or not to take advantage of the federal exemptions.
The Trustee's position is that the Illinois exemptions are not explicitly limited to the residents of the state and should therefore apply to the Debtor. The Trustee also argues that if this court were to interpret a state's opt-out law to never apply to a former resident, then the federal exemptions would always be the only exemptions available. According to the Trustee the result would be that, “[t]here would never be a reason to have created the safe harbor provided by § 522(b)(3)(C).” In other words, such an interpretation would render this provision superfluous.
As Trustee Yoon presaged in the last paragraph of her legal memorandum, the court is going to off on a different track than that blazed by the parties' memoranda. In doing so, the court joins a definite minority position as to the construction of 11 U.S.C. § 522(b)(3), particularly of 11 U.S.C. § 522(b)(3)(A), but an established and well-considered position nevertheless.
In support of her argument that Illinois' exemptions have an implied residency requirement, Shell relies on the case of In re George, 440 B.R. 164 (Bankr.E.D.Wis.2010). In that case, a Wisconsin bankruptcy court had to determine the same issue that this court is now facing. The court found that the Illinois exemptions have an implied residency requirement. The court reasoned as follows:
However, a residency requirement may be implied by the structure and function of the applicable statutes. The Illinois exemptions are exemptions from the enforcement of judgments rendered by Illinois state courts, and the exemption provisions appear in Article XII of the Code of Civil Procedure governing those courts. Specifically, 735 Ill. Comp. Stat. 5/12–111 states that a judgment is not binding on personal property until a certified copy of the judgment is delivered to the sheriff or other proper officer to be served, and 735 Ill. Comp. Stat. 5/12–112 provides that “all of the goods and chattels (except such as is by law declared to be exempt) of every person against whom any judgment has been entered ... shall be liable to be sold upon such judgment.” Clearly an Illinois sheriff acting under the auspices of an Illinois state court would not have the authority to execute and levy on a motor vehicle owned by a Wisconsin resident and located in Wisconsin. See Filkins v. Nunnemacher, 81 Wis. 91, 51 N.W. 79, 80–81 (1892) ). That Illinois exemptions apply only to residents within the jurisdiction of the Illinois state courts appears obvious from the context of the statutes.
More evidence of the application of the exemptions to residents only is found in 735 Ill. Comp. Stat. 5/12–1101 which provides:
Whoever, whether principal, agent or attorney, with intent thereby to deprive any bonafide resident of the State of Illinois of his or her rights, under the statutes of Illinois on the subject of the exemption of property from levy and sale on a judgment, or in attachment or garnishment, sends, or causes to be sent out of the State of Illinois any claim for a debt to be collected by proceedings in attachment, garnishment, or other process, when the creditor, debtor or person, or corporation owing for the earnings intended to be reached by such proceedings in attachment are each and all within the jurisdiction of the courts of the State of Illinois, shall be guilty of a petty offense and fined for each and every claim so sent in any sum not less than $10 nor more than $50. (emphasis supplied).
This provision speaks directly of protecting the exemption rights of an Illinois resident, even if the exemption provision itself does not. The context of the exemption statute in the state court judgment enforcement provisions and the express reference to Illinois residents in § 12–1101 strongly suggests that only Illinois residents can...
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