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., 16^th 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.