In re Smith, Bankruptcy No. 80-1088

• Decision Date: 10 July 1980
• Docket Number: Bankruptcy No. 80-1088,80-1091,180-00039.,179-00911
• Citation: 5 BR 500
• Parties: In re Philip A. SMITH, Jr., Debtor. In re Jeffery Stephen PIERCE and Mary Kathryn Pierce, Debtors.
• Court: U.S. District Court — Central District of Illinois

5 B.R. 500 (1980)

In re Philip A. SMITH, Jr., Debtor In re Jeffery Stephen PIERCE and Mary Kathryn Pierce, Debtors.

Bankruptcy Nos. 80-1088, 80-1091, 179-00911, 180-00039.

United States District Court, C.D. Illinois.

July 10, 1980.

Barry M. Barash & Charles E. Covey, Galesburg, Ill., for Smith and Pierce.

James S. Brannon, Trustee, Peoria, Ill., for Smith.

Barney Olson, II, Galesburg, Ill., for creditor, Public Finance Co. in Smith.

James S. Brannon, Peoria, Ill., for Trustee in Pierce.

DECISION AND ORDERS ON APPEAL

ROBERT D. MORGAN, Chief Judge.

These cases present the question whether federal Truth in Lending claims (and similar consumer claims under state laws) may be allowed as exempt property to debtors under § 522(d)(5) of the Bankruptcy Code, to the extent of any unused portion of amount of the homestead exemption. Debtors here claim such exemptions and have appealed denial thereof by the Bankruptcy Judge.

Debtors rely chiefly on the language "in any property" in § 522(d)(5) and on Collier on Bankruptcy, Fifteenth Edition, Volume 3, ¶ 522.14, as follows:

General Exemption. § 522(d)(5).

"The debtor is allowed an exemption of $400 plus the unused portion of the homestead exemption. The purpose of this exemption is to prevent discrimination against nonhomeowners. The homeowner who uses the full amount of the homestead exemption, however, is still entitled to the $400 exemption. If, for example, there is an item of furniture that has a value greater than $200, thus not exempt under the household furnishings exemption of paragraph (3), the debtor may apply the $400 toward this furnishing. The unused portion of the homestead exemption plus the $400 may be claimed in any property, be it property that is exempt in excess of the value allowed by a particular paragraph of section 522(d), or property that is otherwise nonexempt."

Debtors also rely on Matter of Upright, 1 B.R. 694 (Bkrtcy., 1979), which held business inventory exempt under this section.¹ The Bankruptcy Judge here disagrees with Upright as judicial legislation because "the Code creates no exemptions for business related items." He says that "because of the legislative history of § 522, the language `in any property' means any property described in § 522." In essence, this view seems to be that, with all the care and effort which went into describing and delimiting the types of property which would be permitted as exempt to provide debtors a "fresh start" after bankruptcy, Congress obviously did not intend any large, additional "wild card" or "unfilled bin" theory of exemption here to be made up of any other kind of property which might exist.

Analysis of the legislative history supports that conclusion. Debtors here are seizing upon a glaring ambiguity in the statute to magnify their entitlement. The courts should not permit such, in derogation of Congressional intent, on the simplistic basis that the words "any property," wherever stated, must mean absolutely any property, or on the pure assumption that there was some intention, as Collier says, to prevent discrimination against non-homeowners.

No Congressional debates on the point have been cited, and the court has found none; but the analysis by the Bankruptcy Judge of the development of the new exemptions in bankruptcy, is persuasive. Finding that subsection (d) of § 522 devolved in large part from the Uniform Exemption Act of 1976, which devolved in considerable part from proposals of the Commission on Bankruptcy Laws, he traces the development as follows:

"The Commission Act contained, among other things, § 4-503 relating to exemptions. Section (b) of that section related to `Homestead or Property in Lieu Thereof.\' Clause (1) created a homestead exemption of $5,000.00 plus $500.00 for each dependent of the debtor. Subparagraph (2) provides that if no property is allowed as exempt under paragraph (1), or if the property allowed has an aggregate value less than the maximum allowed under paragraph (1) an individual debtor shall be allowed additional exemptions of property of the kind described in clauses (1) and (2) of subdivision (c) until the aggregate value of such additional property equals the maximum value allowable under paragraph (1). Emphasis added

"Clause (1) of subdivision (c), entitled `Other Property\' exempted livestock, wearing apparel, jewelry, household furnishings, tools of the trade or profession, and motor vehicles to the aggregate value of not more than $1000.00. Clause (2) of subdivision (c) exempted a burial plot to the value of $2,500.00."

It is noted that clause (3) of subsection (c) of the Commission Act exempted cash, securities and receivables, including unpaid personal earnings, accrued vacation pay and income tax refunds, to the aggregate value of not more than $500.00. It is readily apparent that exemption of these types of property was not to be enhanced by unused homestead exemption.

The Bankruptcy Judge observed, with respect to the Uniform Exemptions Act:

"The UEA categorizes exemptions into five classes. Section 8(a), (b) and (c) exempts specified personal property similar to those itemized in § 4-503 of the Commission Bill. Paragraph 8(d) provides that in addition to any exemption provided by this Act an individual is entitled to an exemption of `cash and other liquid assets\' to the extent of a value not exceeding $500.00 if the individual claims a homestead exemption, and $1500.00 if the individual does not claim a homestead exemption. `Liquid Assets\' are defined as including deposits, securities, notes, drafts, unpaid earnings not otherwise exempt, accrued

...