MEMORANDUM DECISION
Dean Rody and Soroya Mohammadpour (“Debtors”) claimed various items of personal property exempt under 11 U.S.C. § 522(d). The chapter 7 Trustee objected that the Debtors were required to claim the Arizona exemptions, which, he asserted, applied beyond state borders (ECF No. 30). It was undisputed that Debtors, who had moved to Massachusetts prepetition, met the domiciliary requirements of the Bankruptcy Code for application of the Arizona exemptions. Debtors responded, however, that Arizona’s “opt-out” statute for use of the state exemptions was restricted to residents of Arizona. Thus, because they were not Arizona residents on the petition date, they maintained they were entitled to use the federal exemptions pursuant to the default rule of 11 U.S.C. § 522(b)(3). The contested matter was heard and taken under advisement. The Court now renders its decision overruling the Trustee’s objection.
I. Jurisdiction
The Court has jurisdiction over this core matter under 28 U.S.C. § 1334; see also 28 U.S.C. § 157(b)(2)(B). Venue is proper in this district under 28 U.S.C. § 1408.
II. Facts and Procedure
Debtors resided in Arizona from 2000 to May 16, 2011. On May 17, 2011, they moved permanently to Massachusetts and
On Amended Schedule C, Debtors claimed various items of personal property exempt pursuant to 11 U.S.C. § 522(d). Debtors used the federal exemptions even though they met the domiciliary requirements for the Arizona exemptions in accordance § 522(b)(3), which provides:
(3) Property listed in this paragraph is—
(A) subject to subsections (o) and (p), any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition to the place in which the debtor’s domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor’s domicile has not been located in a single State for such 730-day period, the place in which the debtor’s domicile was located for 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place;
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).
Since Debtors had not been in Massachusetts for 730 days prior to filing bankruptcy, but had lived in Arizona for the 180 days immediately preceding the 730-day period (or a longer portion of such 180-day period than any other place), they met the domiciliary requirements for the Arizona exemption statutes.
As permitted by 11 U.S.C. § 522, Arizona has elected to “opt out” of the federal exemption scheme, such that Arizona debtors can only use the state exemptions. The opt-out statute, provides, in pertinent part:
[I]n accordance with 11 U.S.C. § 522(b), residents of this state are not entitled to the federal exemptions provided in 11 U.S.C. 522(d). Nothing in this section affects the exemptions provided to residents of this state by the constitution or statutes of this state.
A.R.S. § 33-1133(B) (emphasis supplied.)
Debtors believed they were ineligible for the Arizona exemptions because they were residents of Massachusetts on the petition date. Given the “plain language” of A.R.S. § 33-1133(B), Debtors followed the default rule in the “hanging paragraph” of § 522(b)(3), cited above, which states: “[I]f the effect of the domiciliary requirement ... is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d)” of § 522. 11 U.S.C. § 522(b)(3).
The Trustee filed a timely objection to the claimed exemptions (ECF No. 30) solely on the grounds that Debtors were required to claim the Arizona exemptions. Debtors filed a response in opposition (ECF No. 32), maintaining that, as nonresidents, they were not eligible to use the Arizona exemptions.
The Trustee replied that Debtors’ “strained reading” of A.R.S. § 33-1133(B) “would defeat the federal bankruptcy exemption scheme that preserves to individual states the right to opt out of the federal exemptions and require the use of the state’s exemption laws.” Trustee’s Reply at 1:20-23 (ECF No. 33). The Trustee contended that the Arizona exemptions were available to the nonresident Debtors because (1) A.R.S. § 33-1133(B) did not ex
Debtors’ sur-reply (ECF No. 34) was also filed. A hearing took place at which the Court considered the arguments and pleadings, and took the matter under advisement.
III. Issues
1. Whether Arizona’s exemption scheme is only applicable to resident debtors.
2. Whether a determination as to the extraterritorial effect of Arizona’s personal property exemptions is necessary to decide this matter.
3. Whether the Debtors correctly concluded that they could use the federal exemptions because there were no state exemptions available to them.
