Summary
In a Chapter 7 bankruptcy, the Seventh Circuit held that Illinois law exempts 85% of unpaid wages—including vacation pay, which Illinois treats as wages—from creditors' claims, and that this exemption applies in bankruptcy under 11 U.S.C. §522(b)(2) without requiring state law to specifically mention bankruptcy. The court reversed the district court, which had denied the exemption by focusing on legislative intent, emphasizing that the proper inquiry is whether the state law exempts the property from collection as of the petition date. The decision clarifies that debtors may exempt unpaid wage claims at filing, even if the wages are later collected, and that perceived inequity does not override the statutory scheme.
Topics
Practice areas
Questions Presented
- Whether unpaid vacation pay is exempt in bankruptcy under Illinois law.
Holdings
- 85% of unpaid wages are exempt from creditors' claims in Illinois, and vacation pay is a form of wages, so the exemption applies in bankruptcy.
Key quotations
“The question we must resolve, therefore, is whether 85% of all unpaid wages in Illinois are exempt from creditors’ claims in state courts.” (2)
“What is exempt, and what is not, depends on the state of affairs when bankruptcy begins.” (4)
“Because 85% of unpaid wages are exempt from creditors’ claims in Illinois, and vacation pay is a form of wages, the decision of the district court is REVERSED.” (6)
Factual background
George Burciaga lost his job in May 2018 and filed for bankruptcy a week later. His former employer owed him approximately $24,000 for unused vacation time. Illinois law treats vacation pay as wages and exempts 85% of unpaid wages from creditors' claims. Burciaga sought to exempt that amount in bankruptcy, but the trustee objected.
Procedural history
Burciaga filed for bankruptcy and sought to exempt 85% of unpaid vacation pay. The bankruptcy court and district court denied the exemption. Burciaga appealed.