Hailu T Hassen and Hirut Hassen

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
HAILU T. HASSEN and HIRUT
HASSEN,
Debtors.
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Case No. 10-00245
(Chapter 7)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE OBJECTION TO EXEMPTIONS
The chapter 7 trustee has objected to the debtors’
exemptions under the Bankruptcy Code (11 U.S.C.). 	The objection
will be sustained for the following reasons.
I
Mr. Hassen resides in the District of Columbia and Mrs.
Hassen resides in Virginia. 	The trustee’s objection seeks
disallowance of the debtors’ election of the exemptions listed in
11 U.S.C. § 522(b)(2) (property specified in 11 U.S.C. § 522(d)),
and an order directing the debtors to file an amended Schedule C
applying the exemptions available under Bankruptcy Code
§ 522(b)(3), with Mr. Hassen claiming as any state law exemptions
District of Columbia exemptions and Mrs. Hassen claiming as any
state law exemptions Virginia exemptions, and compelling the
The document below is hereby signed.
Signed: July 09, 2010.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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debtors to turn over any property not claimed to be exempt. 	For
the reasons that follow, I conclude that if the alternative of
electing § 522(b)(2) exemptions does not exist for both spouses,
the deemed-to-elect provision of the last sentence of § 522(b)(1)
does not come into play, and each spouse must elect exemptions
under § 522(b)(3).
II
In 11 U.S.C. § 522(b)(1), the Bankruptcy Code generally
gives a debtor the right to elect to exempt the property listed
in § 522(b)(2) (the property specified at length in 11 U.S.C.
§ 522(d)) or to exempt the property exemptible under § 522(b)(3),
namely:
• 	property exemptible under federal nonbankruptcy law
(i.e., federal law other than 11 U.S.C. § 522(d));
• 	property exemptible under the state law deemed to apply
to the debtor under § 522(b)(3);
• 	certain interests as a tenant by the entirety or joint
tenant that is exempt from process under applicable
nonbankruptcy law; and
• 	certain retirement funds.
But the general rule has an exception: under § 522(b)(2), the
exemption of property specified in § 522(d) is unavailable if
“the State law that is applicable to the debtor under paragraph
(3)(A) specifically does not so authorize.” 	In other words, a
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state may opt out of letting the debtor elect the exemptions of
property listed under § 522(b)(2) (the property specified in
§ 522(d)).
Mrs. Hassen is domiciled in Virginia, and under 11 U.S.C.
§ 522(b)(3)(A), Virginia law is the law applicable to Mrs. Hassen
in determining exemptions that she could elect under state law.
Virginia, within the meaning of the ending clause of 11 U.S.C.
§ 522(b)(2), 	“specifically does not . . . authorize” a debtor to
elect the exemptions of the property listed under 11 U.S.C.
§ 522(b)(2), thus making Virginia a so-called “opt out” state.
Accordingly, Mrs. Hassen is barred from electing § 522(b)(2)
exemptions. 	She has no alternative available to her: she must
claim exemptions under § 522(b)(3), including any exemptions
available to her under Virginia law.
Mr. Hassen, in contrast, is domiciled in the District of
Columbia, and under 11 U.S.C. § 522(b)(3)(A), District of
Columbia law is the law applicable to Mr. Hassen in determining
exemptions that he could elect under state law. 	The District of
Columbia, unlike Virginia, does not forbid Mr. Hassen’s electing
the exemptions of the property listed under § 522(b)(2).
Accordingly, if he had filed a non-joint case, he could have
elected either § 522(b)(3) exemptions or the federal bankruptcy
exemptions listed in § 522(b)(2).
When spouses file a joint case, however, § 522(b)(1)
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provides that “one debtor may not elect to exempt property listed
in paragraph (2) and the other debtor elect to exempt property
listed in paragraph (3) of this subsection.” 	The trustee argues
that Mrs. Hassen, domiciled in Virginia, cannot elect the
exemptions listed under § 522(b)(2), and must elect the
exemptions available to her under § 522(b)(3). 	The trustee
argues that, in turn, when Mrs. Hassen, as required by
§ 522(b)(2), elects the exemptions available to her under
§ 522(b)(3), § 522(b)(1) forbids Mr. Hassen, even though he is
domiciled in the District of Columbia, a non-opt-out state, from
electing the exemptions under § 522(b)(2). 	Consistent with the
restrictions imposed upon Mrs. Hassen’s choice of exemptions, Mr.
Hassen must elect the exemptions available to him under
§ 522(b)(3) (including, in his case, any exemptions available
under District of Columbia law).
Mr. and Mrs. Hassen respond that this preliminary analysis
is incomplete because § 522(b)(1), when read in its entirety,
authorizes their electing § 522(b)(2) exemptions. 	More fully,
the relevant portion of § 522(b)(1) governing joint cases
provides:
In joint cases . . . one debtor may not elect to exempt
property listed in paragraph (2) and the other debtor
elect to exempt property listed in paragraph (3) of
this subsection. 	If the parties cannot agree on the
alternative to be elected, they shall be deemed to
elect paragraph (2), where such election is permitted
under the law of the jurisdiction where the case is
filed.
