In re Abel

622 B.R. 312

IN RE: Leaza Danell ABEL, Debtor.

Bankruptcy Number: 20-21042

United States Bankruptcy Court, D. Utah.

Signed August 14, 2020

Scott T. Blotter, Justin O. Burton, Rulon T. Burton & Assoc., Murray, UT, for Debtor.

Brian J. Porter, McKay, Burton & Thurman, P.C., Stephen W. Rupp tr, Salt Lake City, UT, for Trustee.

MEMORANDUM DECISION ON TRUSTEE'S OBJECTION TO EXEMPTIONS

KEVIN R. ANDERSON, U.S. Bankruptcy Judge Leaza Danell Abel moved from Montana to Utah about 7 months prior to filing Chapter 7 bankruptcy in Utah. But when Ms. Abel traded in the vast expanses of Big Sky Country for the rocky ranges of the Wasatch Mountains, she unintentionally created a puzzling legal dilemma – which exemptions (Montana, Utah, or federal) to claim against her assets in her Chapter 7 bankruptcy case. While the Bankruptcy Code's domiciliary provision requires the Debtor to claim Montana exemptions, the parties believe that the Montana exemptions are only available to its residents, and the Debtor is now a resident of Utah. Thus, the issue in this case is whether the Montana residency limitation on exemptions applies to debtors in bankruptcy or, in the alternative, whether 11 U.S.C. § 522(b)(3)¹ permits the Debtor to claim federal or Montana exemptions against some, none, or all her assets.

I. JURISDICTION

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(a) – (b), 157(b). The Trustee's Objection to Exemptions² is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and/or (B). Venue is appropriate in this District under 28 U.S.C. §§ 1408 – 1409, and notice of the hearing was properly given to all parties in interest.

II. FACTS AND PROCEDURAL BACKGROUND³

1. The Debtor lived in Montana from June 2017 through the first week of July 2019.⁴

2. The Debtor moved to Utah in July 2019.⁵

3. On February 21, 2020 Leaza Danell Abel (the "Debtor") filed the above-captioned voluntary Chapter 7 case in Utah.⁶

4. On the same date, the Debtor filed a statement of financial affairs and accompanying schedules.⁷

5. On Schedule A/B: Property, the Debtor listed a 2011 GMC Terrain valued at $4,800; 2007 GMC Sierra valued at $5,000; four bank accounts valued at $2,077.86; a prepaid card valued at $0; a 2019 tax refund in an unknown amount; and various other household items.⁸

6. On Schedule C: The Property You Claim as Exempt, the Debtor claims exemptions under § 522(d).⁹

7. Under § 522(d)(2), the Debtor claims an exemption of $4,000 in the 2011 GMC Terrain.

8. Under § 522(d)(5) (the "wildcard" exemption), the Debtor claims the following assets and exemption amounts:

Exercise/Sports Equipment	$100
Checking (ending 1288): Wells Fargo Bank	$1,000
Money Market Savings (ending 8670): Wells Fargo Bank	100% of fair market value
Savings (ending 4493): Wells Fargo Bank	$1,000
Savings: Valley Credit Union	$1,000
Prepaid: Venmo	$1,000
Federal/State 2019 Tax Refund	$1,325

9. The Trustee filed an Objection to the Debtor's claimed exemptions on May 21, 2020.¹⁰ Specifically, the Trustee objected to the Debtor's claimed exemptions under § 522(d)(5) and the amount of Debtor's claimed exemption under § 522(d)(2) in the 2011 GMC Terrain.

10. The Debtor responded to the Trustee's Objection on June 9, 2020.¹¹

11. The Trustee filed a reply on June 18, 2020.¹²

12. The Court held a hearing on the Trustee's Objection to Exemptions on June 22, 2020. At the conclusion of the hearing, the Court took the matter under advisement and invited the parties to submit supplemental briefs within 14 days if desired.

13. The Trustee filed a supplemental brief on July 6, 2020.¹³

III. ANALYSIS

Because the Debtor moved from Montana to Utah within 730 days of her bankruptcy filing, the domiciliary provision of § 522(b)(3)(A)¹⁴ requires the Debtor to use Montana exemptions. Montana has opted out of the federal exemptions, so the Debtor must use Montana's state-law exemptions.¹⁵ However, the Debtor asserts that Montana has limited its exemptions to state residents,¹⁶ thus she does not qualify for the Montana exemptions. As a result, the Debtor asserts under the hanging paragraph in § 522(b)(3)¹⁷ (the " § 522 Safety Net") she can claim the federal exemptions of § 522(d) because the domiciliary provision of § 522(b)(3)(A) renders her "ineligible for any exemption." Consequently, the Debtor has claimed a vehicle exemption of $4,000 under § 522(d)(2) and a wild-card exemption under § 522(d)(5) in tax refunds, various financial accounts, and personal property.

