Opinion
No. 03-85477
April 26, 2004
OPINION
This matter is before the Court on the objection filed by the Chapter 7 Trustee, Charles E. Covey ("TRUSTEE"), to an exemption claim asserted by the Debtors, Paul A. and Teresa L. Oaks ("DEBTORS"). Pursuant to an Amendment to Schedule C, the DEBTORS claim an exemption of $1,625.00 in accounts receivable due Paul A. Oaks as of the petition date.
Paul does business as Oaks Real Estate and Notary Services, a sole proprietorship. He provides Notary Public services and acts as a closing agent for real estate transactions. On the petition date, he was owed $2,825.00 for services rendered prepetition. The exemption is claimed under the Illinois wildcard provision, 735 ILCS 5/12-1001(b), which permits an individual to exempt up to $2,000.00 in value in any personal property. The exemption, however, applies only to personal property that is used for personal rather than business purposes. The TRUSTEE objects on the basis that the receivables are business assets for which the exemption is not available.
Paul's practice is to deposit his business revenues into an account from which both business and personal expenses are paid. As a sole proprietor, he does not pay himself a salary. Effectively, whatever funds in the account are not used for business expenses are available for his personal use.
The DEBTORS claim a wildcard exemption in jointly owned personal property totaling $850.00. They also attribute a wildcard exemption amount of $1,625.00 to a 1997 Honda Odyssey owned by Teresa. Accordingly, Teresa must use the $375.00 balance of her wildcard exemption and Paul must use $475.00 of his wildcard amount on the jointly owned property. This leaves Paul with an unused wildcard balance of $1,525.00 available for the receivables.
The focus of the exemption statute is on the use to which the property is put. Paul testified that the receivables in question here were collected and spent and that approximately 75% to 80% of the funds were spent on non-business expenditures. A debtor's exemption rights, however, are determined as of the petition date and any postpetition disposition of the property has no impact on the exemption analysis. In re Kim, 257 B.R. 680 (9th Cir. BAP 2000). How the funds were spent, postpetition, is not relevant. Instead, the appropriate inquiry is broader and should focus on how the receivables collected by Paul are generally used by him.
The 2003 federal income tax return filed by the DEBTORS is instructive. Schedule C, attached thereto, reflects gross income earned by Paul of $34,858.00 and business expenses, not including depreciation, of $20,791.00. Thus, on average, Paul expends 60% of his income for business purposes and 40% for non-business purposes. Applying this ratio to the receivables in question, $1,130.00 in value is exemptible as personal property used for personal, non-business purposes. The remaining $1,695.00 is personal property used for business purposes and, as such, is not exemptible.
This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.
ORDER
For the reasons stated in an Opinion filed this day, IT IS HEREBY ORDERED that the Trustee's Objection to Debtors' Claim of Exemption is allowed in part and denied in part. Paul A. Oaks is allowed an exemption of $1,130.00 in his accounts receivable. His claim of exemption in excess of that amount is denied.