In Re Bace
MEMORANDUM OF DECISION ON CHAPTER 7 TRUSTEE’S OBJECTION TO DEBTOR’S HOMESTEAD EXEMPTION CLAIM
On January 4, 2007, the chapter 7 trustee (the “Trustee”) objected to the homestead exemption claimed by the debtor, Mr. Bace (the “Debtor”), under
In his response to the Trustee’s objection, the Debtor argued, among other things, that the objection was untimely. After additional briefing and a February 7, 2007 hearing, the Court issued an order on February 13, 2007 granting the Trustee’s objection and denying the Debtor’s claimed homestead exemption. The Court issues this Memorandum of Decision to clarify the grounds for its holding, which were not sufficiently set forth in either the Court’s bench ruling, which this Memorandum supersedes, or the February 13, 2007 order.
Procedural Background
As noted above, the Debtor filed a petition under chapter 13 of the Bankruptcy Code on October 16, 2005. His chapter 13 schedules claimed a $18,450 “federal” homestead exemption under
Apparently realizing that he could not successfully claim the Property as an exempt homestead under Bankruptcy Code
The Trustee focused after his appointment on negotiations -with the Debtor, the Debtor’s partner and lenders with respect to a proposed refinancing of the Property, which the Debtor had contended since the start of his chapter 13 case was the best way to satisfy most of the claims against him. Eventually an agreement on the refinancing appeared to have been reached, but on the day before the September 29, 2006 hearing to approve the transaction, the Debtor objected to it, and it was never revived. The Trustee also spent considerable time and effort trying to understand the Debtor’s other assets, because the Debtor was remarkably unforthcoming with regard to his disclosure obligations. This led the Trustee on June 16, 2006 to object under section 727(a) of the Bankruptcy Code,
Having determined that he should consider alternatives to the Property’s refinancing, on December 19, 2006 the Trustee moved for approval of a settlement pursuant to which the Property would be sold to Benison for, among other things, cash and satisfaction of the liens (including Benison’s) on the Property, subject to higher and better offers. No higher and better offer was received, and the settlement was approved after by order dated January 17, 2007. 3
The record of the Debtor’s chapter 13 case shows that the meeting of creditors under section 341(a) of the Bankruptcy Code was adjourned twice, to February 9, 2006, because of the Debtor’s failure to attend the initial meeting and his failure to have proper identification when he appeared at the first adjourned meeting. On February 9, 2006, the section 341(a) meeting in the chapter 13 case concluded.
The United States trustee promptly convened a new section 341(a) meeting after the March 10, 2006 conversion of the chapter 13 case to chapter 7, and that meeting was continued from April to June to July 2006 and has not concluded. Counsel for the Trustee stated at the hearing on the Debtor’s homestead exemption claim that the Trustee kept the section 341(a) meeting open because of his focus on the proposed refinancing of the Property, and, as noted, the Trustee also became enmeshed in issues regarding the Debtor’s failure to perform his disclosure obligations, leading to the denial of the Debtor’s discharge. Until the February 7, 2007 hearing on the Trustee’s objection to his exemption claim, the Debtor never complained about the section 341(a) meeting being kept open or requested that it be concluded.
In the Debtor’s January 23, 2007 response to Benison and the Trustee’s objections to his homestead exemption claim, the Debtor for the first time asserted that he claimed an exemption of up to $50,000, not the $10,000 claimed in the May 2, 2006 amendment to his schedules.
Although the recovery on Benison’s remaining unsecured claim in this ease could be diluted by the Debtor’s homestead exemption claim, Benison did not attend the February 7, 2007 hearing; instead, counsel for the Trustee disclosed that Benison had assigned all of its rights in respect of its objection to the Trustee.
At the February 7, 2007 hearing, the Trustee relied on three alternative grounds for the timeliness of his objection: the assignment from Benison, the fact that the section 341(a) meeting in the chapter 7 case had not been concluded for thirty days before the filing of the Trustee’s objection, and the Debtor’s January 23, 2007 response to the objections, which raised the amount of his homestead exemption claim by $40,000. The Trustee also asserted that the Debtor never occupied the Property as his principal residence, which was, instead, a leased apartment in New York City. Pleadings and previous statements by the Debtor under oath corroborated this assertion. At the hearing, it was clear that the Property was a weekend or vacation property that the Debtor only intended to make his principal residence in the future, after he completed construction and could occupy it for that purpose.
Discussion
A. The Trustee’s homestead objection was timely. Bankruptcy Rule 4003(b) provides:
Objecting to a Claim of Exemptions. A party in interest may file an objection to the list of property claimed as exempt only within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.
