In The Matter of: George Burciaga, Debtor-Appellant.
December 2, 2019
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 18 CV 5293 -
Manish S. Shah, Judge.
BAUER, EASTERBROOK, and SYKES, Circuit Judges.
EASTERBROOK, CIRCUIT JUDGE
Burciaga lost his job in May 2018 and filed for bankruptcy a
week later. On the date the bankruptcy proceeding began,
Burciaga's former employer owed him approximately $24,
000 for unused vacation time. Illinois, where Burciaga lives,
treats vacation pay as a form of wages. 735 ILCS 5/12-801
(final paragraph, defining "wages" to include all
compensation that an employer owes to an employee).
Exemptions for debtors in Illinois rest on state law, for it
has exercised its right under 11 U.S.C. §522(b)(2) to
make local exemptions exclusive. See 735 ILCS 5/12-1201.
Burciaga asked the district court to treat 85% of the
vacation pay as exempt from creditors' claims. (Illinois
permits creditors to reach 15% of unpaid wages but forbids
debt collection from the rest. 735 ILCS 5/12-803.) Alex
Moglia, the Chapter 7 Trustee, objected to this request. Both
a bankruptcy judge and a district judge sided with the
Trustee. 602 B.R. 675 (N.D. Ill. 2019).
district judge concluded that unpaid wages are not exempt in
bankruptcy. That's not because of anything in the federal
statute, which points to state law as a source of exemptions.
Nor is it because of anything in Illinois law, which exempts
85% of unpaid wages from all forms of collection authorized
by state law. Rather, the district judge stated, it is
because Illinois did not "intend" to exempt
vacation pay from creditors' claims in bankruptcy, as
exemplified by the fact that the state's statutes do not
specifically mention bankruptcy law. The only intent the
district judge could find was to exempt vacation pay (and
other employment-related compensation) from creditors'
claims in state court, through garnishment and similar
focus on intent, and on the fact that Illinois specifies only
how wages are treated in state-law collection proceedings, is
unfortunate. Section 522(b)(2) and (3)(A), which applies
state-law exemptions in bankruptcy, does not ask courts to
determine what state legislators may have been thinking or
hoping would happen in federal court. The federal statute
instead asks what is exempt under state law. Whatever is
exempt under state law is exempt under federal law too. State
legislators need not know about this rule; exemption in
bankruptcy happens as a result of §522, not as a result
of state legislators' plans or desires or understanding.
In re Geise, 992 F.2d 651 (7th Cir. 1993), refers to
legislative intent when addressing another issue about an
exemption in bankruptcy, but the trope that the meaning of
statutory text may depend on the intent of the legislature
does not mean that state legislative intent controls the
meaning of a federal statute. Legislative history (and thus
legislative intent) may be consulted when a statute is
ambiguous, but there's nothing ambiguous about the text
that Illinois has enacted-nor is there any ambiguity in the
rule of §522(b)(2) and (3)(A) that what is exempt under
state law is exempt in federal bankruptcy proceedings.
There's no need for some additional intent or enactment,
at the state level, to make the federal rule of §522
work. We observed in Geise that a state creates an
exemption when it shelters income or assets from all forms of
collection, without meaning that state law needs to refer
specifically to bankruptcy; federal law itself carries
state-law exemptions over to bankruptcy.
question we must resolve, therefore, is whether 85% of all
unpaid wages in Illinois are exempt from creditors'
claims in state courts. The last time this court looked at
that question, it answered "no." See Wienco,
Inc. v. Scene Three, Inc., 29 F.3d 329 (7th Cir. 1994).
We observed that 735 ILCS 5/12-803 protected wages from
garnishment proceedings, so that the employer could not be
ordered to hand more than 15% directly to a creditor, but
that other forms of collection remained possible. In
particular, Wienco noted, 735 ILCS 5/2-1402(c)(2)
permitted a court to direct a judgment debtor to turn assets
over to a creditor, in whatever amount the court deemed
appropriate. It followed, we held, that 735 ILCS 5/12-803 was
not an exemption from all creditors' claims and therefore
did not apply in bankruptcy.
Trustee does not rely on Wienco, however, for it was
obsolete by the time it was issued. Illinois had amended its
code, effective January 1, 1994, to apply the 15%-of-wages
limit to collection under 735 ILCS 5/2-1402(c)(2). After the
amendment, §5/2-1402(c)(2) provides that "the
judgment debtor shall not be compelled to pay income which
would be considered exempt as wages under the Wage Deduction
Statute" (i.e., §5/12-801 to 819). That did not
affect Wienco, for the amendment was not retroactive
and the bankruptcy court's exemption decision had been
made in 1993. But today 735 ILCS 5/12-803 seems to be
the Trustee insists, we should not treat the state law as
effective in bankruptcy, because the exemption applies only
before wages have been paid. Once a worker has cashed a
paycheck, the money is freely available. Let us assume that
this is true-that state law does not try to trace the origin
of cash in a bank account. The fact remains that on the day
Burciaga filed for bankruptcy he did not have cash. He had a
claim against his former employer for unpaid wages.
exempt, and what is not, depends on the state of affairs when
bankruptcy begins. 11 U.S.C. §522(b)(3)(A); Owen v.
Owen, 500 U.S. 305, 314 n.6 (1991) ("exempt
property is determined 'on the date of the filing of the
petition"'); White v. Stump, 266 U.S. 310,
313 (1924) (describing the time of filing as a "line of
cleavage"). Like most other states, Illinois exempts
some of a home's value and some of an auto's value.
If a person sells a car for cash and files for bankruptcy the
next day, creditors can reach the cash; the estate never had
a car that could be exempt.
vests in the estate on the day bankruptcy begins. 11 U.S.C.
§541(a)(1). This is the property available to satisfy
creditors' pre-filing claims. 11 U.S.C. §522(c). If
the debtor has cash on that day, its treatment depends on how
much cash a state exempts. If the debtor has a car on that
day, its treatment depends on how much of a car's value
the state exempts. And, if a debtor has a wage claim, how
much the creditors can reach depends on how the state treats
assess the legal effect of things as they were when this
bankruptcy began, not as they might have been. That a car may
be sold while bankruptcy is under way does not make all of
the proceeds available to satisfy pre-bankruptcy claims; the
debtor retains any exempted amount. See, e.g., Brown v.
Sommers,807 F.3d 701, 708 (5th Cir. 2015); Pasquina