Sullivan, Matter of
| Decision Date | 19 May 1982 |
| Docket Number | 81-2374,Nos. 81-1921,s. 81-1921 |
| Citation | 680 F.2d 1131 |
| Parties | 6 Collier Bankr.Cas.2d 972, 9 Bankr.Ct.Dec. 140, Bankr. L. Rep. P 68,700 In the Matter of Scott Reynolds SULLIVAN, Debtor-Appellant. United States of America, Intervening-Appellee. In re Willis Wayne WEST, Debtor-Appellant. State of Illinois, Intervening-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Vern Countryman, Harvard Law School, Cambridge, Mass., for debtors-appellants.
Thomas W. B. Porter, Dept. of Justice, Civ. Div., Washington, D. C., intervening-appellees.
Before PELL, Circuit Judge, FAIRCHILD, Senior Circuit Judge, and BAUER, Circuit Judge.
In these consolidated appeals, which present issues of first impression at the level of this court, the appellants challenge the constitutionality of section 522(b)(1) of the Bankruptcy Code of 1978, 11 U.S.C. § 522(b)(1) (Supp. IV 1980) (Code). Section 522(b)(1) permits a State to "opt out" of the scheme of federal exemptions enumerated in section 522(d). The debtors-appellants urge that the opt-out section violates the constitutional provision that empowers Congress After outlining the exemption provisions under both the federal scheme and Illinois law, we will discuss each of the appellants' arguments. We will discuss separately those cases cited by the appellants that have applied a preemption analysis because this line of reasoning has relevance to both the uniformity and delegation issues.
"to establish uniform Laws on the subject of Bankruptcies." U.S.Const. art. I, § 8, cl. 4. Secondly, they maintain that section 522(b)(1) unconstitutionally delegates Congressional power to the states. 1
We need recite few facts pertaining to the debtors for purposes of this appeal. Each debtor is a resident of the State of Illinois. Each filed a voluntary petition in 1981 under Chapter 7 of the Bankruptcy Code, claiming the federal exemptions enumerated in section 522(d), 11 U.S.C. § 522(d) (Supp. IV 1980). 2 In both cases, the bankruptcy judges sustained objections by the trustees to the debtors' reliance on the section 522(d) exemptions. 11 B.R. 432. West then appealed to the United States District Court, which affirmed without opinion the decision of the Bankruptcy Court. Sullivan appealed directly to this court. 3
Section 522(d) specifies the property that is subject to exclusion under subsection 522(b)(1). The exemptions apply without regard to marital status 4 or whether the debtor has dependents. The statute provides a generally unlimited exemption for unmatured life insurance contracts, health aids, social security, alimony, and various other items of income as well as the right to receive an award under a crime victim's reparation law. §§ 522(d)(7), (9), (10), and (11)(A). Subsections 522(d)(11)(B) and (11)(E) further allow payments due the debtor by virtue of a wrongful death or in compensation of lost or future earnings to the extent reasonably necessary for the support of the debtor and any of his dependents. Limited exemptions are provided for the loan value of an unmatured life insurance contract and payments for personal injuries, §§ 522(d)(8) and 11(D). Limited exemptions for the debtor's interest in a motor vehicle, household items, jewelry, and professional books or tools of the trade are also included. §§ 522(d)(2), (3), (4), and (6). Two exemptions of extreme importance to a debtor are the homestead provision and what is frequently termed the "wild card" exemption. These provide:
(1) The debtor's aggregate interest, not to exceed $7,500 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
and
(5) the debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property.
Section 522(b), however, provides that the State may make these federal exemptions inapplicable to its debtors (b) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate either-
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; ....
§ 522(b)(1) (emphasis added).
In 1980, Illinois Public Act 81-1505 was enacted. 5 This Act specifically prohibits Illinois residents from claiming the schedule of exemptions provided in section 522(d). The Act took effect on January 1, 1981, and therefore is pertinent to the petitions of both debtors. The exemptions to which a debtor is entitled under Illinois law are found primarily in chapter 52 of the Illinois Revised Statutes of 1979. There is a homestead exemption entitling "(e)very householder having a family ... to the extent in value of $10,000 ... (if) occupied by him or her as a residence." Ill.Rev.Stat. ch. 52, § 1 (1979). 6 Section 13 provides that the following personal property is exempt: items such as necessary wearing apparel, a bible, and school books; and payment received as a result of military service for a period of one year; $300 worth of property including wages and salary due the debtor (an additional $700 is allowed a debtor who is the head of a family); and any money due the debtor from the sale of personal property that would have been exempt had it been retained by the debtor. Id. ch. 52, § 13. Other chapters of the Illinois statutes permit exemptions for proceeds from various insurance policies, id. ch. 73, § 850, workers compensation benefits, id. ch. 48, § 138.21, and unemployment benefits, id. ch. 48, § 540.
