In re Wylie

Decision Date28 May 2021
Docket NumberCase No. 20-49216
PartiesIn re: JASON ROBERT WYLIE, and LEAH S. WYLIE, Debtors.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan


Case No. 20-49216


May 28, 2021

Chapter 7

Judge Thomas J. Tucker


I. Introduction

The issue before the Court in this Chapter 7 bankruptcy case is whether the Debtors may validly claim an exemption in their rights to federal and state income tax refunds, under the Michigan bankruptcy exemption statute, Mich Comp. Laws § 600.5451(1)(n), which exempts certain types of personal property listed in Mich Comp. Laws § 557.151 held jointly by a husband and wife as a tenancy by the entirety. The Chapter 7 Trustee argues that these Michigan statutes do not apply to the Debtors' rights to tax refunds. For the reasons stated below, the Court agrees with the Trustee, and will disallow the Debtors' claimed exemptions.

This case is before the Court on the Chapter 7 Trustee's objection to the Debtors' claimed exemptions (Docket # 51, the "Exemption Objections"). After holding a telephonic hearing, the Court entered an Order on March 31, 2021 ruling, in part, on the Exemption Objections.1 This Opinion concerns only the remaining, unresolved part of the Exemption Objections — namely, the Debtors' claimed exemptions for federal and state tax refunds.

The Court has considered all of the written and oral arguments of the parties, and all of

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the papers filed by the parties before the March 31, 2021 hearing.2

II. Background

The Debtors in this Chapter 7 case are husband and wife. They filed their joint voluntary petition on August 27, 2020. In their amended Schedule A/B, filed on January 21, 2021, the Debtors disclosed, for the first time, "[p]otential" state and federal income tax refunds, in an "Unknown" amount.3 The Debtors' full description of these state and federal tax refunds is:

Potential income tax refunds. Returns showing amounts have been furnished to the trustee. The amounts of potential refunds are subject to the allowance by the State and IRS of 2018 and 2019 returns. The debtors do not admit that their right to potential refunds constitute property of the estate, but if it is, they claim an exemption in the potential refunds.4

As of the hearing date in this case, the Debtors' claimed rights to tax refunds were based on the Debtors' 2019 federal and state income tax returns, which the Debtors filed post-petition, on or about September 15, 2020. As of the hearing date, the Debtors had not yet filed their income tax returns for the year 2020. The Trustee alleged that in their 2019 tax returns, "the Debtors elected to apply aggregate State and Federal tax overpayments of $44,992.00 to the following tax year."5 Additional details about the Debtors' tax returns are discussed later in this Opinion, in Part IV.B.6.

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On the same day they filed their amended Schedule A/B, January 21, 2021, the Debtors each filed an amended Schedule C, in which they each claimed an exemption in the "[p]otential income tax refunds." The Debtors each claimed as exempt 100% of their interests in the tax refunds, the current value of which they again stated as "Unknown." Each Debtor claimed the exemption under Mich Comp. Laws § 600.5451(1)(n). The Trustee timely objected to these claimed exemptions.

III. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This contested matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O).

IV. Discussion

A. Some general principles about exemptions

Initially, the Court reiterates the following general principles regarding exemptions, which the Court has stated in prior cases:

The Trustee . . . bear[s] the burden of proving that the Debtor's claimed exemptions . . . "are not properly claimed." See Fed.R.Bankr.P. 4003(c); see also In re Demeter, 478 B.R. 281, 286 (Bankr. E.D. Mich. 2012); In re John, 459 B.R. 684, 689 (Bankr. E.D. Mich. 2011). And the Court must construe exemptions liberally, in favor of the Debtor. See Demeter, 478 B.R. at 286; In re Hanh Hieu Dang, No. 11-10091, 2012 WL 2175778, at *2 (Bankr. W.D. Mich. June 13, 2012)("Exemptions are to be liberally construed in favor of a debtor.")(citing Menninger v. Schramm (In re Schramm), 431 B.R. 397, 400 (B.A.P. 6th Cir. 2010) and Fed.R.Bankr.P. 4003(c)).

The Court must determine Debtor's claimed exemptions as of the date he filed his bankruptcy petition. See Lawless v. Newton (In re Lawless), 591 F. App'x 415, 417 (6th Cir. 2014); Demeter, 281 B.R. at 286; Hanh Hieu Dang, 2012 WL 2175778, at *2

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("Exemptions are determined as of the filing date."); In re Buick, 237 B.R. 607, 609 (Bankr. W.D. Pa. 1999) and cases cited therein (holding that a debtor's entitlement to an exemption under § 522(d)(1) is "determined as of the filing date of . . . [a bankruptcy] petition").