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Mr. Hassen desires to elect under § 522(b)(2), not under
§ 522(b)(3), and “the law of the jurisdiction where the case is
filed,” the law of the District of Columbia, permits debtors to
make an election under § 522(b)(2). 	It follows, they argue, that
with Mr. Hassen desiring to elect under § 522(b)(2), even if Mrs.
Hassen desired to elect under § 522(b)(3), the pertinent language
of § 522(b)(1), in the case of parties who cannot agree on the
alternative to be elected, would require that “they shall be
deemed to elect under paragraph (2).”
I agree with the trustee that the last sentence of
§ 522(b)(1), upon which the Hassens rely, is inapplicable.
Unlike this case, in a case where each spouse is deemed under 11
U.S.C. § 522(b)(3)(A) to be subject to the laws of a state that
is not an opt out state, such that both spouses have the
alternative of electing exemptions under either § 522(b)(2) or
§ 522(b)(3), the last sentence of § 522(b)(1) governs what to do
if the spouses cannot agree on which alternative to elect. 	But
Mr. and Mrs. Hassen’s rights to elect exemptions under state law
are governed by, respectively, the District of Columbia and
Virginia, and the latter state is an opt out state. 	Under
Virginia law, Mrs. Hassen is required to elect § 522(b)(3)
exemptions. 	For her, § 522(b)(2) is not an available
“alternative to be elected” within the meaning of the last
sentence of § 522(b)(1). 	See In re Connor, 419 B.R. 304, 307
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(Bankr. E.D.N.C. 2009) (husband-debtor was required by North
Carolina law to elect North Carolina exemptions, and thus the
last sentence of § 522(b)(1) was inapplicable). 1 	It is only when
the “alternative” of claiming exemptions under § 522(b)(2) is
available to both spouses that the debtors can be deemed by the
last sentence of § 522(b)(1) to elect § 522(b)(2) exemptions.
Under the last clause of § 522(b)(1), if the parties cannot
agree on which of two alternative exemption schemes to elect,
“they shall be deemed to elect paragraph (2), where such election
is permitted under the law of the jurisdiction where the case is
filed.” 	The Hassens might argue that this clause dictates
whether they should be deemed to have elected § 522(b)(2)
1 	In In re Connor, the debtor-wife was allowed to elect
exemptions under § 522(b)(2) and the debtor-husband was ordered
to claim exemptions under § 522(b)(3), seemingly in conflict with
the command of § 522(b)(1) that one spouse may not elect under
§ 522(b)(2) and the other under § 522(b)(3). 	The result was
compelled by the savings clause of § 522(b)(3). 	The debtor-wife
was subject to Florida law as the state law governing permissible
state law exemptions under § 522(b)(3). 	But because Mrs. Connor
was no longer domiciled in Florida when the case was commenced,
Florida law barred her from utilizing Florida exemptions. 	She
resorted to the last sentence of § 522(b)(3) (a hanging
paragraph) which 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 subsection (d).
She was thus required to resort to the exemptions listed in
§ 522(b)(2), specifically, the property specified in § 522(d).
In re Connor, 419 B.R. at 306. 	Accordingly, for her too, there
was no question of electing either § 522(b)(2) or § 522(b)(3)
exemptions. 	The alternative did not exist.
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exemptions, and that the trustee’s interpretation would render
that clause meaningless. 	In other words, they would argue, so
long as the jurisdiction where the case is filed is not an opt
out state, the alternative exemption scheme of § 522(b)(2) is
deemed available to both debtors, and the debtors will be deemed
to have elected § 522(b)(2) exemptions. 	But the last clause of
§ 522(b)(1) is only applicable when, under the first clause of
§ 522(b)(1)--reading “[i]f the parties cannot agree on the
alternative to be elected”--there is the “alternative” of both
spouses electing either exemption scheme. 	Mrs. Hassen is not
permitted to elect § 522(b)(2) exemptions and is required to
elect § 522(b)(3) exemptions. 	The “alternative” of both debtors
electing § 522(b)(2) exemptions does not exist.
III
The Hassens might argue that this approach, of treating the
deemed-to-have-elected provision as unavailable when one of the
debtors resides in an opt out state, renders the last clause of
§ 522(b)(1) surplusage, and that this renders the foregoing
analysis inappropriate. 	I do not agree. 	The last clause of
§ 522(b)(1) reinforces the restriction set forth in § 522(b)(2)
that a debtor may not “elect” § 522(b)(2) exemptions if the
debtor is prohibited from making such an election by the laws of
an opt-out state, and it clarifies that the deemed-to-have-
elected provision is not intended to negate or alter the
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restriction set forth in § 522(b)(2). 	To the extent the court
interprets the clause as restating a restriction already set
forth in § 522(b)(2), there is no rule of construction
prohibiting a statutory redundancy of this sort. 	See In re
Bankvest Capital Corp., 360 F.3d 291, 301 (1st Cir. 2004) (“There
may be substantial overlap among the provisions of § 365(b)(2),
but redundancy is not the same as surplusage.”); Bank Midwest,
Minnesota, Iowa, N.A. v. Lipetzky, 674 N.W.2d 176, 181 (Minn.
