In this case the debtor filed inaccurate schedules showing ownership of non-existent assets and claiming them as exempt. When the trustee attempted to sell unscheduled assets, the debtor convinced the bankruptcy court that those assets were the same as those he had claimed exempt.
Byron Z. Moldo, chapter 7 1 trustee (the “Trustee”), appeals from the Bankruptcy Court’s order denying the Trustee’s motion to sell real property free and clear of the claim of exemption of debtor Robert L. Clark (“Debtor”). The Trustee did not object to Debtor’s claim of exemption within the time allowed by Rule 4003(b), 2 but argues that he was not required to object because Debtor’s Schedules B and C did not adequately describe Debtor’s interest in the subject property. We agree with the Trustee and REVERSE and REMAND.
I. FACTS
Debtor filed a chapter 13 petition on August 5, 1996. The case was converted to chapter 7 on June 17, 1998, upon motion by Debtor, and the Trustee was appointed.
Debtor did not file new schedules in the chapter 7 case, so the pertinent information is found in the schedules that were filed in the chapter 13 case. In the Schedule B list of personal property assets, under Item 11 (entitled “Interests in IRA, ERISA, Keogh, or other pension or profit-sharing plans”), Debtor listed “FIVE LOTS LISTED IN QUALIFIED RETIREMENT PLAN,” and the value of such property at $100,000; 3 at Item 19 (entitled “Contingent and non-contingent interests in estate of a decedent, death benefit plan, life insurance policy, or trust”), Debtor listed nothing. In the Schedule C list of property claimed exempt, Debtor listed, inter alia, “FIVE LOTS LISTED IN QUALIFIED RETIREMENT PLAN,” citing “704.116” 4 as the source of the exemption, valuing the property at $100,000, and claiming that amount exempt.
The chapter 7 meeting of creditors provided for by section 341 was commenced on July 24, 1998. The record on appeal does not include a transcript of that meeting, but the Trustee’s brief on appeal states without contradiction that he asked Debtor during the meeting to provide information “on the ‘five lots listed in qualified retirement plan’ listed on Debtor’s Schedule ‘B’ and claimed exempt on Debt- or’s Schedule ‘C’ and a trust agreement mentioned by the Debtor.” The meeting was continued to August 28, 1998, pending the Trustee’s receipt of the requested information, and was concluded on that date. The Trustee filed a form entitled “TRUSTEE’S WORKSHEET ON 341 MEETING” on September 8, 1998. The form was annotated to state “no need to appear — info
Neither the Trustee nor any other creditor filed an objection to the exemption claim stated in Debtor’s Schedule C as “FIVE LOTS LISTED IN QUALIFIED RETIREMENT PLAN.” An order granting Debtor’s discharge pursuant to section 727(b) was entered on March 22, 1999. 7
On July 14, 1999, the Trustee applied for an order authorizing him to employ a real estate broker to list and sell four of the lots in which the Trustee contended that Debtor held an interest, although title to the lots was vested in a trust. 8 That application was granted by an order issued on July 23, 1999. Debtor filed a motion to reconsider that order on the basis that the lots in question had been claimed exempt without timely objection and were therefore not part of the bankruptcy estate and could not be sold by the Trustee.
On August 24, 1999, the Trustee filed a response to Debtor’s motion for reconsideration, opposing it on the merits and also because the motion did not comply with the local rules and provide a declaration of facts. The Trustee’s opposition to Debt- or’s reconsideration motion stated, inter alia, that:
Upon review of the Debtor’s Schedule B, the Trustee noted that among the Debt- or’s assets were “five lots listed in qualified retirement plan” (“Five Lots”) which were valued at $100,000. The Trustee also noted that the Debtor marked “X” for none to item # 19 on Schedule B which asked about any interest in a trust.... Additionally, the Trustee noted that the Debtor claimed an exemption for the Five Lots on his Schedule C in the amount of $100,000.
The Trustee’s Opposition further stated that the Trustee asked Debtor at the initial section 341 meeting to provide a copy of the “ ‘qualified retirement plan’ within which the Debtor purported to hold the five lots,” and received a copy of a document with a cover page entitled “California Pension Administrators & Consultants, Inc. Trust Agreement (Self Trustee),” followed by a page stating “Amendment No. 2,” which was an incomplete form with blanks that had not been filled in; the signature lines on “Amendment No. 2” show Debtor as both “Trustee” and “Firm.”
