In re Willis

495 B.R. 856, 2013 WL 2250428, 2013 Bankr. LEXIS 2109
CourtUnited States Bankruptcy Court, W.D. Wisconsin
DecidedMay 22, 2013
DocketNo. 12-16372
StatusPublished
Cited by7 cases

This text of 495 B.R. 856 (In re Willis) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Willis, 495 B.R. 856, 2013 WL 2250428, 2013 Bankr. LEXIS 2109 (Wis. 2013).

Opinion

MEMORANDUM DECISION

ROBERT D. MARTIN, Bankruptcy Judge.

Debtors claimed the federal exemptions in their amended claim of exemptions. The trustee objected. The debtors, who how live in Wisconsin, were domiciled in both Illinois and Wisconsin during the 730 days immediately preceding the filing of their bankruptcy petition. They were domiciled in Illinois (an “opt-out” state) during the 180 days immediately preceding that 730-day period. The trustee argues that under 11 U.S.C. § 522(b)(3), the debtors may take only the exemptions set out in the state statutes of Illinois.

Under 11 U.S.C. § 522(b)(1), a debtor generally may choose to take either the federal exemptions or the exemptions available under applicable state law. However, if the applicable state has “opted out” of the federal exemptions, a debtor is limited to her state law exemptions. See 11 U.S.C. § 522(b)(2).

Section 522(b)(3) determines which state’s exemption laws apply to a particular debtor, based on the debtor’s domicile. Section 522(b)(1) allows a debtor to exempt “property listed in ... paragraph (3) of this subsection,” and Section 522(b)(3) provides,

(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 ...

If the effect of the domiciliary requirement under subparagraph (A) is to ren[858]*858der the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d) [i.e., the federal exemptions],

11 U.S.C. § 522(b)(3).

Bankruptcy courts in the Seventh Circuit are divided on the effect of Section 522(b) in cases like this one. In re Shell and In re George both confronted similar facts: where the debtor’s domicile was not located in a single state for the 730 days immediately preceding the filing of her bankruptcy petition, and the debtor was domiciled in Illinois for the 180 days immediately preceding the 730-day period. Shell, 478 B.R. 889, 901 (Bankr.N.D.Ind.2012); In re George, 440 B.R. 164, 167 (Bankr.E.D.Wis.2010).

The bankruptcy court for the Eastern District of Wisconsin held in George that the debtor was ineligible to take Illinois exemptions. George, 440 B.R. at 167. The court determined that Illinois exemption law has an implied residency requirement, so Illinois exemptions are only available to current residents. Id. Since the debtor was a Wisconsin resident at the time of filing, she was not eligible to take exemptions under Illinois law. Section 522(b)(3)’s unnumbered final sentence (“the hanging paragraph”) therefore allowed the debtor to elect the federal exemptions. Id. Additionally, the court held that even without the hanging paragraph, the debtor would have been free to elect the federal exemptions. She was not bound by Illinois’ opt-out provision, because the court determined that the opt-out provision also only applies to current residents. Id. at 167-68.

In contrast, the bankruptcy court for the Northern District of Indiana held in Shell that 11 U.S.C. § 522(b) preempts any residency requirements of state exemption laws. Shell, 478 B.R. at 901. Therefore, the debtor in Shell was not disqualified from taking Illinois exemptions, and indeed was bound by Illinois’s opt-out provision and therefore required to take Illinois exemptions. Id.

As the bankruptcy court explained in Shell, the point of divergence is the timing at which the debtor’s factual circumstances should be evaluated: the court in George “placets] the debtor in the state ordained by 11 U.S.C. § 522(b)(3)(A) during the applicable 180 day period ... then applies] the debtor’s factual circumstances as of the date of the filing of the petition to that placement,” while Shell advocates “placing] the debtor in a state ordained by 11 U.S.C. § 522(b)(3)(A) during the applicable 180 day period ... and [then applying the factual circumstances] of the debt- or at the time of placement to the issue of domicile.” Shell, 478 B.R. at 897. The court in Shell supports its construction by reasoning that: 1) the statute is unambiguous, and 2) Congress intended to curb forum shopping. Shell, 478 B.R. at 898-900.

I disagree with the reasoning of Shell, and conclude that George has reached the right result. First, the relevant language in 11 U.S.C. § 522(b)(3)(A) does not unambiguously support the Shell position. As noted above, Section 522(b)(1) allows a debtor to exempt “property listed in ..., paragraph (3) of this subsection,” and Section 522(b)(3)(A) provides that “[p]roperty listed in this paragraph is ... any property that is exempt under ... State or local law that is applicable on the date of filing of the petition to the place in which the debtor’s domicile has been located ...” 11 U.S.C. § 522(b). In Shell, in order to avoid the problem of [859]*859residency requirements, the analysis applies the “factual circumstances” of the debtor as they existed during the 180-day period. Logically, this does not include the property itself — any exemptions must be based on the property that the debtor has on the petition date, -not that she had at that time of placement. If she owned a motor vehicle during that 180 day period, but no longer owns it at the time of the filing of the petition, she is not eligible for the motor vehicle exemption under Illinois law. Therefore, at least part of the debt- or’s “factual circumstances” must still be considered as of the petition date. The only fact that Shell proposes analyzing as it existed during the 180-day period is the debtor’s residency. Since the debtor’s property must still be considered as of the petition date, and the statute is silent on the time as of which the debtor’s residency is to be considered, the statute does not unambiguously require the Shell interpretation.

The second reason that the court gave in Shell in support of its construction was Congress’s intent to curb forum shopping:

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Cite This Page — Counsel Stack

Bluebook (online)
495 B.R. 856, 2013 WL 2250428, 2013 Bankr. LEXIS 2109, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-willis-wiwb-2013.