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Bankruptcy Cases in the News: 11 USC § 522: The Residence Exemption

Bankruptcy Cases in the News

11 USC § 522: Residence Exemption

    This past August has had a bumper crop of interesting cases. In re Demeter, Case no.: 12-44593 local Bankruptcy Court Judge, (Easter District of Michigan) Thomas J. Tucker, decided a very interesting and helpful case to individual debtors. In this case, he was called upon to decide because of a trustee’s objection to the debtor’s exemptions whether a second home could qualify as a residence under the federal exemption, giving this debtor couple, up to $53,250.00 in exempt property or whether the exemption could only be applied to a so-called “primary” residence. Although, this other home was in foreclosure and had no equity, whatsoever.

 

In the end, Judge Tucker over ruled the trustee’s objection because the statute did not have a requirement that the residence exemption had to apply to a “primary” residence. In the blog which follows, we will look at some of the rules of statutory construction, employed by Judge Tucker. For our purposes here it is sufficient to say that Judge Tucker found that the debtors did have a significant connection with both houses, used both year round and never rented out. In addition, he reasoned that because 11 USC § 522 (d)(1)(d) did not use the word “primary” that he would not read it into the statute, as the statute only spoke of “real property…that the debtor uses as a residence…”

 

Also, in reaching his decision the Judge noted that his construction of the statute was also consistent with major purposes of the Bankruptcy Court. In doing so, the Court noted:

 

    “Under the Bankruptcy Code, there is an overriding federal interest in providing Debtors with “a fresh start.” See, e.g., In re W.R. Grace & Co., No. 11-199, 2012 WL 2130991, at *72 (D. Del. June 11, 2012)(listing a “fresh start” for a debtor as one of the important countervailing federal interests that could override state contract law); In re Buckley, 404 B.R. 877, 887 (Bankr. S.D. Ohio 2009)(citations and internal quotation marks omitted)(stating that “the overriding goal of the Bankruptcy Code [is] to provide a “fresh start” for the debtor”); In re Spears, 308 B.R. 793, 825 (Bankr. W.D. Mich. 2004) rev’d on other grounds, 313 B.R. 212 (W.D. Mich. 2004)(“Providing an individual debtor with a “fresh start” is a fundamental objective of the Bankruptcy Code.”) By providing debtors with the right to exempt certain property from the claims of creditors so that debtors have basic necessities to begin again, the exemption scheme under § 522 (d) is crucial to, and an integral part of a debtor’s “fresh start.” Schwab v. Reilly, 130 S. Ct. 2652, 2667 (2010)(“We agree that ‘exemption in bankruptcy cases are part and parcel of the fundamental bankruptcy concept of a “fresh start.”); Spears, 308 B.R. at 825 (“Congress enacted the exemption scheme set forth in Section 522 in order to provide an individual debtor with the fresh start it contemplated.”); 4 Collier on Bankruptcy ¶522.01[5], at 522-14 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2012) (“A fundamental component of an individual debtor’s fresh start in bankruptcy is the debtor’s ability to set aside certain property as exempt form the claims of creditors.”).

 

This determination is therefore good news for debtors looking to get their fresh start and retain as much property as is provided by the federal exemption. As Judge Tucker stated in Demeter: “Thus, §522(d)(1) permits a debtor to exempt a residence that is not the principal residence. And this interpretation is consistent with the requirement that bankruptcy courts must construe exemption liberally in favor of the debtor.”

 

If you have any questions about bankruptcy law or exemption planning please feel free to call bankruptcy attorney Guy Vining of the Vining Law Group. All initial telephone conference and office meetings are free of charge.