2004) (“there is no rule of construction that precludes
redundancy in a statute”).
IV
The final clause of § 522(b)(1) provides that the “deemed-
to-elect” rule does not apply when a joint case is filed in a
jurisdiction whose laws do not permit the election of § 522(b)(2)
exemptions. 	What that clause was attempting to accomplish, but
did so imperfectly, was to emphasize that the deemed election of
§ 522(b)(2) exemptions by both spouses does not apply when the
governing state is an opt out state, such that the “alternative”
generally available to debtors of either § 522(b)(2) or
§ 522(b)(3) exemptions does not exist. 	In many cases (and
experience teaches that it is in most cases), the last sentence
of § 522(b)(1) provides a default rule for which set of
exemptions the debtors are deemed to elect when they are each
entitled to claim either of the two alternative exemption schemes
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but cannot agree. 	Because of its concluding clause, however, the
last sentence of § 522(b)(1) does not supply an election in some
joint cases even when both spouses are entitled to claim
exemptions under either § 522(b)(2) or § 522(b)(3) but cannot
agree.
Consider two debtors who file a case in an opt out state
(say, Virginia) and who are governed by the law of a non-opt-out
state (say, the District of Columbia) regarding the exemptions
that may be invoked under § 522(b)(3). 	If the parties cannot
agree on which of the two alternative exemption schemes to elect,
§ 522(b)(2) or § 522(b)(3), then § 522(b)(1) provides that “they
shall be deemed to elect paragraph (2), where such election is
permitted under the law of the jurisdiction where the case is
filed.” [Italics added.] Because the law of Virginia, the
jurisdiction where the case is filed, does not permit a debtor to
elect § 522(b)(2) exemptions, the debtors will not be deemed to
elect § 522(b)(2) exemptions even though District of Columbia
law, the law that governs under § 522(b)(3), permits them to
elect either § 522(b)(2) or § 522(b)(3) exemptions.
That shortfall in the deemed-to-elect rule of the last
sentence of § 522(b)(1), caused by the sentence’s last clause,
does not, however, present a reason to adopt the Hassens’
interpretation of the statute. 	All that this shortfall means is
that occasionally (as in the hypothetical) a bankruptcy court
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will be called upon to decide which set of exemptions spouses are
required to elect when they cannot agree. 	The statute is clear
that both spouses must claim exemptions under the same provision,
either § 522(b)(2) or § 522(b)(3), when the alternative of
electing under either provision is available to both spouses.
The deemed-to-elect provision does not alter that requirement.
The statute is equally clear that if one spouse is limited to
§ 522(b)(3) exemptions, 	the other spouse may not elect
§ 522(b)(2) exemptions, and thus the deemed-to-elect provision of
the last sentence does not come into play.
It is apparent that the last clause of § 522(b)(1) was a
drafting error. 	The provision appears to have been drafted based
on the erroneous assumption that debtors will file in a
jurisdiction located in a state whose law governs their
§ 522(b)(3) exemption rights. 	That assumption is erroneous on
two scores. 	First, venue under 28 U.S.C. § 1408 can be proper
based on where the debtor’s principal place of business or
principal U.S. assets have been located, whereas the governing
state for § 522(b)(3) purposes turns on where the debtor has been
domiciled. 	Second, improper venue can be waived.
Recognizing that there was an apparent drafting error,
however, does not require a different outcome in this case.
Instead, it supports my interpretation of § 522(b)(1) that the
deemed-to-elect provision of the last sentence does not apply
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when one (or each) of the spouses is barred by state law from
electing § 522(b)(2) exemptions. 	Recognizing that there was a
drafting error supports the conclusion that the last clause of
§ 522(b)(1) was intended to reinforce, not to create an exception
to, the rule that the deemed-to-elect provision does not come
into play if one (or each) of the spouses is barred from electing
§ 522(b)(2) exemptions in the first place, such that the
statutory “alternative” of both spouses electing § 522(b)(2) or
§ 522(b)(3) exemptions does not exist.
V
An order follows sustaining the objection to exemptions,
requiring the debtors within 14 days to file amended Schedules C
claiming exemptions under § 522(b)(3), and requiring the debtors,
within 14 days after written demand of the trustee, to turn over
to the trustee any property that becomes non-exempt under the
debtors’ amended Schedules C.
[Signed and dated above.]
Copies to: Debtors; Debtors’ attorney; Chapter 7 Trustee; Office
of United States Trustee.
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