In Re Varney
449 B.R. 411
| Bankr. D. Idaho | 2011Background
- Debtor Christina Varney was diagnosed with ovarian cancer and applied for Social Security Disability (SSD) benefits in 2008, which were denied twice and then appealed.
- Financial pressures in 2009 led Debtor to consult bankruptcy counsel, who advised that SSD benefits could be exempt in bankruptcy.
- Debtor signed a bankruptcy petition in June 2010 but did not file the petition or schedules at that time due to lack of funds for counsel; SSD claim was not listed in schedules or the Statement of Financial Affairs.
- After a 2010 SSD hearing in October, Debtor received a retroactive SSD award of $37,696 on November 1, 2010 and deposited it into a savings account controlled by her father, with substantial withdrawals thereafter.
- Debtor used a portion of the SSD funds to pay creditors and purchased a 2004 Dodge Durango in late November 2010; she did not amend her schedules to reflect SSD receipt or the Durango purchase at that time.
- trustee objected to the exemption claim in February 2011, arguing bad faith due to nondisclosure, misrepresentation at the 341 meeting, and late amendment of schedules.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SSD benefits became property of the estate upon filing. | Varney's SSD was estate property upon filing. | SSD benefits were exempt under state law and not part of the estate unless properly claimed. | SSD funds become estate property until properly exempted; exemption process must be followed. |
| Whether Debtor’s late amendment to claim exemption was proper under § 522(l) and Idaho law. | Trustee may challenge untimely exemption as improper. | Exemption could nonetheless be claimed when properly listed; process must be respected. | Exemption claim required proper listing and timing; late amendment alone is not dispositive, but proper procedure is required. |
| Whether Debtor’s nondisclosures and post-petition acts support a finding of bad faith to deny exemptions. | Debtor concealed SSD claim and funds, purchased a Durango, and misrepresented facts, showing bad faith. | omissions resulted from belief in exemption and lack of intent to defraud. | Trustee did not prove bad faith by a preponderance; exemptions denied. |
| Whether the claim of exemption should be denied due to bad faith under the totality of circumstances. | Debtor’s conduct demonstrates reckless disregard for truth and intent to conceal assets. | Explanations and corroboration undermine a finding of intentional concealment. | Bad faith not proven by a preponderance; exemption stands. |
Key Cases Cited
- Rousey v. Jacoway, 544 U.S. 320 (2005) (bankruptcy estate and exemptions framework)
- In re Kline, 350 B.R. 497 (Bankr. D. Idaho 2005) (burden on trustee to object to exemptions; §522(l) timing)
- Mwangi v. Wells Fargo Bank, N.A., 432 B.R. 812 (9th Cir. BAP 2010) (exemption leaves the estate when properly claimed)
- In re Duplante, 215 B.R. 444 (9th Cir. BAP 1997) (attorney-influence does not absolve debtor from duties)
- In re Downey, 242 B.R. 5 (Bankr. D. Idaho 1999) (debtor’s duty to ensure accuracy of schedules)
- In re Andermahr, 30 B.R. 532 (9th Cir. BAP 1983) (duty to disclose assets and bad faith considerations)
- In re Clark, 266 B.R. 163 (9th Cir. BAP 2001) (debtors must file a list of exempt property and timing of objections)