IV. Discussion
The commencement of a bankruptcy case creates an estate comprised of all legal and equitable interests in property (including potentially exempt property) of the debtor. 11 U.S.C. § 541. A debtor is entitled to exempt certain assets from the bankruptcy estate. 11 U.S.C. § 522. In general, exemption laws are to be construed liberally in favor of debtors. See Arrol
Because we are a mobile society, Congress enacted a statute which would determine which exemption law would apply to debtors whose domicile has changed near the time of the filing of the petition. The main purpose of this legislation was to prevent opportunistic bankruptcy filings by debtors simply to take advantage of lenient state exemption laws. W.H. Brown, L. Ahern & N. Frass MacLean, Bankr.Exempt. Manual § 4.6 (2011 Thomson Reuters/Westlaw).
This case, however, does not involve forum shopping by Debtors or the so-called “mansion loophole,” “by which wealthy individuals could shield millions of dollars from creditors by filing bankruptcy after converting nonexempt assets into expensive and exempt homesteads in one of the handful of states that have unlimited homestead exemptions....” In re Greene,
Since 2005, § 522(b)(3)(A), as amended, has provided a look-back period of 730 days for use of a state’s exemptions—a debtor must have been domiciled for that period of time in the state immediately preceding the bankruptcy filing, or else the exemptions of the state where the debtor was domiciled for 180 days or the greater part of 180 days prior to the 730 days would apply. The amendment was a departure from the bankruptcy venue requirements, and courts now must construe exemption laws of other states. See In re Jevne,
Arizona has opted out of the federal bankruptcy exemption scheme only with respect to Arizona residents. The opt-out statute, provides, in pertinent part:
[I]n accordance with 11 U.S.C. § 522(b), residents of this state are not entitled to the federal exemptions provided in 11 U.S.C. 522(d). Nothing in this section affects the exemptions provided to residents of this state by the constitution or statutes of this state.
A.R.S. § 33-1133(B) (emphasis supplied.)
“A.R.S. § 33-1133(B) clearly states that Arizona debtors are only entitled to the exemptions set forth in the Constitution or Statutes of Arizona.” In re Hoffpauir,
According to a leading treatise, Debtors’ approach was the correct one. A debtor’s election to exempt property under § 522(d)
may arise if the exemption law of the debtor’s domicile requires that the debt- or reside within the state to claim exemption rights or if the state law does not permit an exemption to be taken on property located outside the state.
4 Collier on Bankruptcy ¶ 522.06, p. 522-39 (16th ed. 2011) (emphasis added).
Confusingly, the courts have focused on one or the other—either residency restrictions or extraterritorial effect (particularly for homesteads)—and have reached divergent results. Nevertheless, Debtors’ case law presents a majority view which this Court finds compelling.
Debtors cite numerous cases from states in other circuits with similar facts and statutes containing a residency restriction. This line of cases holds that debtors may claim the federal exemptions' because they are not residents of the opt-out states whose opt-out statutes prohibit only their residents from using the federal exemptions. See In re Camp,
This line of cases was adopted as the “state-specific” view by the court in In re Fernandez,
The Trustee relies on Fernandez and has framed his objection in terms of the extraterritorial effect of Arizona’s personal property exemptions upon those assets in Massachusetts. Fernandez’s facts are distinguishable from ours, however. There, the debtor was seeking to use the Nevada homestead exemption for his current residence in Texas. Thus, the District Court expressly did not address the effect of Nevada’s opt-out statute and any residency requirement. Id. at *22 n. 5. Instead, the corollary question addressed by the District Court was whether Nevada’s homestead exemption law, consisting of its Constitution, its homestead exemption statute and relevant case law, would permit a nonresident debtor to claim an exemption in a home that was located in a state other than Nevada. The District Court concluded it would. Id. at *28.
Also, central to the Trustee’s argument is the seminal Ninth Circuit case of In re Arrol,
Arrol was decided pre-BAPCPA, when there was no default provision allowing use of the federal exemptions if a debtor did not qualify for the applicable state’s exemptions. The Ninth Circuit Court of Appeals was concerned that the debtor would be left with no way to preserve his need for basic housing. Id. at 936. Nor did Arrol’s state-specific interpretation address the issue of any residency requirement in the California opt-out statute.