1.
Assignment from Benison.
First, the Trustee contends that the Court need not consider the timeliness of his own objection because Benison assigned him its objection, which clearly was filed within the first alternative deadline contained in
The Trustee has not cited any precedent for this proposition, nor has the Court located any. That one may cure an untimely objection to a claimed exemption by the assignment of a timely objection appears, at a minimum, however, to be problematic in light of the constraints imposed by Bankruptcy
The foregoing problem with the Trustee’s argument is highlighted, moreover, because it appears that Benison’s assignment to the Trustee was an afterthought, not provided for in the Benison settlement agreement, pursuant to which Benison appears to have tried to shift to the estate the cost of pursuing Benison’s objection to the Debtor’s claimed homestead exemption.
On the other hand, as discussed below, courts appear generally to assume that if a chapter 13 trustee makes a timely objection to an exemption claim before the case is converted, the chapter 7 trustee may pursue the pre-conversion objection, which suggests that objections to exemption claims are transferable, at least by chapter 13 trustees to chapter 7 trustees. Moreover, the Trustee’s objection is asserted on the same basis as Benison’s; thus, the Trustee is not attempting to cure a substantive defect on the merits by means of the assignment of Benison’s unquestionably timely objection.
Ultimately, however, the Court need not decide the issue because of the merits of the Trustee’s other two arguments that his objection was timely.
2.
The date for objecting to the exemption claim runs from the conclusion of the chapter 7 section 3j.l(a) meeting, which properly had not concluded, not the pre-conversion, chapter 13 section 3fl(a) meeting.
Under the first of Bankruptcy
If the Debtor correctly construes Bankruptcy
No other provision of the Bankruptcy Code and Bankruptcy Rules specifically addresses which of these meetings is the meeting referred to in Bankruptcy
The Debtor relies on
Bell v. Bell (In re Bell),
In re Bell
— which pertained to a chapter 7 case converted from chapter 11 — states twice that its holding does not apply to a chapter 7 case converted, as here, from chapter 13.
At least one other factor distinguishes the present case from
In re Bell:
the first of the decision’s three statutory rationales was based upon a clause that no longer appears in Bankruptcy
[A]s noted above, the text ofRule 4003(b) does not refer to any “meeting of creditors” but rather “the meeting of creditors held pursuant toRule 2003(a) .” As explained above, that restriction limits the time period for objections to 30 days following the conclusion of a meeting of creditors convened within 40 (or 60) days of the “order for relief.”
Id.
at 213.
See also id.
at 218: “[Bjecause the meeting of creditors held under
However, after
Bell
was decided, Bankruptcy
Moreover, the amendment of
The fact that§ 348 does not “reset” the date for the order for relief does not mean that FRBP 2003 and§ 341 do not apply to a case that is converted to Chapter 7 from Chapter 13 — ... since§ 348(a) provides that a conversion order constitutes an order for relief under the new chapter,§ 341 calls for a meeting of creditors to be held within a reasonable time post-conversion. In other words there are two orders for relief in a converted case.... Accordingly the Bankruptcy Code does require a§ 341 meeting to be held after a case is converted from one chapter to another.
In other words, after the reference to
Thus two of the three statutory rationales (including the only one found in the text of Bankruptcy
Bell’s
third rationale,
For the majority in
Bell,
this was a fairly easy question in the context of a chapter 7 case converted from chapter 11. In chapter 11, property acquired by the debtor postpetition would not constitute property of the estate.
Id.
at 215. Such postpetition property includes property that revests in the debtor through the exemption process.
Id.
at 215-16,
citing,
among other authorities,
In the foregoing analysis, however,
Bell
significantly distinguished the status of property of the estate in a case converted from chapter 13 to chapter 7, a distinction clearly relevant here. Specifically, the court noted that Bankruptcy Code section 1306 provides that “Property of the [chap
(1) Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title—
(A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion....
(2) If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property in the converted case shall consist of the property of the estate as of the date of conversion. 7
Thus, unlike conversion of a case from chapter 11 to chapter 7, conversion of a case from chapter 13 to chapter 7 results in assets that were property of the estate on the chapter 13 petition date (such as property subsequently exempted) and are still within the debtor’s possession or control on the conversion date (as well as, if the debtor acted in bad faith, all property acquired after the chapter 13 petition date) being included in the chapter 7 estate. Id. at 217-18. In re Bell recognized, therefore, that the third rationale for its holding is not necessarily applicable in chapter 13 cases converted to chapter 7. Id. at 216-17:
The dissent reads11 U.S.C. § 348(f)(1) to include in the converted estate property exempted from the Chapter 13 estate but still in the possession of the debtor at the time of conversion, even in those cases where the conversion is in good faith such that other property acquired post-petition is not included in the converted estate.... This is certainly a proper reading. What is less clear is how it helps the dissent’s argument in the context of Chapter 11 to Chapter 7 conversions — the limit of our holding.
