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In re Aldeir

April 21, 2010


The opinion of the court was delivered by: Judge Robert W. Gettleman

Bankruptcy No. 08-01959

Honorable Carol A. Doyle, Presiding


Appellant trustee David P. Leibowitz (the "Trustee") appeals from an order of the United States Bankruptcy Court for the Northern District of Illinois ruling that the Trustee must pay debtor Nabeel D. Aldeir (the "Debtor") the value of his vehicle exemption prior to turnover of the vehicle. The Debtor has not appeared or filed a brief because the amount in controversy ($2,400) is so small. For the reasons set forth below, the decision of the bankruptcy court is affirmed.


The Debtor filed a bankruptcy petition on January 30, 2008, and the Trustee was subsequently appointed as the Chapter 7 trustee for the Debtor's estate. The Debtor's petition included a schedule of personal property listing a 2003 Ford Explorer ("Explorer") worth $4,000, among other assets. In his Motion for Turnover, the Trustee stated that the Explorer's "Blue Book" value was approximately $6,715. Under 735 ILCS 5/12-1001(c), the Debtor is entitled to a vehicle exemption of as much as $2,400 with respect to the Explorer.

A lien on the Explorer was satisfied, and on July 22, 2009,*fn1 the Trustee filed a Motion for Turnover of the Explorer. The Debtor opposed the motion on the ground that the Trustee had not yet tendered payment of the $2,400 exemption. At a preliminary hearing on August 25, 2009, Bankruptcy Judge Eugene Wedoff stated his intent to resolve the matter by written opinion, but Judge Wedoff was later unavailable. Subsequently, Bankruptcy Judge Carol Doyle made an oral ruling on September 15, 2009, that the Trustee must pay the Debtor the value of his exemption prior to turnover of the Explorer, although she set the remainder of the motion for hearing on September 29, 2009.*fn2 A written order was entered on the same day. The Trustee filed this appeal from the September 15, 2009, order on September 24, 2009.


This court has jurisdiction to hear the instant appeal under 28 U.S.C. § 158(a)(1), which provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals (1) from final judgments, orders and decrees...of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title." On appeal, the bankruptcy court's rulings and conclusions of law are reviewed de novo, Meyer v. Rigdon, 36 F.3d 1375, 1378 (7th Cir. 1994), and its findings of fact are not set aside unless they are clearly erroneous. Fed. R. Bankr. P. 8013.

The Trustee makes several arguments on appeal. First, looking to the text of the Bankruptcy Code, the Trustee argues that the Code lacks a provision entitling a debtor to payment before a trustee may liquidate property, and that Congress would have included such a provision if intended. Second, the Trustee argues that Illinois debtor-creditor law cannot preempt the Bankruptcy Code with respect to a trustee. Third, the Trustee argues that Illinois law does not require payment before personal property is subject to turnover, and In re Szekely, 936 F.2d 897 (7th Cir. 1991), does not control. Finally, the Trustee argues that, due to practical considerations, such a requirement is unworkable and would undermine the efficacy of the bankruptcy system.

Regarding the first point, Congress made clear its intent that states have broad discretion over exemptions in bankruptcy. "[Section] 522(b) reflects a compromise between conflicting legislative provisions, with the apparent intent of allowing states to retain wide discretion over the exemptions applicable in bankruptcy." In re Fishman, 241 B.R. 568, 573 (Bankr. N.D. Ill. 1999) (citing In re Ondras, 846 F.2d 33, 35 (7th Cir. 1988)). "[T]he Bankruptcy Code never preempts state laws defining the scope of exemptions applicable in bankruptcy: 'Nothing in subsection [522](b) (or elsewhere in the Code) limits a State's power to restrict the scope of its exemptions.'" In re Fishman, 241 B.R. at n.1 (citing Owen v. Owen, 500 U.S. 305, 308 (1991)). Thus, Illinois has wide discretion over the scope and, presumably, the terms of its exemptions.

The Trustee refers to 11 U.S.C. § 1129(a)(9), applicable to Chapter 11 plans. The provision is relevant to priorities in §§ 507(a)(2) and 507(a)(3), which lack language providing the discretion given by Congress with regard to exemptions in § 522. Further, requiring the Trustee to pay the Debtor the value of his exemption prior to turnover does not violate the plain meaning of §§ 521(a)(4) and 542(a), and the absence of an express provision does not bar such payment in light of the Congressional intent discussed above.

Accordingly, the Trustee's second point is incorrect; Illinois debtor-creditor law does not preempt the Bankruptcy Code because the Code incorporates state law. The Ninth Circuit stated this precept well in In re Tippett, 542 F.3d 684, 689 (9th Cir. 2008)(quoting Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98 (1992), and Sherwood Partners, Inc. v. Lycos, Inc., 394 F.3d 1198, 1201 (9th Cir. 2005)):

In general, '[a]bsent explicit pre-emptive language,.field pre-emption [occurs] where the scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.' As we recently explained, '[t]here can be no doubt that federal bankruptcy law is pervasive and involves a federal interest so dominant as to preclude enforcement of state laws on the same subject'--namely, the subject of bankruptcy. 'At the same time, federal law coexists peaceably ...

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