In Re Sutton
MEMORANDUM OPINION
This matter came on for hearing on the application of Ethan Allen Turshen, Es
Briefly, the uncontroverted facts in the prеsent case are as follows:
The trustee, prior to abandoning the debtor’s residence, examined the bankruptcy estate and the assets therein. After obtaining an appraisal of the debtor’s residence, which indicated little or no equity for the benefit of the estate, the trustee filed with the Court a notice of intention to abandon real property. As grounds therefor, he stated that the debtor’s residence was owned and titled in the names of the debtor and his wife, Mamie M. Sutton, not a party to these proceedings, as tenants by the entirety with common law right of sur-vivorship. 2 After the trustee filed his notice of intention to abandon the debtor filed an amendment to Schedule A-2 of his petition. Therein he listed the Veterans’ Administration as an additional holder of a secured claim holding a lien on his residence. Subsequent to the filing of the trustee’s request for turnover, the debtor amended Schedule B-4 of his petition so as to exempt the equity proceeds of the sale of his residence.
The question presented is whether the Court may reconsider its Order permitting the trustee to abandon the debtor’s rеsidence under Rule 60(b), Federal Rules of Civil Procedure, as made applicable by Rule 924, Rules of Bankruptcy Procedure. If so empowered, the Court must determine whether the equity proceeds in question should be turned over to the trustee.
Rule 60(b) permits relief to be had from a final order if the movant establishes one or more of six categories of grounds for the requested relief. The trustee argues that subdivisions (1) and (2) of Rule 60(b) are applicable in the present case. This rule states, in pertinent part:
“[Rule 60(b)] On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have bеen discovered in time to move for a new trial under Rule 59(b); . ... ”
The trustee relies upon the case of
In re Perry,
“Control of a bankruptcy court over its orders is generally upheld without reference to Rule 60(b) ... which authorizes reliеf for mistake, inadvertence, surprise, or excusable neglect.... However, when a final order is involved, Rule 60(b) has been held applicable.. .. (Citations omitted.)
It is generally agreed that for Rule 60(b) to be applied in a given case “there must be some justification for the party’s oversight” and, in making this determination, it is appropriate for a court to consider “the circumstances surrounding the party’s inaction.” Id.
The trustee argues that at the time he petitioned the Court to abandon the debt-
The debtor acknowledges that to both his and the trustee’s surprise the sale of the property in question yielded proceeds to he and his wife. However, the debtor urges the Court not to revoke its order of abandonment under the authority granted by Rule 60(b) on the grounds asserted by the trustee. The debtor argues that thе trustee’s surprise in the existence of excess proceeds (despite the latter’s asserted diligence in examining the debtor’s assets) as constituting grounds sufficient for the Court to reconsider its order of abandonment under Rule 60(b), should not apply in this case. On the contrary, the dеbtor contends that the trustee’s petition to abandon was made intentionally and with knowledge of all the circumstances.
In addition, the debtor asserts that acquiescing to the trustee’s position would have the effect of ignoring the intent of the case law interpreting the present law on the issue of abandonment. He states that the application of Rule 60(b) should be limited to those factual circumstances not covered by existing statutes or case law.
The Court, in deciding this case, is guided by the following principles of law. Section 541(a)(1) of thе Bankruptcy Code (11 U.S.C. § 541(a)(1)) provides that the commencement of a case in bankruptcy creates an estate comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” The scope of this paragraph is quite broad. It includes even that property that is needed for a fresh start. However, once the property comes into the estate, the debtor may exempt it under applicable law.
3
House Report No. 95-595, 95th Cong., 1st Sess. (177) 367-8, U.S.Code Cong. & Admin. News 1978, p. 5787. Thеrefore, it is not to be doubted that in the present case the debtor’s interest in the entireties property (i. e., the equity proceeds) is property of the bankruptcy estate unless and until it is exempted by him.
Greenblatt v. Ford, (In re Levy Ford),
The debtor’s residence, not being exempted under the original homestead deed filed with the debtor’s petition, was an asset of the debtor’s estate until the time it was abandoned by the trustee under Section 554 of the Bankruptcy Code (11 U.S.C. § 554). This section, for the first time, specifically incorporates the power of abandonment into the bankruptсy laws. The purpose of this section is to codify prior case law and to clarify certain ambiguities resulting from legislative silence on this subject. 4 Collier on Bankruptcy, ¶ 554.01, p. 554-6 (15th ed. 1980).
It is a principle of uniform application that once an asset of the estate has been abandoned by the trustee, it is no longer part of the estate and is effectively beyond the reach and control of the trustee.
