In re Mickens, 575 B.R. 797

Background

Debtors (Douglas and Jeanette Mickens) owned a homestead in Michigan since 1993 and filed a joint Chapter 7 petition in March 2015.
Three days before filing, on counsel's advice, they executed a quitclaim converting their joint tenancy with rights of survivorship into tenancy by the entireties.
Trustee sued, alleging the transfer was constructively fraudulent under § 544(b) and the Michigan UFTA; the court granted summary judgment for Trustee and avoided the transfer, disallowing the Debtors’ entireties exemption.
Debtors amended Schedule C to claim the Michigan bankruptcy homestead exemption (aggregate $56,650). Trustee objected, arguing 11 U.S.C. § 522(g) bars the amended exemption because the Trustee “recovered” the Property via avoidance and preservation under § 551.
The central dispute: whether avoidance (and automatic preservation under § 551), without a § 550 recovery or turnover, constitutes a “recovery” that triggers § 522(g) and thus prevents the Debtors from claiming the homestead exemption.
Court held § 522(g) does not apply because Trustee did not "recover" property for the estate—the property was already estate property at filing and avoidance plus § 551 preservation did not add new property to the estate; Debtors’ amended homestead exemptions totaling $56,650 were allowed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether § 522(g) bars Debtors’ amended homestead exemption because Trustee recovered the Property	Trustee: Avoidance + automatic preservation under § 551 equals "recovery" under § 522(g), so exemption barred	Debtors: Transfer was voided but property was always estate property; Trustee did not "recover" new property so § 522(g) does not apply	Court: § 522(g) does not apply; Trustee did not recover property for purposes of § 522(g); amended exemption allowed
Whether the prepetition transfer was voluntary	Trustee: Transfer was voluntary (challenged as fraudulent)	Debtors: Transfer executed with counsel’s advice (but not disputed as voluntary)	Court: Transfer was voluntary (undisputed)
Whether avoidance under § 544(b) plus § 551 preservation necessarily augments the estate	Trustee: § 551 preservation brings avoided interest into estate and can constitute recovery	Debtors: § 551 preserves but does not enhance rights or add new estate property where property already was in estate	Court: § 551 preservation did not augment the estate here and did not effect a § 522(g) recovery
Whether Trustee needed to pursue § 550 recovery or turnover for § 522(g) to apply	Trustee: § 522(g) references § 551 among recoveries; formal § 550 not required	Debtors: § 522(g) aims at situations where trustee "gets back" property or value not in estate at filing; mere avoidance/preservation here did not do that	Court: The operative question is whether the trustee added property/value to the estate; here she did not, so § 522(g) inapplicable

Key Cases Cited

United States v. Craft, 535 U.S. 274 (describing property as a "bundle of sticks")
Liberty State Bank & Trust v. Grosslight (In re Grosslight), 757 F.2d 773 (6th Cir. 1985) (entireties interests become part of estate on joint filing)
Suhar v. Burns (In re Burns), 322 F.3d 421 (6th Cir. 2003) (distinguishing avoidance and recovery; need for § 550 depends on possessory nature)
Ellmann v. Baker (In re Baker), 791 F.3d 677 (6th Cir. 2015) (debtors may amend exemptions absent statutory basis for disallowance)
Stornoway Financial Corp. v. Hill (In re Hill), 562 F.3d 29 (1st Cir. 2009) (§ 522(g) is rehabilitative; allows exemption when property involuntarily taken and recovered)
In re Kuhnel, 495 F.3d 1177 (10th Cir. 2007) (§ 522(g) bars exemptions when there is both a voluntary transfer and recovery; formal proceedings not always required to establish recovery)
In re Glass, 60 F.3d 565 (9th Cir. 1995) (trustee can recover property in various ways; focus on what was accomplished)
In re OBrien, 443 B.R. 117 (Bankr. W.D. Mich. 2011) (practical guidance on hearing turnover and exemption objections together)