We have detailed the statutory exemptions under federal and Illinois law at some length to illustrate that there is indeed a marked contrast between the property which a debtor is permitted to declare exempt under the two schemes. The contrast is most marked in the case of an unmarried debtor with no dependents. The federal homestead and "wild card" provisions, §§ 522(d)(1) and (5), permit such a debtor to exempt $7900 whereas his allowance under Illinois law would be $300. See Ill.Rev.Stat. ch. 52, § 13 (1979).
The United States Constitution provides that Congress may "establish uniform Laws on the subject of Bankruptcies." U.S.Const. art. I, § 8, cl. 4. One interpretation of the term "uniform" would mandate that the bankruptcy law, including the permissible exemptions, be identical in the fifty states. One commentator has labeled this interpretation "true uniformity," Bankruptcy Exemptions: Whether Illinois's Use of the Federal 'Opt Out' Provision Is Constitutional, 1981 S.Ill.U.L.J. 65, 72. In a limited sense, section 522 meets the test of true uniformity because the opt-out provision is applicable to each State. True uniformity as to individual debtors clearly does not exist, however, because the opt-out provision allows exemption levels to differ among the states.
Another interpretation of the term "uniform," articulated by the Supreme Court, requires only "geographical uniformity." E.g., Hanover National Bank v. Moyses, 186 U.S. 181, 22 S.Ct. 857, 46 L.Ed. 1113 (1902); Fairbank v. United States, 181 U.S. 283, 298, 21 S.Ct. 648, 654, 45 L.Ed. 862 (1901); Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969 (1900); Head Money Cases, 112 U.S. 580, 5 S.Ct. 247, 28 L.Ed. 798 (1884). The Moyses Court applied the concept of geographical uniformity in upholding the Bankruptcy Act of 1898, 30 Stat. This Act shall not affect the allowance to bankrupts of their exemptions which are prescribed by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months or the greater part thereof immediately preceding the filing of the petition.
544 (1898) (repealed 1978) (1898 Act). That Act originally provided:
30 Stat. 548. 7 Faced with a challenge to the uniformity of the Act's exemption provision, the Supreme Court stated that "uniformity is geographical, and not personal, and we do not think that the provision of the Act of 1898 as to exemptions is incompatible with that rule." 186 U.S. at 188, 22 S.Ct. at 860.
The debtors urge that Moyses is not applicable to the case at bar. Their arguments fall into two categories: (1) Moyses was incorrectly decided, and there is an indication that the Supreme Court has in recent years retreated from the concept of geographical uniformity in bankruptcy cases; and (2) the new Bankruptcy Code differs significantly from the 1898 Act discussed in Moyses and those differences make the Moyses decision inapposite.
First, we will outline the arguments posed by the debtors in support of their contention that the Moyses Court reached an incorrect result. The concept of geographical uniformity first emerged in tax cases. E.g., Fairbank v. United States, 181 U.S. 283, 298, 21 S.Ct. 648, 654, 45 L.Ed. 862 (1901); Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969 (1900); Head Money Cases, 112 U.S. 580, 5 S.Ct. 247, 28 L.Ed. 798 (1884). Geographical uniformity was appropriate to those cases because there was a demonstrated intent on the part of the Constitution's framers to avoid discrimination among the states. See 181 U.S. at 298, 21 S.Ct. at 654; 178 U.S. at 106, 20 S.Ct. at 772. Arguably the uniformity provision relating to bankruptcies had a different focus: to eliminate discrimination among debtors. In Moyses, Chief Justice Fuller did not discuss this possible distinction; in fact, he did not cite any of the earlier tax decisions that had first articulated the concept of geographical uniformity.
Instead, the Moyses opinion relied on two lower court...
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