Opinion ID: 3171011
Heading Depth: 2
Heading Rank: 2

Heading: Amount of Recovery

Text: Having determined that the transfer of the Smiths’ residence was constructively fraudulent and that the Smiths have standing to assert this claim, we turn to the amount they may recover. The bankruptcy court held that the Smiths were entitled to $15,000—the amount of one homestead exemption under Illinois law. The Smiths argue for a larger recovery, but we agree with the bankruptcy court. We begin with the Schedule C filed by the Smiths as part of their bankruptcy petition. Originally, the Smiths claimed one homestead exemption, in the amount of $15,000, reflecting Dawn Smith’s interest in the property as the owner in fee simple. Over six years later, after the bankruptcy court had issued its decision, the Smiths filed an amended Schedule C, this time listing homestead exemptions for Dawn Smith, Keith Smith, and their four minor children. The Smiths now argue for a seventh exemption, for Dawn’s cousin, a minor in the custody of the Smiths. In all, the Smiths ask for $105,000 (7 x $15,000) in aggregate homestead exemptions. The Illinois homestead exemption statute provides: Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a resi- dence, or in a cooperative that owns property that the individual uses as a residence. … If 2 or more individuals own property that is exempt as a homestead, the value of the exemption of No. 15-1166 19 each individual may not exceed his or her pro- portionate share of $30,000 based upon percent- age of ownership. 735 Ill. Comp. Stat. 5/12-901 (2015). For purposes of argument, we assume that the Smiths properly and timely claimed all seven homestead exemptions they now seek, so the procedural propriety of the later-filed exemption claims does not matter. The Smiths still receive precisely the number of exemptions based on their amended filings and subsequent pleading that they would under their original Schedule C: one. First, the four minor children of the Smiths, as well as the minor cousin, are not eligible for separate, independent homestead exemptions. Illinois law is clear that the homestead exemption requires that an individual “owned or rightly possessed by lease” the delinquent property. We have suggested that “titled interest is required to sustain a homestead estate.” In re Belcher, 551 F.3d 688, 691 (7th Cir. 2008), citing De Martini v. De Martini, 52 N.E.2d 138, 142 (Ill. 1943) (“The right of homestead … can have no separate existence apart from the title on which it depends.”); First Nat’l Bank & Trust Co. v. Sandifer, 258 N.E.2d 35, 37 (Ill. App. 1970) (noting that a homestead exemption requires “Some title, no matter what its extent”). Debtors do not allege, nor could they, that the five children had title to the property.3 3 The Smiths point to a concurring opinion in First Nat’l Bank of Moline v. Mohr, in which Justice Heiple mused that a ten-member household might well be entitled to an aggregate of ten homestead exemptions. 515 N.E.2d 1356, 1359 (Ill. App. 1987) (Heiple, J., concurring). But the 1994 amendments by the Illinois General Assembly added an explicit ownership requirement to the state homestead statute. See Belcher, 551 F.3d at 20 No. 15-1166 And though it is a closer issue, the Smiths may not claim two separate homestead exemptions on behalf of both Dawn and Keith Smith. As noted, title is required to support a homestead exemption. We have held this to be no less true for married couples where only one spouse has title to non-marital property. Belcher, 551 F.3d at 690–93. Whether or not an individual has title to property is measured at the time of the bankruptcy filing. Id. at 690. And, in April 2007 when the Smiths filed their bankruptcy petition, only Dawn had title by virtue of her inheritance. We have recognized limited exceptions to this rule in the cases of married couples where only one spouse has listed title in the marital home. First, a divorced spouse at the time of the bankruptcy filing may have a potential interest in the family home despite a lack of title if the land was marital property. Id., citing 750 Ill. Comp. Stat. 5/503(b)(1) (2015). (This, of course, does not extend to property acquired during the marriage by way of “gift, legacy or descent.” 750 Ill. Comp. Stat. 5/503(a) (2015).) Second, a surviving spouse may be able to claim an interest where the titled spouse dies before the bankruptcy filing. Belcher, 551 F.3d at 691. But where, as here, the spouses were “still married and alive at the time they filed the petition for bankruptcy,” the exceptions do not apply and title controls the eligibility for homestead exemptions. Id. Dawn received the property by “gift, legacy or descent” and had sole title. Accordingly, the 692, citing Act of Dec. 14, 1994, Pub. Act No. 88-672, § 25, 1994 Ill. Laws 2649. We noted in Belcher that the speculation in the Mohr concurrence about homestead-by-possession was blocked by the 1994 amendments. Id. That door remains shut. No. 15-1166 21 exceptions provide no support for an additional homestead exemption for the Smiths. The fact that Keith later took title does not change the analysis. The homestead inquiry depends on the time of the filing. The “future or potential equitable interest” of a non-titled spouse is not sufficient to establish the formal title anticipated by Illinois exemption law. Id. (emphasis in original). The Smiths also make an alternative argument that as both debtors and debtors in possession, they are both entitled to full trustee powers. Accordingly, they contend that they may set aside the transfer and are not bound by any limitations imposed by homestead exemptions. Rather, the Smiths seek to recover the entire amount of the value of their property. We believe this argument misunderstands a key distinction between a debtor’s power acting in place of a trustee to avoid a transfer and the entitlement to and amount of a debtor’s recovery. It is true that the Smiths as debtors have the power to avoid the transfer just as their trustee would. See 11 U.S.C. § 522(h). As the bankruptcy court explained, where a transfer is avoidable under § 548 but the trustee does not attempt to avoid it (which the bankruptcy court found was the case here), the debtors themselves may avoid the transfer. But the power to avoid is only the power to unwind the transfer. No authority would allow the Smiths themselves to recover the full value of the property simply because they can avoid the tax sale. The homestead exemption provides a safe haven for some recovery for parties in the Smiths’ position. But any additional recovery would be for the benefit of the Smiths’ estate and therefore for their other creditors. 22 No. 15-1166 The only authority the Smiths cite to support their claim for the entire value of the property is a footnote from In re Einoder, 55 B.R. 319, 322 n.8 (Bankr. N.D. Ill. 1985). The Smiths contend that this footnote establishes that recovery is not limited to the amount of their exemptions, a proposition they claim was later adopted in Gray-Mapp v. Sherman, 100 F. Supp. 2d 810, 812 (N.D. Ill. 1999). The Einoder footnote said no such thing. Rather, it explained the ability of debtors to pursue Chapter 13 litigation in place of their trustees and later to collect the full value of their homestead exemption. 55 B.R. at 322 n.8 (“If the trustee has the power to help the debtors, they ought to be able to use that power to help themselves.”). The Einoder footnote recognized that § 522(h) empowers debtors to bring avoidance actions but did nothing to displace exemption law. Gray-Mapp said nothing to the contrary. See 100 F. Supp. 2d at 812 (determining that a debtor has “standing to bring this claim” in place of trustee). Einoder went on to apply the homestead exemption to the debtors. 55 B.R. at 325–26 (“[D]ebtors can nevertheless avoid the Bank’s lien under § 522(f)(1), at least to the extent it impairs their joint homestead exemption.”). Accordingly, the bankruptcy court was correct to award the Smiths precisely what they asked for in the first place: one homestead exemption for $15,000.