In re Virissimo

• Decision Date: 31 October 2005
• Docket Number: No. BK-S-13605-LBR.,No. BK-S-05-15667-LBR.,BK-S-13605-LBR.,BK-S-05-15667-LBR.
• Citation: 332 B.R. 201
• Court: U.S. Bankruptcy Court — District of Nevada
• Parties: In re Robert & Odette VIRISSIMO, Debtors. In re Cheryl A. Heisel, Debtor.

332 B.R. 201

In re Robert & Odette VIRISSIMO, Debtors In re Cheryl A. Heisel, Debtor.

No. BK-S-13605-LBR.

No. BK-S-05-15667-LBR.

United States Bankruptcy Court, D. Nevada.

October 31, 2005.

Mark Segal, Steven Alpert, Las Vegas, NV, for debtors.

James Lisowski, Las Vegas, NV, trustee.

Stan Pack, Las Vegas, NV, trustee.

MEMORANDUM OPINION GRANTING TRUSTEE'S OBJECTION TO EXEMPTION¹

LINDA B. RIEGLE, Bankruptcy Judge.

At issue is the effect of the amendments to 11 U.S.C. § 522 as added by § 322(a) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).² Specifically, this Court must decide whether those amendments as set forth in § 522(p) limit the amount that a Nevada debtor can claim as exempt as his homestead under Nevada law if the debtor has not owned the property for more than 1215 days and did not previously own property in this state.³

As set forth below, the Court finds that those amendments are applicable to debtors who are otherwise entitled to claim the greater homestead under Nevada law and that the limit is the $125,000 set forth in 11 U.S.C. § 522(p).

FACTS

The Court heard arguments in the above two cases on October 17, 2005. In each case the debtors filed their petition in Nevada after April 20, 2005. In each case the debtors claimed a homestead on property that was purchased less than 1215 days before the petition date. Neither debtor had owned a homestead in this state before that time.⁴ In each case the debtor has more than $125,000 equity in the property.

DISCUSSION

Exemptions before BAPCA

Prior to the enactment of the 1978 Bankruptcy Code, exemptions were determined entirely under nonbankruptcy law and debtors were limited to the exemptions available in the state of their domicile. Exempt property never became property of the estate.

The original 1978 Code, by virtue of § 541, brought all property into the estate whether or not it might be claimed as exempt. Hence in order to receive the exemption, the debtor had to claim the exemption. The House version of what ultimately became the 1978 Code authorized debtors to choose between a federal list of exemptions and exemptions available under state and nonbankruptcy federal law. The Senate version continued the pre-Code policy of incorporating state and nonbankruptcy federal exemptions by reference. As a result of a compromise the House version was accepted but the states were given the power to opt out of the federal exemptions list. 11 U.S.C. § 522. See generally, 4 COLLIERS ON BANKRUPTCY ¶¶ 522.01-522.02[1] (2005); Norton Bankruptcy Law and Practice 2D §§ 46.1-46.2 (2004). The exercise by a state of its right to limit the use of the federal exemptions is generally called an "opt-out."

Nevada Homestead Exemptions

Nevada is characterized as an opt-out state. N.R.S. § 21.090(3), provides that "any exemptions specified in subsection (d) of § 522 of the Bankruptcy Act of 1978, 11 U.S.C. § 522(d), do not apply to property owned by a resident of this state unless conferred also by [Nevada law]". The homestead provided by Nevada law is, however, far more liberal than that provided by § 522(d). While the federal homestead exemption is currently only $18,450, the Nevada homestead applicable in these cases is $200,000 and that amount was raised to $350,000 effective July 1, 2005. N.R.S. § 115.010. The Nevada constitution provides that the homestead provided by law shall be exempt from forced sale, Nev. Const. art. 4, § 30 and N.R.S 21.090(l) statutorily carries that into effect. Nevada Courts have interpreted these constitutional and statutory provisions liberally in favor of the persons for whose benefit they were enacted. See Jackman v. Nance, 109 Nev. 716, 718, 857 P.2d 7, 8 (1993)(and cases cited therein).

Exemptions under BAPCPA

BAPCPA did not amend the mechanics of determining which exemptions were available to debtors in opt-out states. Rather, it added language to 11 U.S.C. § 522(b) to lengthen the domiciliary requirements to claim a particular state's exemption law and added subsections (o) (p) and (q), which limit the amount of the exemption in certain circumstances.

Sections U.S.C. § 522(b) and (p) are at issue:⁵

(b)(1) Notwithstanding § 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under § 302 of his title and individual cases filed under Sections 301 or 303 of this title by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed.

(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.

(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 § , or State or local law that is applicable on the date of the filing of the petition at 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 at 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;

* * * * * *

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).

11 U.S.C. § 522(p) provides:

(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in —

(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;

(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;

(C) a burial plot for the debtor or a dependent of the debtor; or

(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

(2)(A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer.

(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.

It is the application and meaning of this language that is at issue in this case. At least two bankruptcy courts have decided this issue and have reached conflicting conclusions. Judge Haines, in In re McNabb, 326 B.R. 785 (Bankr.D.Ariz.2005) has held that the language "as a result of electing under subsection (b)(3)(A) to exempt property under State or local law" is plain and that there is no need to resort to legislative history. Under his interpretation, the plain meaning is that the $125,000 limitation only applies to debtors in those states that allow the debtors to elect between federal and state exemptions. It is not applicable to debtors that live in opt-out states such as Arizona and, by inference, Nevada.

In a contrary opinion, Judge Mark, in In re Kaplan, 331 B.R. 483 (Bankr.S.D.Fla.2005) has disagreed with the reasoning in In re McNabb, and has determined that the legislative history should be considered. As he notes, the phraseology is not merely awkward but rather it is subject to more than one plausible reading. Because of this ambiguity courts must look at the legislative history to confirm legislative intent. Moreover, even if the plain meaning appears to limit the application of the statute, the court must still consider legislative intent where a contrary legislative intent is clearly expressed. Looking at the legislative history, Judge Mark found Congress clearly intended to make this limitation applicable to all debtors.

Is there a "plain meaning" and what is it?

Judge Haines says there is no election if the debtor resides in an opt-out state. This Court respectfully disagrees. This Court believes that Judge Haines has not focused on the mechanics of the statute and the language used in setting forth the debtor's rights. Technically, under the terms of the statute, there is an election. That election may become ineffective if the debtor chooses a federal exemption in an opt-out state, but the debtor nonetheless makes an "election" within the meaning of the statute.

The steps are as follows. Under 11 U.S.C. § 541 all property is property of the estate. If the debtor wishes to exempt property he must engage in an act to do so. 11 U.S.C. § 522(l). Pursuant to § 522(b)(1), he may elect to choose property listed in 11 U.S.C. § 522(b)(2) or (b)(3).

It is the effect of the election that is limited. Paragraph (b)(2) provides that the property exempted is that specified under subsection (d) of 522 unless the state law that is applicable specifically does not so authorize. Paragraph (b)(3) provides...