In re Sharkey, 563 B.R. 655, 659 (Bankr. E.D. Mich. 2017) (quoting In re Kizer, 539 B.R. 316, 319 (Bankr. E.D. Mich. 2015)).

B. The exemption dispute in this case

1. The Michigan exemption statutes at issue

The Debtors have elected state law exemptions under 11 U.S.C. § 522(b)(3). Their claimed exemptions for their rights to tax refunds are based on Mich Comp. Laws § 600.5451(1)(n). That section is part of Michigan's exemption statute applicable to bankruptcy debtors, and states:

A debtor in bankruptcy under the bankruptcy code . . . may exempt from property of the estate . . . the following property:
. . .

(n) Property described in section 1 of 1927 PA 212, MCL 557.151, or real property, held jointly by a husband and wife as a tenancy by the entirety, except that this exemption does not apply with regard to a claim based on a joint debt of the husband and wife.

Mich Comp. Laws § 600.5451(1)(n) (emphasis added).

It is clear from this statute that in order for this exemption to apply to personal property, the property must be "described in" Mich. Comp. Laws § 557.151; and it must be "held jointly by a husband and wife as a tenancy by the entirety."

Mich Comp. Laws § 557.151, in turn, states:

All bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness hereafter made payable to persons who are husband and wife, or made payable to them as endorsees or assignees, or otherwise, shall

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be held by such husband and wife in joint tenancy unless otherwise therein expressly provided, in the same manner and subject to the same restrictions, consequences and conditions as are incident to the ownership of real estate held jointly by husband and wife under the laws of this state, with full right of ownership by survivorship in case of the death of either.

(Emphasis added).

Under Michigan law, there is a "presumption that the types of personal property listed in § 557.151 are held by spouses as tenants by the entirety[,] . . . [and] [t]o overcome this presumption requires express language to the contrary." Lewiston v. Kohut (In re Lewiston), 539 B.R. 154, 158-59 (E.D. Mich. 2015) (citing DeYoung v. Mesler, 373 Mich. 499, 504, 130 N.W. 2d 38 (1964)). With respect to personal property, "tenancies by the entirety are statutorily limited to certain kinds of property," namely, the types of property described in § 557.151. See Lewiston, 539 B.R. at 158.

2. The dispute in this case, and Jahn v. Regan

The Trustee argues that the Debtors' rights to tax refunds are not within the types of personal property described in § 557.151; i.e., that they are not "bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness . . . made payable to persons who are husband and wife." It is clear that the Debtors' rights to tax refunds are not "bonds, certificates of stock, mortgages, promissory notes, [or] debentures," and the Debtors do not argue otherwise. Rather, the Debtors argue that their rights to tax refunds are "other evidences of indebtedness . . . made payable to" them, and they are husband and wife.

The Trustee disagrees, and relies heavily on a 1984 decision of the United States District Court for this district, Jahn v. Regan, 584 F. Supp. 399, 409-10 (E.D. Mich. 1984). In that case, the district court rejected plaintiffs' argument that a joint right to a tax refund (also sometimes referred to as a joint tax overpayment) was held as tenants by the entireties under § 557.151. The

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court quoted from a decision of the United States Court of Appeals for the Sixth Circuit, Hiller v. Olmstead, 54 F.2d 5 (6th Cir. 1931), in which the court rejected an argument that the proceeds of an insurance policy held by a husband and wife were protected by the "other evidences of indebtedness" provision in § 557.151. Of particular relevance was the Hiller court's holding that:

[I]t is manifest that the words "evidence of indebtedness," as used in the statute, refer only to instruments of the same general nature as bonds, mortgages, notes, and debentures with which they are associated. The maxim noscitur a sociis6 applies.

Hiller, 54 F.2d at 7 (footnote added). In Jahn v. Regan, the district court followed this view of the statute, and held that "[a] tax refund or overpayment for a jointly filed tax return cannot be reasonably characterized as an 'evidence of indebtedness' in the same manner as a mortgage or bond." Jahn, 584 F. Supp. at 410 (footnote omitted). The court further reasoned that the joint tax "refund plaintiffs are pursuing is not a document of indebtedness of the government," and "[i]t is not even a negotiable instrument made payable to them." Therefore, the court held, § 557.151 did not apply. Id.

Jahn is directly on point, but the Debtors argue that it is not correct, and urge this Court not to follow it. The Debtors also characterize the ruling in Jahn as dictum, because the Jahn court went on to hold that even if § 557.151 did apply to...

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