The Trustee’s opposition also contended that the Trustee asked Debtor’s attorney for “a listing of properties held in the Trust,” and Trustee then ordered prelimi
Debtor did nothing further and the Trustee proceeded to market the four lots. On August 15, 2000, the Trustee filed a motion for authorization to accept the best offer received ($75,000 total for three of the lots), saying that he was entitled to sell property of Debtor’s trust for the benefit of the estate. 9 The Trustee’s motion sought to sell free and clear of a disputed lien and alluded to a past dispute about Debtor’s exemption claim, but did not pray for authorization to sell free and clear of the exemption claim. The hearing was continued twice at the request of Debtor, and Debtor then filed an opposition to the sale. 10 In his opposition, Debtor raised the same argument that he had made in his reconsideration motion, viz., that the property had been claimed exempt without objection and was therefore no longer part of the bankruptcy estate and could not be sold by the Trustee. The Trustee responded with the same argument that he had made in opposing Debtor’s reconsideration motion, viz., that the property had not been properly exempted from the estate and therefore remained available to be sold.
After a hearing, the Bankruptcy Court issued an order denying the Trustee’s motion to sell the three lots on the basis that such property was exempt because the Trustee did not file a timely objection to Debtor’s Schedule C exemption claim, citing
Taylor v. Freeland & Kronz,
The Trustee timely appealed, contending: first, that the subject lots were not “validly exempt” and their sale by the Trustee therefore should have been approved; and, second, that sale free and clear of any exemption claim should have been authorized pursuant to section 363(f)(4) on the basis of a bona fide dispute concerning the property’s exempt status, pending litigation of such dispute.
II. ISSUES
A. Whether the Bankruptcy Court erred in denying the Trustee’s motion to sell the subject property because it had been claimed exempt without timely objection and was therefore no longer estate property subject to sale by the Trustee.
III. STANDARD OF REVIEW
Rulings on motions to sell property of the estate other than in the ordinary course of business pursuant to section 363 are reviewed for abuse of discretion.
See Rosenberg Real Estate Equity Fund III v. Air Beds, Inc. (In re Air Beds, Inc.),
Whether property is included in a bankruptcy estate is a question of law, subject to
de novo
review.
See Cisneros v. Kim (In re Kim),
IV. DISCUSSION
A. Denial of sale due to exemption claim.
The Trustee argues that Debtor’s exemption claim of “FIVE LOTS LISTED IN QUALIFIED RETIREMENT PLAN” did not identify the property being claimed exempt sufficiently to effect exemption at all; as a result, there was no exemption claim to object to, and the time within which objections must be made therefore never commenced to run. The Trustee correctly points out that a debtor controls the schedules and bears the burden of enabling trustees and creditors “to determine precisely whether a listed asset is validly exempt simply by reading a debt- or’s schedules,” so that any ambiguity is construed against the debtor, citing
Hyman v. Plotkin (In re Hyman),
One such circumstance occurred in Hy-man, where the debtors’ exemption claim stated that it pertained to their “homestead,” cited CCP § 704.720, 11 and set forth the value of the exemption as $45,000. The trustee never objected to that claim, but did seek to sell the property. The debtors argued that they had claimed the entire property exempt and that it was set aside as exempt pursuant to section 522(1) when no timely objection was made to their claim. The Ninth Circuit held that:
the [debtors] did not sufficiently notify others that they were claiming their entire homestead as exempt property; their schedule only gave notice that they claimed $45,000 as exempt, which is the proper amount of their homestead allowance under [CCP § 704.720 and§ 704.730] [citation omitted]. Thus, the trustee had no basis for objecting, and could well have suffered the bankruptcy judge’s ire had he objected to the $45,000 exemption to which the [debtors] were clearly entitled.
Hyman,
The court made a comparable analysis of an ambiguous claim of exemption in Ka-han, where the debtor first claimed his home exempt under CCP § 704.740 13 to the extent of $45,000; four years later, he amended his schedule and claimed the property exempt to the extent of his entire joint tenancy interest (which was worth $187,500). No objection was made to the initial claim, but the trustee did object to the amended claim within the time provided by Rule 4003(b). The debtor argued that the amended claim did not operate to commence a new objection period because it was merely a “clarification” of the original claim, which had become final and binding when no timely objection was made to it. The Ninth Circuit held that the second claim did not just clarify the first because the two claims differed “significantly,” inasmuch as the original claim exempted only $45,000 worth of the debt- or’s interest in the property, whereas the amended claim exempted all of his interest in the property. The Court pointed out that the debtor’s arguments were identical to those made and rejected in Hyman, and held that the original claim did not impart notice that the debtor claimed an exemption exceeding $45,000.
