Thomas David Connor and Pamela Jo Connor

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
THOMAS DAVID CONNOR and
PAMELA JO CONNOR,
DEBTORS.
CASE NO.
09-05517-8-JRL
ORDER REGARDING OBJECTION TO EXEMPTIONS
The matter before the court is the chapter 13 trustee's objection to the debtors' exemptions.
A hearing took place in Raleigh, North Carolina on November 4, 2009.
Thomas David Connor and Pamela Jo Connor filed a petition for relief under chapter 13 of
the Bankruptcy Code on July 2, 2009. On their Schedule C-2, the local form for debtors claiming
exemptions under federal laws or the laws of a state other than North Carolina, the Connors claimed
the federal exemptions under 11 U.S.C. § 522(d). The trustee objected, contending that Mr. Connor
was required to claim exemptions under North Carolina law and that his attempt to claim the federal
exemptions was in bad faith.
The issue in this case arises from the intersection of § 522(b)(1), which controls the election
of exemptions for joint debtors who are husband and wife, § 522(b)(2), which provides that the
federal exemptions apply unless the applicable state law does not authorize a debtor to claim the
SO ORDERED.
SIGNED this 19 day of November, 2009.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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federal exemptions, and § 522(b)(3), which controls the applicable state law according to the
domicile of the debtor prior to filing. Section 522(b)(3) looks to the domicile of the debtor during
the 730 days immediately preceding the filing of the petition. This case presents an interesting
question, as Mr. Connor lived in North Carolina during the 730 days prior to filing, but Mrs. Connor
resided in Florida until June 2008.
The starting point for determining which exemptions apply is the domicile provision in §
522(b)(3)(A). As noted above, Mr. Connor lived in North Carolina during the relevant time. North
Carolina General Statutes § 1C-1601(f) provides
The exemptions provided in The Bankruptcy Code, 11 U.S.C. § 522(d), are not
applicable to residents of this State. The exemptions provided by this Article and by
other statutory or common law of this State shall apply for purposes of The
Bankruptcy Code, 11 U.S.C. § 522(b).
Because North Carolina opted not to allow the use of the federal exemptions as contemplated in §
522(b)(2), it is known as an "opt out" state. Nothing else appearing, Mr. Connor is required to claim
any exemptions under North Carolina law.
Mrs. Connor lived in Florida during a portion of the 730 days prior to filing. 	In this
situation, § 522(b)(3)(A) provides that the court looks to the law of the state where the debtor's
domicile was located for 180 days immediately preceding the 730-day period, which is Florida.
Florida is an opt-out state, but it also requires a debtor to reside in the state in order to claim its
exemptions. Accordingly, Mrs. Connor is not eligible to claim Florida exemptions as a result of the
Florida law, and she is not eligible to claim North Carolina exemptions because of § 522(b)(3). Mrs.
Connor is therefore subject to the savings provision of § 522(b)(3), which provides that "[i]f 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)," that
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1 This analysis presupposes that the court must honor the residency, domiciliary, and
property location requirements of Florida's exemptions laws. A minority of courts have found that
§ 522(b)(3)(A) preempts any limitation in state law to residence or domicile, but such a reading
would render the savings clause of § 522(b)(3) moot. See generally William Houston Brown et al.,
Bankruptcy Exemption Manual § 4:5 (2009). Were the court to follow this minority view, Mrs.
Connor would clearly be entitled to claim exemptions under Florida law while Mr. Connor claimed
his exemptions under North Carolina law, as § 522(b)(1) speaks only to consistency between federal
and state exemptions. See also § 522(m) ("[s]ubject to the limitation in subsection (b), this section
shall apply separately with respect to each debtor in a joint case.").
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is, to claim the federal exemptions.1 Nothing else appearing, Mrs. Connor is required to claim the
federal exemptions.
The debtors contend that they both claimed federal exemptions because of § 522(b)(1),
which provides, in relevant part:
In joint cases filed under section 302 of this title and individual cases filed under
section 301 or 303 of this title by or against debtors who are husband and wife, and
whose estates are ordered to be jointly administered under Rule 1015(b) of the
Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property
listed in paragraph (2) [the federal exemptions] and the other debtor elect to exempt
property listed in paragraph (3) of this subsection [the state exemptions]. 	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.
11 U.S.C. § 522(b)(1). 	At least one court has held that where joint debtors resided in different
states, they were required to elect the exemptions permitted under the laws of the opt-out state in
which the male debtor resided. 	See Seung v. Silverman, 288 B.R. 174, 176 (E.D.N.Y. 2003)
(rejecting contention that because female debtor was a resident of New Jersey, she was not entitled
to elect New York exemptions and was thus entitled to elect federal exemptions). That case was
decided prior to the 2005 addition of the domiciliary requirements of § 522(b)(3), however, and the
rule of § 522(b)(1) "sets up something of a conflict with section 522(b)(3)'s stress upon domicile of
a debtor and its provision that if a debtor does not meet the domiciliary requirements the debtor may
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2 The debtors contend that they could have elected to claim no exemptions, but the question
is not whether the debtors elect to claim exemptions or not to claim exemptions, but whether they
may claim exemptions under the federal or state exemptions scheme.
3 Section 522(b)(1) was added in 1984 to prohibit the practice of "stacking" exemptions, or
maximizing the value of exemptions by claiming both federal and state exemptions. This problem
was also largely resolved when most states opted out of the federal scheme, leaving debtors with no
ability to elect the federal exemptions. The issue has only come back into play with the addition of
the domiciliary requirements, but this reading of the statute still avoids abuses because debtors may
not choose to use both state and federal exemptions to maximize their value. In this case, the parties
agree that whether Mr. Connor claims exemptions under the federal or state scheme will not affect
the required payout under the Connors' chapter 13 plan.
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use section 522(d) exemptions, even in an opt out state." William Houston Brown et al., Bankruptcy
Exemption Manual § 4:5 (2009).
The problem with the Seung result is that it ignores a key word in § 522(b)(1): elect. Section
522(b)(1) prohibits married debtors from electing the federal and state exemptions. In opt out states,
however, debtors do not elect to claim state exemptions, they are required to claim state
exemptions.2 Similarly, because Mrs. Connor is not eligible to claim either North Carolina or
Florida exemptions, she is required to claim the federal exemptions. Section 522(b)(1) does not
speak to joint debtors' ability to claim federal and state exemptions where the result arises not from
an election, but by operation of statute.
Similarly, § 522(b)(1) provides that if the parties cannot agree on the alternative to be
elected, they shall be deemed to have elected the federal exemptions "where such election is
permitted under the law of the jurisdiction where the case is filed." 	North Carolina law does not
permit the election of federal exemptions. N.C. Gen. Stat. § 1C-1601(f). Accordingly, the court
finds that by its plain language, § 522(b)(1) does not apply in the circumstances before the court. 3
Based on the foregoing, the chapter 13 trustee's objection to exemptions is ALLOWED. Mr.
Connor has 30 days to amend his Schedule C to claim exemptions pursuant to North Carolina law.
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Because Mr. Connor's original claim of exemptions was based on a good faith reading of the statute,
the court finds that his claim of exemptions under federal law was not in bad faith.
END OF DOCUMENT
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