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defendantmotiontrustbankruptcychapter 7 bankruptcymotion to dismiss
trustbankruptcy

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In re McKeever, 132 B.R. 996, 25 Collier Bankr.Cas.2d 1260

Facts

Levander and Elnora McKeever owned a home in Chicago, Illinois, which they purchased in 1972. After failing to pay real estate taxes, the property was sold at a tax sale to Joe Ann McClandon, who later obtained a tax deed after the McKeevers did not redeem the property. The McKeevers filed for Chapter 7 bankruptcy and sought to avoid the transfer of their home, claiming it was for less than reasonably equivalent value and that they were entitled to a homestead exemption under Illinois law.

The debtors herein, Levander and Elnora McKeever, were the owners and residents of a single family home, located at 9021 South Bishop, Chicago, Illinois, which they purchased in 1972.

Issue

Did the debtors have standing to avoid the transfer of their property under the Bankruptcy Code, and was the transfer made for less than reasonably equivalent value?

Did the debtors have standing to avoid the transfer of their property under the Bankruptcy Code, and was the transfer made for less than reasonably equivalent value?

Rule

Under 11 U.S.C. § 522(h), a debtor may avoid a transfer of property to the extent that the debtor could have exempted such property if the transfer had not occurred, provided the transfer was involuntary and the debtor did not conceal the property.

Section 522(h) states '[n]otwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c), 542, 543, 550, 551 or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—(1) (A) such transfer was not a voluntary transfer of such property by the debtor; and (B) the debtor did not conceal such property; or (2) the debtor could have avoided such transfer under subsection (f)(2) of this section.

Analysis

The court found that the debtors had standing to use the avoidance powers under § 522(h) because they could have exempted a homestead estate if the tax deed had not been issued. The court emphasized that the transfer was involuntary and that the debtors did not conceal the property, allowing them to avoid the transfer to the extent of their homestead exemption.

The proper application of § 522(h) requires a careful reading of both the Illinois homestead exemption and the § 522(h) avoidance powers. Section 522(h) incorporates subsection (g) to provide that the debtor may use the trustee's powers to avoid a transfer and recover property which could have been exempted if such property had not been transferred (emphasis added).

Conclusion

The court granted the defendant's motion to dismiss in part and denied it in part, allowing the debtors to avoid the transfer of their property to the extent of their homestead exemption.

The Court finds that the debtors in this matter likewise have standing to utilize § 522(h) to avoid the tax sale transfer since the tax sale purchaser would have no tax deed if the trustee avoided the transfer and therefore would have no ground for claiming that the homestead exemption was not effective against her claim.

Who won?

The debtors, Levander and Elnora McKeever, prevailed in part as the court allowed them to exercise the trustee's avoidance powers to the extent of their homestead exemption.

The debtors have standing under § 522(h) to seek to avoid the tax deed transfer to the extent of the homestead exemption to which they would have been entitled under Illinois law if the tax sale transfer had not occurred.

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