In Andermahr, decided nine years prior to Taylor, the debtor claimed the grubstake, or wildcard, exemption of $7,900 that was then provided by section 522(d)(5) and applied $4,650 of it to various specific assets. He then applied the $3,250 balance of the available exemption to what was described only as “other assets of the petitioner.” The trustee did not object to the exemption claim, but did collect a $2,202 tax refund issued months later. The debtor argued that the refund was exempt because it was encompassed by the “other assets of the petitioner” that had been claimed exempt without timely objection. We held that:
The non-specific claim of exemption gives the debtor no rights, legally or practically. It is mandatory under the language of the statute that the debtor file a list of the property he claims exempt. 11 U.S.C. § 522(1). A list of property connotes a selection of specific properties. The claim to “other assets of the petitioner” does not comply with the statute.
Even without the statutory mandate, the practicalities of bankruptcy administration require that the trustee be advised of the precise items of property in the estate, 11 U.S.C. § 541(a), that the debt- or elects to withdraw from the estate. The trustee needs this information in order to judge the validity of the exemption claim and to know what property remains in the estate for purposes of liquidation.
Andermahr,
Another example of an ambiguous exemption claim was at issue in
Alderman v. Martinson (In re Aldennan),
The foregoing cases suggest that a motion to value an exemption is not bound by the 30 day bar of Rule 4003. The bankruptcy court in this proceeding believed similarly, specifically stating that Taylor did not control in this instance. “The Trustee does not object to the Debtor’s allowable Montana homestead exemption. Rather, the Trustee seeks a determination as to the allowable dollar value of such exemption. Taylor is therefore not dispositive of the issue of the allowable amount of the exemption.” ORDER, June 19,1995.
Regardless, the manner in which the exemption was valued is inherently ambiguous and calls for valuation at some point in the proceeding. When debtors claim an exemption at the “maximum allowed,” that can only mean the maximum allowed by law. Montana law clearly provides that a claimant’s homestead exemption is limited to an amount proportional to his ownership interest in the property. MontCode Ann. § 70-32-104(2) (1994).
Alderman,
In this case, Debtor’s exemption claim is just as ambiguous and imprecise as the claims that were found defective in the foregoing cases. The exemption claim states “FIVE LOTS LISTED IN QUALIFIED RETIREMENT PLAN,” values them at $100,000, and cites the source of the exemption as CCP § 704.115 (which pertains to exempting private retirement plans). Yet the documents that Debtor provided to the Trustee did not demonstrate that a qualified retirement plan had been established, and the Trustee’s own efforts revealed title records showing that four of the lots in question were owned by a trust rather than by Debtor (although Debtor stated in his schedules that he held no interests in any trusts). 14
The result we reach here, fully supported by the foregoing authorities, could have been achieved early in the case if the Trustee had sought and obtained an extension of the objection period as permitted by Rule 4003(b) until he had an opportunity to investigate fully the nature of Debt- or’s interest in the lots, the bona fides of the alleged retirement plan, and any other pertinent issues. Alternatively, he could have filed a timely objection to the exemption claim, briefly stating grounds such as the claim’s failure to establish Debtor’s entitlement to the exemption sought, or the claim’s failure to identify the property claimed. As this case illustrates, trustees risk costly delays and the uncertainty of litigation and appeals when they assume that failure to object to an imprecise and unsupported exemption claim will not result in automatic exemption under Taylor. By far the safer approach would be for trustees to take a conservative and skeptical view of exemption claims, and refuse to accept any claim of exemption that is not clearly legitimate on its face.
B. Refusal to authorize sale free and clear under section 363(f) (k)■
We are reversing the order denying the Trustee’s sale because the Debtor did not unambiguously claim an exemption in property of the estate. In doing so, however, we reject the Trustee’s argument that the sale should have been authorized free and clear of Debtor’s exemption claim because a bona fide dispute existed as to whether the property was exempt, which is a ground under section 363(f)(4) for sale free and clear of liens and interests pending resolution of the dispute. This argument is flawed.
The purpose of § 363(f)(4) is to permit property of the estate to be sold free and clear of interests that are disputed by the representative of the estate so that liquidation of the estate’s assets need not be delayed while such disputes are being litigated.