On our facts, however, the first hurdle for the Court is to determine whether Arizona’s opt-out statute applies to nonresident debtors. It plainly does not. Nor are Debtors attempting to use Arizona’s personal property exemptions; in contrast, the debtors in Fernandez and Arrol claimed exemptions under state law. There is no controversy before the Court with regards to the extraterritoriality of Arizona’s personal property exemptions, as if Debtors had claimed exemptions under state law. Thus, this Court shall not reach the corollary issue of whether the Arizona personal property exemptions have extraterritorial effect.
That being said, the Court must discuss certain case law which holds that, even if the domiciliary state’s opt-out statute is limited to residents, before the debtor can
Beckwith applied Florida opt-out law, which mirrors the Arizona opt-out statute. Florida Statutes § 222.20 provided:
In accordance with the provision of s. 522(b) of the Bankruptcy Code of 1978 (11 U.S.C. 522(b)), residents of this state shall not be entitled to the federal exemptions provided in s. 522(d) of the Bankruptcy Code of 1978 (11 U.S.C. s. 522(d)). Nothing herein shall affect the exemptions given to residents of this state by the State Constitution and the Florida Statutes.
Fla. Stat. § 222.20 (2010). The court did not stop there, however. “The question then becomes,” the Beckwith court stated, “are Florida’s exemptions available only to its residents or are the exemptions given extraterritorial application?”
In Cole, the bankruptcy court cited Beckwith, but merely examined the Georgia opt-out statute to determine that it was limited to those persons who are domiciled in Georgia on the petition date. It held that an opt-out statute limiting use of the exemption to individuals domiciled in Georgia effectively limits the use of the exemption to property within that state and has no extraterritorial effect.
As in Cole, Arizona’s opt-out statute is also an “exemption” statute that limits the availability of the state’s exemption scheme to its residents. See also Camp,
As an illustration, in In re Jarski,
While the logic of Jarski and Arrol could require the Court to review the extraterritorial effect of Arizona’s personal property exemption in the event that Arizona law was “applicable,” 11 U.S.C. § 522(b)(3)(A), here, Arizona law is not applicable. Arizona’s opt-out statute limits the state exemptions to residents of Arizona.
Finally, the Trustee’s objection also raises aspects of a minority view in the case law, which holds that federal law preempts any state limitations that would conflict with the federal choice of law in § 522(b)(3)(A). See In re Garrett,
This Court is persuaded by the many legal analyses and opinions which have concluded that the preemption doctrine does not neatly fit this area where Congress has explicitly allowed the states to opt out of the federal exemptions—the opposite of preemption.
In addition, it is well established law in the Ninth Circuit that where state exemption laws condition or limit the exempt status of property in ways that are more or less generous than the federal exemptions, such conditions or limitations must be respected. In re Konnoff,
V. Conclusion
Arizona’s opt-out exemption statute renders the nonresident Debtors ineligible for the state exemptions but does not prohibit them from utilizing the federal exemptions pursuant to § 522(b)(3) and (d). Therefore, Debtors’ federal exemption claims are valid and the Trustee’s objection is overruled. A separate order will be entered.
Notes
. There is little legislative history regarding this paragraph except that it was carried forward from an earlier House bill whose Conference Report explained that “if the effect of [the new 730 day domiciliary rule] is to render the debtor ineligible for any exemption, the debtor may elect to exempt property of the kind described in the federal exemption notwithstanding state opt out.” H. Rep. No. 107-617 Conference Report to Accompany H.R. 333 Bankruptcy Abuse Prevention and Consumer Protection Act of 2002, at 58-59 (July 25, 2002). The language was apparently included after a legislative affairs liaison at the Department of Justice sent a letter to a House member pointing out that the proposed domiciliary requirement might not be effective depending on how state exemption laws are applied. See In re Fernandez,
. These and other cases include: In re Cole,
. As Judge Leif Clark points out in Fernandez,