622 B.R. 569
Bankr. D. Conn.2020Background
- Debtor Wendy L. Shaw filed Chapter 13 on Jan. 24, 2018, converted to Chapter 7 in June 2018, and received a Chapter 7 discharge; she claimed a $75,000 Connecticut homestead exemption in an interest in 36 Shuttlemeadow Rd., Plainville.
- Title history: Janice Shaw (mother) purchased the property Mar. 28, 2014; recorded a quitclaim adding Wendy as joint tenant Apr. 2015; Wendy quitclaimed her interest back to her mother Feb. 25, 2016 after a creditor demand/complaint.
- Creditor obtained a state court judgment against Wendy Aug. 18, 2016 and recorded a judgment lien Aug. 29, 2016. On Sept. 13, 2016 the mother recorded a “correcting” quitclaim vesting title in mother and Wendy jointly.
- Wendy lived in the property through the Petition Date; on the Petition Date value was listed at $240,000 and the mortgage balance at about $245,000; parties provided no evidence of the property value or mortgage balance at the 2016 transfers.
- Creditor objected to the claimed homestead exemption under 11 U.S.C. § 522(o) (fraudulent pre‑petition conversion) and filed a proof of claim based on the judgment lien; Debtor moved under 11 U.S.C. § 522(f) to avoid the lien as impairing her exemption.
- The court found the creditor failed to prove the elements of § 522(o) (notably, no proof of non‑exempt equity or proceeds and no actual fraud); it overruled the objection and granted the § 522(f) motion to avoid the lien (also noting the lien may never have attached because Wendy lacked title when it was recorded).
Issues
| Issue | Kirkwood's Argument | Shaw's Argument | Held |
|---|---|---|---|
| Whether § 522(o) defeats Shaw’s $75,000 homestead exemption | Transfer of interest in 2016 was a disposition within 10 years, converted non‑exempt equity into exempt homestead with intent to hinder/defraud creditors | No evidence of non‑exempt equity or of proceeds; exemption is presumptively valid; mere bankruptcy planning not fraud | Objection overruled — creditor failed to prove the four § 522(o) elements (no proof of value/equity, no proceeds used to create exempt value, no actual fraud) |
| Whether the creditor’s judgment lien impairs the exemption and is avoidable under § 522(f) | Lien secures creditor’s judgment and impairs any exemption | Debtor seeks to avoid lien under § 522(f); shows that on petition date total liens + exemption ≥ property value | Granted — § 522(f) avoidance because on petition date property value < mortgage + exemption + lien, so the lien impaired the exemption |
| Whether the judgment lien ever attached because debtor lacked title when lien recorded | Lien recorded in Aug. 2016 against Wendy | Wendy lacked title when lien recorded (she had transferred interest Feb. 2016); lien thus may not have attached | Court observed the lien arguably never attached; avoided the lien in any event to remove doubt |
| Motion in limine to exclude evidence and preclude debtor’s counsel as witness | (Creditor sought to use badges of fraud evidence and debtor’s § 341 testimony) | Debtor sought exclusion and to preclude counsel as witness | Motion denied as moot — parties agreed the § 341 testimony is in the record and counsel was not called |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (bankruptcy’s fresh‑start purpose)
- Schwab v. Reilly, 560 U.S. 770 (2010) (exemptions are central to the fresh start)
- Soulé v. Willcut (In re Willcut), 472 B.R. 88 (10th Cir. BAP 2012) (background and intent of § 522(o) amendments)
- Danussi v. Kaska, 424 B.R. 616 (N.D.N.Y. 2010) (elements a creditor must prove under § 522(o))
- In re Corbett, 478 B.R. 62 (Bankr. D. Mass. 2012) (application of pre‑2005 conversion principles and § 522(o) analysis)
- Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020) (procedural note on final orders and appeal timing)