See, generally,
3 Lawrence P. King,
Collier on Bankruptcy
¶ 363.06 (15th ed. rev.1998). Typically, the proceeds of sale are held subject to the disputed interest and then distributed as dictated by the resolution of the dispute; such procedure preserves all parties’ rights by simply transferring interests from property to dollars that represent its value. In this case, Debtor presumably believed the lots were his exempt property
The Trustee cites no authority for the proposition that section 363(f) permits sale of property free and clear of exemption claims. Pursuant to section 363(f), “property under subsection (b) or (c) of this section” may be sold free and clear of “any interest in such property of an entity other than the estate” — the property that can be sold free and clear under section 363(f) is defined by subsections (b) and (c) of section 363 as “property of the estate.”
Id.
Pursuant to section 541(a), “property of the estate” consists generally of all property in which the debtor had an interest on the date of bankruptcy, but section 522(b) provides that a debtor may exempt property from the estate.
See Robertson v. Alsberg {In re Alsberg),
Y. CONCLUSION
The Bankruptcy Court erred in denying the Trustee’s motion to sell the subject property, inasmuch as Debtor’s exemption claim was not sufficiently clear and precise, and therefore too ambiguous, to render the subject property automatically exempt under Taylor when no timely objection to it was filed.
The order of the Bankruptcy Court is REVERSED and the matter REMANDED for the court to determine whether to authorize the sale. 15
Notes
. Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. The rule provides that objections must be filed within 30 days after the later of conclusion of the section 341 meeting or the filing of an amendment to the list of property claimed exempt or supplemental schedules, unless the time is extended for cause upon request made during the objection period.
. Debtor did not include the lots in the Schedule A list of real property assets.
. This is apparently a citation to California Code of Civil Procedure ("CCP”) § 704.115, entitled "Private retirement plans; exemption; periodic payments.”
. Debtor's brief on appeal states that the Trustee eventually filed a report of no assets in the estate, but the Trustee denies having done so and the bankruptcy case docket shows that no such report has ever been filed. In any event, it is irrelevant to the issues on appeal whether a no asset report was filed, since such a filing would not have effected an abandonment of estate property pursuant to section 554.
. Conclusion of the section 341 meeting started the time for objections running pursuant to Rule 4003(b).
See Smith
v.
Kennedy (In re Smith),
. Debtor argued in the Bankruptcy Court and on appeal (citing no apposite authority) that issuance of the discharge somehow should have prevented the Trustee from asserting an interest in property. That is not the law. Pursuant to section 524, a discharge provided by section 727(b) merely protects debtors from personal liability for certain debts. The discharge has no effect upon an estate’s interest in property or a trustee’s administration of estate property.
. The record on appeal does not indicate that the Trustee took any action concerning the fifth lot referred to in Schedules B and C.
. Curiously, Trustee bypassed what appears to be at least a preliminary obstacle to his ability to sell property in a trust. He acknowledged that the property was held in a trust, then stated: ''[T]rustee is entitled to act as trustee of the Clark Trust. Acting as trustee of the Clark Trust, [Trustee] is entitled to sell the Properties for the benefit of the Estate.”
It is not clear to us how Trustee can make the leap from the Clark Trust, apparently ignoring its beneficiaries, and sell for the bankruptcy estate without first dissolving the Clark Trust, obtaining the consent of its beneficiaries, or doing something else. Perhaps the Bankruptcy Court can sort out this confusion on remand; we offer no opinion just what should be done.
. Debtor’s opposition was late under the local rules, but the Bankruptcy Court ruled in its order of November 9, 2000, that, notwithstanding Debtor's untimely filing, it was appropriate to address the grounds stated in the opposition because they went “to the heart of” the Trustee’s prima facie case.
. That statute is entitled "Extent of homestead exemption; exemption for proceeds of sale, insurance, indemnification or compensation; separate homesteads of debtor and spouse” and provides, inter alia, that "A homestead is exempt from sale under this division to the extent provided in Section 704.800.”
. Shortly prior to oral argument, the Trustee filed a Notice of Recent Decision, citing
Soost v. NAH, Inc. (In re Soost),
. That section is entitled "Sale of dwelling to enforce money judgment” and provides, inter alia that “the interest of a natural person in a dwelling” is exempt as provided by CCP Article 4; Article 4 sets forth, at section 704.730, several alternative amounts of exemption.
. Debtor’s counsel conceded at oral argument that no qualified retirement plan exist
. On remand the court should decide whether the Trustee is entitled to sell property owned by a trust rather than by Debtor. Should Debtor attempt to amend his schedules to claim the property as exempt, the court may also need to decide whether Debtor is entitled to exempt property he does not own, and if so, whether he is now precluded from amending his claim of exemption.
See Arnold v. Gill (In re Arnold),