[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News: State Exemptions #2

Bankruptcy Cases in the News

State Exemptions #2

In a recent blog which discussed that in the Schafer case (6th Cir., 11-1340) that the Michigan bankruptcy statute was approved by the appellate court as passing constitutional muster. Their decision not only is of assistance to Michigan debtors but was a blessing to the local bankruptcy attorneys and judges as it clarifies the law and resolves conflicting opinions. Now bankruptcy attorneys can give their client more definitive advice on exemption planning. It also assists the debtors and bankruptcy attorneys by avoiding litigation within the Bankruptcy Court, in relation to exemptions saving financial and judicial resources.

 

All of this, however, begs the question of what the important distinctions are with respect to exemption planning. This is a deep subject and well beyond the scope of a blog posting. However, there are some immediately apparent benefits for Michigan debtors that they can discuss with their bankruptcy attorney. First, across the board it appears that for unmarried Michigan debtors, who have home equity to be sheltered/exempted, that more can be accomplished under the Michigan Statute. See: MCL 600.5451 and compare to 11 USC § 522(d)(1). In addition, if the Michigan debtor is also a handicapped or elderly individual, the exemptions increase even higher.

 

If you are a Michigan resident contemplating a bankruptcy you should discuss these matters in detail with your bankruptcy attorney. Exemption planning is essential for you to receive the very best outcome in your case. As noted in the Schafer case (citing Grogan v. Garner, 589 U.S. 279 (1991)), the so-called Michigan bankruptcy exemptions statute’s broader exemptions will allow “bankruptcy debtors in Michigan…(to be better met) to achieve a fresh start and to obtain a new opportunity in life with a clear field… unhampered by the pressure and discouragement of preexisting debt.”

 

If you have any questions about exemption planning please feel free to call Guy Vining for a free consultation or another qualified bankruptcy attorney.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News: State Exemptions #1

Bankruptcy Cases in the News
State Exemptions #1

The 6th Circuit Court of Appeals decided a very interesting and debtor friendly case recently. In re: Steven M. Schafer, Case No.: 11-13401387, the 6th Circuit Court reversed lower court holdings that had determined that Michigan’s so-called “bankruptcy exemptions” were unconstitutional.

This is pretty esoteric stuff, but the bottom line is that Michigan has a general exemption statute and the so-called bankruptcy exemptions statute, the latter of which provide more generous exemptions for debtors. In filing a case a debtor in a state like Michigan (which has it’s own statute) must elect to proceed under federal or state exemptions. Earlier rulings struck down the so-called state bankruptcy statute holding in essence that it was an impermissible conflict of state and federal law for Michigan to have “bankruptcy” exemptions because only the U.S. Congress could create these laws as it is to do so under the U.S. Constitution and controls the entire bankruptcy field. One of the main arguments advanced for federal control was to give uniformity and not create conflicts from state to state.

The 6th Circuit disagreed, holding:

    Indeed, on an as-applied basis, the Michigan statute actually furthers, rather than frustrates, national bankruptcy policy. As the Supreme Court has repeatedly noted, the goal of the Bankruptcy Code is to provide debtors in bankruptcy with a fresh start. Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (“The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.”) By permitting debtors in bankruptcy a higher homestead exemption than either the general state exemption statute or the federal exemption statute allow, bankruptcy debtors in Michigan are better able to achieve a fresh start and to obtain “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 286 (1991). Accordingly, Michigan’s bankruptcy-specific exemption statute frustrates the full effectiveness of national bankruptcy policy no more than other statutory frameworks that have survived our scrutiny.

As noted in Schafer the so-called bankruptcy exemptions under MCL 600.5451 are substantially more generous to the debtor than it’s federal counterpart in 11 USC 522 (d)(1) or the general exemption statute MCL 600.6023. Indeed, with respect to home equity for an individual debtor (or homestead) it is double the federal statute for a 65 year old debtor or handicapped debtor. This is pretty good news for the debtor but makes things more difficult for the Trustee whose compensation is largely contingent upon the amount of money collected.

The bottom line is that elderly and handicapped debtors are really aided by this decision. These honest but unfortunate individuals will get a larger nest egg to embark on their fresh start with.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]