Id. 217 n. 19 (emphasis added).
In light of
Bell’s
third rationale being the only one apparently to have survived the deletion of
Granted there are thoughtful opinions to the contrary. See, for example,
In re Fonke,
Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case....
Ultimately, however, the more specific statutory provision, which actually refers, unlike Bankruptcy Code
The majority and dissenting opinions in
Bell
also debated the policy, or, more aptly, the common sense,
10
of starting a new limitations period under Bankruptcy
Similar arguments have been made with respect to the material differences between chapter 13 and chapter 7.
See, e.g., Weissman v. Carr (In re Weissman),
means that [chapter 13] trustees or other parties in interest must object to a questionable claim of exemption, even if it serves no purpose given the facts of the case as they presently exist. They must plan ... for a future contingent event, i.e., possible conversion of the case, and the impact that the claimed exemption would have in the converted case. Furthermore, not only must they plan for a potential conversion, but they must litigate the objection based on some unknown facts and for an uncertain purpose. This is contrary to basic principles of federal jurisdiction.
In re Bell
stated that its statutory interpretation made it unnecessary to address this argument.
Perhaps significantly, the court again took care, however, to distinguish chapter 11 cases from chapter 13 cases, in which creditors are often less sophisticated and the debtor is always an individual, in contrast with the vast majority of chapter 11 debtors’ ineligibility to claim exemptions. Id. at 219-220. Such reasoning could be another basis for distinguishing Bell from the present matter.
On the other hand, the motivations for objecting to exemption claims in chapter 13 cases and the motivations for objecting to such claims in chapter 11 cases differ to about the same degree from the reasons for objecting to exemption claims in chapter 7.
See, e.g., In re Ferretti,
As noted, such unfairness did not much concern the majority in
Bell.
Nevertheless, the fairness, or common sense, argument does support a statutory interpretation that looks to the conclusion of the post-conversion
For the foregoing reasons, therefore, under Bankruptcy
This is not the end of the analysis, however, because one still must ask whether the Trustee’s objection was timely given that the chapter 7
Apparently neither the Second Circuit nor any court in this district has taken a position on the issue.
14
Reviewing the various approaches described above, I am persuaded by the rationale of the case-by-case analysis articulated in
In re Cherry,
Having considered the relevant facts, the Trustee acted reasonably in keeping the
The Trustee’s objection therefore was timely because it was made at least within thirty days after the date the
3.
Alternatively, the Debtor’s January 23, 2007 response amended his homestead exemption claim, extending the objection deadline.
As noted above, Bankruptcy
It may be asked, however, whether the Debtor’s January 23, 2007 response was an “amendment to the list or supplemental schedules” under Bankruptcy
[The debtor] contends that the second schedule did not reopen the time to object because it was merely a clarification of the March 1986 Schedule. We disagree. The Amended Schedule differed significantly from the initial schedule by claiming a higher exemption amount. We read Mr. Kahan’s initial exemption claim as limited to the “value claimed as exempt,” namely $45,000, rather than as a broad exemption claim that covered his undivided one-half interest in the Property.
Id.
at 81-2;
Foster v. Moore (In re Moore),
In light of the foregoing, therefore, the Debtor’s January 23, 2007 filing is properly construed as an “amendment to the list [of exemptions] or supplemental schedule” for purposes of Bankruptcy
B. The Trustee has carried his burden on the merits. Under
Exemption of homestead. Property of one of the following types not exceeding fifty thousand dollars in value above liens and encumbrances, owned and occupied as a principal residence, is exempt from application to the satisfaction of a money judgment, unless the judgment was recovered wholly from the purchase price thereof:
1. a lot of land with a dwelling thereon....
(emphasis added). The Trustee has the burden of proof that the claimed homestead exemption is improper, which he must satisfy by a preponderance of the evidence.
New York’s exemption statute does not define the terms “occupied” and “principal residence” contained in
Thus, absent special circumstances justifying a constructive presence, such as when the debtor has left his or her principal residence because of a discordant marital situation without establishing a new residence,
see In re Smith,
[A] battle between the meaning of the articles “a” versus “the” is of no moment since the operative adjective in the disputed phrase here is “principal” which means “most important, consequential or influential.” Thus, there can be no dispute that however arguably “indefinite” the term “a” may be, its meaning in NYCPLR§ 5206(a) depends on the context and the fact that a debtor can have only one principal residence.