In re Polumbo,
There are but two principal exceptions to the above-referenced rule of irrevo-cability of abandonment under applicable law. Property will not be deemed to have been abandoned by the trustee where it was actually concealed from him or where his knowledge of the existence of the property was one of mere suspicion, which engendered only a cursory investigation. The rule also is not applicable in those situations where the property is unscheduled by the debtor, thus preventing the trustee from having “ ‘knowledge, or sufficient means of knowledge, of its existence.’ ”
LaRoche v. Tarpley,
The question presented in Williams, supra, involved conflicting claims to the cash surrender value of a life insurance policy on the life of the bankrupt corporation’s president (“cash fund”). The cash fund was surrendered by two insurance companies (who had held the policy) for nonpayment of premiums. When the bankrupt corporation filed its petition, the existence of the cash fund was unknown to either the trustee or to the bankrupt corporation. 4
Prior to filing for bankruptcy, the bankrupt corporation permitted a first deed of trust to be placed on certain real property as security for a construction loan givеn by the two insurance companies, as evidenced by two notes. As additional security for the loan the bankrupt corporation put up, among other life insurance policies not at issue herein, the life insurance policy in question. This policy was “ ‘to be drawn upоn only in the event of a deficiency after applying the proceeds from the real estate.’ ”
Williams, supra,
The real property, owing to an attempted sale which failed to produce a bid sufficient to establish any equity proceeds for the bankruptcy estate, was thereafter abandoned. The court in Williams, supra, at 814, found that the abandonment order referred only to the real property and not to the life insurance policy and, accordingly, the trustee intended to abandon nothing but the real property.
In finding that the cash fund remained аn assert of the estate, the court in Williams, supra, stated that neither the trustee nor the bankruptcy court were aware of the cash fund’s existence when the real property was abandoned. Although the trustee did inquire as to the insurance policy’s worth, this information was not provided to him until four months after the order of abandonment was entered.
Having thoroughly reviewed the Fourth Circuit’s decision in Williams, the Court finds that the trustee’s reliance thereon is unfounded. The factual situation in the instant matter is distinguishable from those circumstances which arose in Williams, supra.
The trustee in
Williams,
although aware of the insurance policy’s existence, did nоt have the means to ascertain its cash surrender value until well after the real property had been abandoned. In any event, and perhaps more importantly, the
Williams
court concluded that not only did the insurance companies not meet the criteria set forth in their loan agreement with the bankrupt corporation (pertaining to draw
The record in the present case reflects that the debtor’s residence was duly scheduled and that the trustee had a reasonable opportunity to consider its value to the bаnkruptcy estate. The trustee states, in his brief, that he had the property appraised which resulted in a finding of little or no equity existing in the debtor’s residence. In addition, abandonment was, thereafter, requested on the grounds that “such property [was] owned by and titled in the names of” the debtor and his wife as tenants by the entirety.
Having examined the record, the Court finds that the trustee’s abandonment of the property is irrevocable as not falling within any of the heretofore-described exceptions to the general rule.
Therefore, the Court, in denying the trusteе’s petition for a turnover order, hereby reaffirms its Order of Abandonment and, accordingly, holds that the debtor’s interest in the equity proceeds of the sale of the residence, held by he and his wife as tenants by the entirety, is not an asset of the bankruptcy estate. The Court holds further that the trustee who, along with the debtor’s counsel, Peter K. McCrary, Esquire, holds in trust an interest-bearing joint account, is hereby directed to release forthwith the estate’s interest in said account to the debtor’s counsel. The latter, in turn, is directed to turn over the equity proceeds released thereby to the debtor.
An appropriate order will enter.
Notes
. Under schedule B-l of the debtor’s petition, the debtor listed the real property in question, to wit: residence at Lot 79, Section 8-F, Dale City, Virginia, owned by the debtor and his wife, Mamie Mozelene Sutton, as tenants by the entireties.
The settlement statement showing proceeds of about $17,000.00, after accounting for the payment owed to the holder of the second deed of trust, results in equity proceeds of $6,800.00, which sum is the object of the trustee’s turnover request.
. Virginia is among those jurisdictions that, in recognizing tenancy by the entirety in reаl property, exempt such property from the claims of creditors of only one of the spouses.
Vasilion v. Vasilion,
. Although subdivisions (b) and (d) of Section 522 of the Bankruptcy Code (11 U.S.C. § 522(b) and (d)) set forth the exemptions that a debtor is entitled to claim, the Virginia legislature has determined to “opt out” оf these exemptions by enacting Section 34-3.1, Code of Virginia, as amended. Accordingly, the state exemptions, and not the federal exemptions, are applicable in the case at bar. Title 34 of the Virginia Code requires that a homestead deed be timely filed in order for a dеbtor to avail himself of the protection afforded to that portion, of his property designated therein.
. In Schedule B-3 of the bankrupt corporation’s petition there appeared “the notation that the polic[y in question was] believed to have no cash value.”
Williams, supra,