768 F.2d 923 (7th Cir. 1985), 84-2964, Matter of Jones

Docket Nº:84-2964.
Citation:768 F.2d 923
Party Name:In the Matter of George William JONES and Grace Eilene Jones, Debtors. Appeal of Ward W. MILLER, Trustee.
Case Date:July 26, 1985
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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768 F.2d 923 (7th Cir. 1985)

In the Matter of George William JONES and Grace Eilene

Jones, Debtors.

Appeal of Ward W. MILLER, Trustee.

No. 84-2964.

United States Court of Appeals, Seventh Circuit

July 26, 1985

Argued May 28, 1985.

Page 924

Ward W. Miller, Bloom & Bloom, Fort Wayne, Ind., for trustee.

Mark A. Thoma, Peters & Terrill, Fort Wayne, Ind., for debtors.

Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

CUDAHY, Circuit Judge.

Ward W. Miller, the trustee in bankruptcy, appeals an order of the district court affirming an order of the bankruptcy court which held that the debtors' interest in a contract for the sale of real estate was itself real property under the law of Indiana, and so exempt from the estate. The sole issue on appeal is whether the interest had by a seller in an installment contract for sale of real estate is itself classified as real property under Indiana law and so exempt from the bankruptcy estate under the Indiana exemption statute, IND. CODE Sec. 34-2-28-1(b) (1982). We conclude that such an interest is intangible personalty,

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and so reverse the order of the district court.

I.

The debtors, Mr. and Mrs. Jones, were the owners in fee simple of a parcel of real estate located in Allen County, Indiana. On March 25, 1982, the Joneses sold that real estate pursuant to a contract for the conditional sale of real estate. A substantial down payment was made on the date of contract, but the Joneses still had significant equity in the real estate on July 21, 1982. On that date the Joneses filed a voluntary petition under chapter VII of the Bankruptcy Code. 1

After the Joneses filed for bankruptcy their interest in the subject real estate became part of their bankruptcy estate. The trustee completed the performance of the contract for sale of the real estate on March 30, 1983. After satisfaction of mortgage liens and closing expenses the trustee received the net sum of $1,600.40, which represented the Joneses' remaining equity in the real estate.

On July 21, 1983, the Joneses filed an amended Schedule B-4, claiming as exempt, inter alia, $6,800.00 equity in the real estate already sold, contending it was either tangible personal property or real estate. The trustee objected, contending that the Joneses' interest in the contract was, as a matter of Indiana law, no longer real estate on the bankruptcy filing date. The Bankruptcy Court for the Northern District of Indiana, Fort Wayne Division, issued an order on April 9, 1984, in which it noted that the property was not the residence of the Joneses but nonetheless held that the Joneses had an ownership interest in the real estate that enabled them to retain all proceeds as exempt under section 34-2-28-1(b) of the Indiana Code. In re Jones, No. 82-10717 (Bankr.N.D.Ind. April 9, 1984).

The trustee filed a timely motion to alter judgment and, after that was denied by written order, In re Jones, No. 82-10717 (Bankr.N.D.Ind. Aug. 3, 1984), perfected a timely appeal to the district court. Oral argument was held on the appeal on November 1, 1984, at the conclusion of which the district judge affirmed the bankruptcy court in an oral opinion and order. The trustee filed a notice of appeal to this court on November 14, 1984; his appeal was docketed two days later. On December 11, 1984, the district court issued a written opinion explicating its order of November 1st. 2 Our jurisdiction is founded on 28 U.S.C. Sec. 158(d) (1984). 3

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II.

Section 541 of the Bankruptcy Code provides for the creation of a bankruptcy estate, and defines the property of the estate. 11 U.S.C. Sec. 541. In relevant part, section 541 provides:

Sec. 541. Property of the estate.

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located:

(1) .... all legal or equitable interests of the debtor in property as of the commencement of the case.

* * *

* * *

(d) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.

Upon the filing of a petition all of the debtor's property becomes property of the estate. The scope of the property defined by section 541 to be property of the estate is broad; in general, all interests of a debtor, both legal and equitable, are property of the estate. United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05 & nn. 8, 9, 103 S.Ct. 2309, 2313 & nn. 8, 9, 76 L.Ed.2d 515 (1983). The underlying theory of the section "is to bring into the estate all interests of the debtor in property as of the date the case is commenced. Thus, as a general rule, the estate created under section 541 will include all legal or equitable interests of the debtor in property, both tangible and intangible, including exempt property,...." 4 L.P. KING, ed., COLLIER ON BANKRUPTCY p 541.06 at 541-28 (15th ed. 1985)("COLLIER"). See Matter of Smith, 640 F.2d 888, 890 (7th Cir.1981). Thus "any rights the debtor may have as a lienor or mortgagee will become property of the estate." 4 COLLIER p 541.07 at 541-32. This includes any right of action arising from a contract. 4 COLLIER p 541.10

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at 541-65. However, the estate's rights are limited to those had by the debtor: "whatever rights a debtor had at the commencement of the case continue in bankruptcy--no more, no less." Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir.1984). Subsection 541(d) provides that property to which the debtor holds legal title but not full equitable title becomes property of the estate but only to the extent of the debtor's legal title and not including any equitable interest in the property not held by the debtor.

Whether the debtor has an interest in property and, if he does, the nature of that interest, is not defined in the Code, and requires resort to non-bankruptcy law. 4 COLLIER p 541.02 at 541-10--541-11. Generally this means resort to state law, both to determine whether property is an asset of the debtor, and so included in the estate, In re K & L Ltd., 741 F.2d 1023, 1030 n. 7 (7th Cir.1984), and to determine the nature of the property rights in the assets of the estate, Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979). There is no dispute that whatever the Joneses owned at the time they filed their petition was an interest in property and became part of the property of the estate. Dist.Ct. Order at 5; Joneses' Br. at 8. They retained legal title to the real estate and an equitable interest equal to the unpaid purchase price less mortgage liens and expenses. However this interest may be characterized under Indiana law, it was an interest in property and properly includable in the estate.

Section 522 of the Code provides that certain property of the estate may be exempted by the debtor. 11 U.S.C. Sec. 522(b). In general, the debtor may elect between exemptions as defined under subsection 522(d) of the Code or as defined under state law and federal law other than subsection 522(d). 11 U.S.C. Sec. 522(b)(1) and (2). However, subsection 522(b)(1) also provides an opt-out provision pursuant to which a state may veto the 522(d) exemptions and limit debtors subject to its law to state exemptions. 11 U.S.C. Sec. 522(b)(1). A substantial majority of the states, thirty-six at last count, 3 COLLIER p 522.02 at 522-12 n. 4a, have exercised this option, and Indiana is among them.

Indiana Code Sec. 34-2-28-0.5 precludes use of the federal subsection 522(d) exemptions. The debtor may exempt from the estate only that property specified by Indiana law. IND. CODE Sec. 34-2-28-0.5 (1982). Section 34-2-28-1 of the Indiana Code, which lists certain exemptions, provides in relevant part as follows:

34-2-28-1. List of exemptions; limitations.

The following property of a debtor domiciled in the state of Indiana shall not be liable for levy or sale on...

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