Id.
at 68 (citations omitted). Property acquires exempt homestead status when actual physical presence is coupled with a bona fide intent to reside there as one’s principal residence — not in the future, but on the petition date.
In re Scott,
In re Miller
held that a vacation home would not qualify as an exempt homestead under New York law, “because there is no actual occupancy on a regular basis. A contrary result flies in the face of the plain language and purpose of NYCPLR
In light of the foregoing, the Debtor cannot claim a homestead exemption for the Property under
At the February 7, 2007 hearing, moreover, the Debtor acknowledged that he was not living at the Property on the petition date and that over the last several years he occupied it for only two or three months during the summer (except for every other weekend last summer spent on Fire Island) and two to three days a week during other seasons. This also was confirmed in paragraph 4 of the Debtor’s January 23, 2007 response to the objections to his exemption claim, in which he stated that he and his partner
were ready to move into the property as of August 2006, at the time that the construction was completed, but we have not done so because of the continuing issues regarding the subject property as the Court is so well aware of. I could not reside at [the Property] prior to that date as there was no home in which to move. I have stayed on the property for weeks at a time since 1999, during which I would work on the property and the construction, but during those periods I would either camp out in the old barn in a tent or keep within the cover of the smaller house as it was being completed, but I could not reside there until the building was complete.
Finally, in paragraph 15 of his January 23, 2007 response, the Debtor states,
I have used, and will continue to use and occupy [the New York City address] until such time as I am permitted to move in my Stone Ridge home, but for all times since 1999 I have considered the Stone Ridge Property to be my residence and not my apartment in N.Y. which I only rent.
Thus, while it may be clear from the foregoing, as well as other statements by the Debtor, that he intended to make the Property his home eventually, it is equally clear that it was not the Debtor’s home on the petition date and, therefore, does not qualify for the homestead exemption under
Conclusion
For the foregoing reasons, the Trustee’s objection to the Debtor’s homestead exemption claim should be granted and the Debtor’s claimed homestead exemption in respect of the Property denied.
Notes
. The Debtor filed a petition under chapter 13 of the Bankruptcy Code on October 16, 2005, one day before the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (''BAPCPA”). Pub.L. 109-8 § 1501(a). Because, as discussed below, the relevant date for determining the Debtor’s homestead exemption is the chapter 13 petition date, citations are to the Bankruptcy Code in effect before BAPCPA.
. The cap on the homestead exemption under
. The Trustee subsequently transferred the Property to Benison for the consideration provided in the settlement, resulting in approximately $30,000 of unencumbered proceeds.
. Some courts refer to “majority" and "minority” positions on the issue.
See In re Fonke,
. Both before and after the amendment of Bankruptcy
. Without reference to
. Bankruptcy Code
. In Campbell, the Tenth Circuit Bankruptcy Appellate Panel also made the following related observation:
Property claimed as exempt is property of the estate on a debtor's petition date. It revests in the debtor when the exemption is allowed, either by court order or because of the lack of a timely objection. Property of the estate also revests in the debtor upon the confirmation of a Chapter 13 plan under § 1327(b). Such revested property, being property that was property of the estate on the date that a debtor files a Chapter 13 petition, is property of the Chapter 7 estate upon conversion under§ 348(f) if it is still in the debtor’s possession. To allow property revested under§ 522(1) to be excluded from the scope of§ 348(f) would require that property revested under § 1327 to likewise be excluded. This would have the effect of rendering§ 348(f) meaningless in Chapter 13 cases converted after the confirmation of a plan. The revesting of property under§ 522(1) does not immunize it from being brought into the estate upon conversion of a Chapter 13 case.
Id. at 321 (citations omitted).
. Distinguished from this fact pattern would be those instances in which the exemption claim was actually litigated and decided be
. Such an argument is best seen not as a court imposing its own policy views but, rather, deciding whether the contrary interpretation is so illogical or unfair that Congress would not have intended it.
.
See, e.g., In re Smith,
.
See, e.g.,; In re Cherry,
.
See, e. g., In re Koss,
. It was raised but not decided in
Gazes v. DeArakie (In re DeArakie),
. Cf.
Allen v. Green (In re Green),
. The Debtor’s explanation at the February 7, 2007 hearing that this statement should be construed to mean only that the Property was "vacant” in the sense that he was at that moment physically present at the 341(a) meeting in New York City, and not on the Property, may have been a clever variation on the question of "the meaning of ‘is,’ ” but it simply was not credible.