451 B.R. 843
Bankr. N.D. Ill.2011Background
- Debtors filed Chapter 7; Trustee objected to exemption in homestead-proceeds funds in three accounts and a table saw.
- Debtors deposited $24,373.43 from homestead sale into 1st Account; $15,000 moved to 2nd Account; $9,242.77 remained in 2nd and moved to 3rd Account; petition date shows $9,000 in 3rd Account claimed exempt.
- Accounts 2nd and 3rd were segregated; 1st Account contained commingled funds including non-exempt deposits during the Commingling Period.
- Trustee contends some funds in the commingled accounts are not identifiable as homestead proceeds because of commingling with non-exempt funds.
- Court previously held the one-year exemption applies since petition filed before one-year period expired; issues remain over traceability and appropriate tracing method.
- Court will apply tracing to determine if exempt funds retain their status when commingled; outcome affects exemption in 3rd Account and non-homestead items.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What tracing method governs commingled funds? | Trustee argues FIFO or other methods may apply where appropriate. | Lantz urges liberal application; favors method that preserves exemption. | Lowest intermediate balance method chosen as most consistent with policy. |
| Are the 3rd Account funds identifiable homestead proceeds? | Trustee must show balances below exempt amount during Commingling Period. | Debtors maintain funds remained traceable to the sale. | Trustee failed to prove balances fell below $9,000; exemption in 3rd Account denied. |
| Are exemptions in the table saw and Alpine Bank checking account valid? | Trustee contends wildcard exemption exceeded limits. | Debtors concede exemption limit; objecting not maintained. | Trustee's objection sustained; exemptions denied. |
| Is the $9,000 exemption in the 3rd Account preserved given tracing findings? | If not traceable, exemption would fail. | Funds remained traceable under chosen method. | Exemption in the 3rd Account denied only if traceability fails; here general result supports denial for those funds. |
Key Cases Cited
- Auto Owners Ins. v. Berkshire, 225 Ill.App.3d 695 (Ill. App. Ct. 1992) (concept of tracing; liberal exemptions and ‘quality of moneys’)
- In re Lichtenberger, 337 B.R. 322 (Bankr. C.D. Ill. 2006) (first-in, first-out preferred for traceable social security benefits)
- In re Merritt, 272 Ill. App. 3d 1017 (Ill. App. Ct. 1995) (exempt funds retain exemption when traceable in commingled accounts)
- In re Schoonover, 331 F.3d 575 (7th Cir. 2003) (public benefits exemption not tied to long-accumulated deposits)
- Bank of Illmo v. Simmons, 142 Ill.App.3d 741 (Ill. App. Ct. 1986) (homestead policy focus on shelter and support)