The Trustee objects to the vehicle exemption under § 522(d)(2) on the grounds that the Debtor is limited to the Montana vehicle exemption of $2,500.¹⁸ The Trustee also objects to the wild-card exemption under § 522(d)(2) on the grounds that Montana does not allow for a wildcard exemption. Specifically, the Trustee contends that the § 522 Safety Net should be interpreted to preclude the Debtor from claiming a category or an amount of a federal exemption that is not available under the Montana exemption statute.

The Trustee urges this Court to adopt the reasoning of Judge Brown in In re Withington , 594 B.R. 696 (Bankr. D. Colo. 2018), who held that the § 522 Safety Net does not allow a debtor to claim a federal exemption that is greater than the applicable state law exemptions if the debtor is deprived of a specific state exemption due to a residency requirement.

On the other hand, the Debtor asserts that she should be able to claim federal exemptions against her assets for the following reasons: (1) because Montana's exemptions are limited to state residents, she is entitled under the § 522 Safety Net clause to claim federal exemptions under § 522(d) ; and (2) the Trustee's position, coupled with the domiciliary requirement of the Bankruptcy Code, impairs the Debtor's fresh start.

A. Statutory Framework

1. The Bankruptcy Code

Section 522(b) allows a debtor to exempt property from the bankruptcy estate. Under § 522(b)(2), a debtor can claim the federal exemptions listed in § 522(d) or, if a state has chosen to opt out of the federal exemptions and require the use of its own exemptions, a debtor must claim the exemptions of the applicable state.

However, if a debtor has been domiciled in more than one state within 730 days prior to the bankruptcy filing, then § 522(b)(3)(A), known as the "Domiciliary Provision," provides that the debtor's domicile for exemption purposes is "the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period." In 2005, Congress extended the domiciliary look-back period from 180 days to 730 days. This was done with the intent of precluding a certain type of bankruptcy planning whereby a debtor, in anticipation of filing for bankruptcy, moved to a state with more generous exemptions.¹⁹

The parties and the Court agree that under the Domiciliary Provision of § 522(b)(3)(A), the Debtor is required to claim Montana exemptions even though such exemptions are generally only available to Montana residents.²⁰ In an attempt to remedy this anomalous situation, the § 522 Safety Net provides: "If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under [ § 522 ](d)." However, the application of this seemingly simple approach is somewhat complicated by Montana exemption laws.

2. The Montana Exemption Statutes

Montana has opted out of the Bankruptcy Code's exemption scheme and legislated its own exemptions.²¹ Montana limits its exemptions to state residents under MONT. CODE ANN. § 25-13-606 : "A resident of this state is entitled to the exemptions provided in this part." However, Montana has also enacted a separate statute that specifically deals with exemptions in a bankruptcy case. MONT. CODE ANN. § 31-2-106, titled "Exempt Property – bankruptcy proceeding," provides in relevant part:

An individual may not exempt from the property of the estate in any bankruptcy proceeding the property specified in 11 U.S.C. [§] 522(d). An individual may exempt from the property of the estate in any bankruptcy proceeding: (1) that property exempt from execution of judgment as provided in ... Title 25, chapter 13, part 6 ....

The Court observes the following regarding this section. First, it specifically addresses the application of Montana exemptions in "any bankruptcy proceeding" and thus it is not expressly limited to a bankruptcy case filed in the District of Montana. Second, it twice uses the phrase an "individual" rather than a "resident" when speaking of exemptions available in bankruptcy. Third, it provides that an "individual" in "any bankruptcy proceeding" may exempt "that property" provided in Title 25, chapter 13, part 6. Again, this statutory text makes no mention of a residency requirement. Finally, the language expressly prohibits an individual in bankruptcy from claiming an exemption under § 522(d).

MONT. CODE ANN. § 1-2-102 provides that "[i]n the construction of a statute, the intention of the legislature is to be pursued if possible. When a general and particular provision are inconsistent, the latter is paramount to the former, so a particular intent will control a general one that is inconsistent with it." The Montana Supreme Court has observed that MONT. CODE ANN. § 31-2-106 "is the more specific statute in that it relates directly to bankruptcy" as opposed to § 25-13-609 which "sets forth the personal property exemptions available to judgment debtors in general."²² Based on this direction from the Montana Supreme Court, and applying the plain meaning of each word while observing the distinction between "an individual" and "a resident," the Court finds that the specifics of MONT. CODE ANN. § 31-2-106 control in this bankruptcy case over the general of Title 25, Chapter 13, Part 6, entitled "Property Exempt from Execution," of the Montana Code.

B. Application of the Montana Bankruptcy Exemption Statute

Consequently, for the following reasons the Court...