Colwell v. Royal Intern. Trading Corp.

• Decision Date: 14 October 1998
• Docket Number: No. 97-8500-CIV-GOLD,Bankruptcy No. 9635148-BKC-SHF.,97-8500-CIV-GOLD
• Citation: 226 BR 714
• Parties: William Frederick COLWELL, and Ruby Colwell, Appellants, v. ROYAL INTERNATIONAL TRADING CORPORATION, Appellee.
• Court: U.S. District Court — Southern District of Florida

226 B.R. 714 (1998)

William Frederick COLWELL, and Ruby Colwell, Appellants, v. ROYAL INTERNATIONAL TRADING CORPORATION, Appellee.

No. 97-8500-CIV-GOLD, Bankruptcy No. 9635148-BKC-SHF.

United States District Court, S.D. Florida, Miami Division.

October 14, 1998.

COPYRIGHT MATERIAL OMITTED

John P. Tynan, Jupiter, FL, for Appellants.

Michael Bakst, West Palm Beach, FL, for Appellee.

CORRECTED ORDER REVERSING BANKRUPTCY COURT'S ORDER SUSTAINING OBJECTION TO EXEMPTIONS

GOLD, District Judge.

THIS CAUSE comes before the Court upon an appeal from the Order Sustaining Objections to Exemptions, entered April 25, 1997 by the United States Bankruptcy Court for the Southern District of Florida.¹ Appellants, William Frederick Colwell and Ruby Colwell ("Appellants") sought to exempt real property from creditors' claims filed in bankruptcy proceedings pursuant to Article X, § 4 of the Florida Constitution. Appellee, Royal International Trading Corporation ("Appellee"), objected to the exemptions on the ground that as a married couple, Appellants were entitled to a homestead exemption on only one of the two residential properties owned individually by Appellants. The Bankruptcy Court sustained the objection.

Jurisdiction of this Court is invoked pursuant to 28 U.S.C. § 158(a). This Court has carefully reviewed the record on this appeal, the parties' briefs, the Order entered by the Bankruptcy Court, and the relevant law. Although this appeal raises a difficult question, an evaluation of the factors for determining the entitlement to homestead exemptions on real property under Florida law reveals that the Bankruptcy Court's Order Sustaining Objection to Exemptions should be reversed.

I. Factual and Procedural Background

The facts in this case are uncontroverted. On December 12, 1996, Appellants jointly petitioned the U.S. Bankruptcy Court for the Southern District of Florida, seeking relief under Chapter 7 of the Bankruptcy Code (the "Code"). It is undisputed that at the time of filing their petition, Appellants were legally married, but had been maintaining separate residences for the preceding three and a half years.² William Colwell resided at 124 Sea Steppes Court in Jupiter, Florida. Ruby Colwell resided at 6267 Garrett Street in Palm Beach Gardens, Florida. The respective residences were deeded to Appellants in their individual capacities. The deeds were not held jointly, nor by the entireties.

Because Appellants maintained these separate residences, on which Florida taxing authorities afforded each Appellant a homestead exemption, Appellants sought to exempt their respective properties in the bankruptcy proceeding pursuant to Article X, § 4 of the Florida Constitution. Appellee objected to the dual exemptions. Appellee argued that since Appellants were still married, only one property could be exempted from bankruptcy creditors. Appellants had to choose which property to exempt. The Bankruptcy Court, finding no case law to support dual homestead exemptions for married individuals residing on two distinct, noncontiguous parcels of property, sustained the objections. See In re Colwell, 208 B.R. 85 (Bankr.S.D.Fla.1997).

Appellees have appealed the order of the Bankruptcy Court. They urge that Article X, § 4 of the Florida Constitution provides individual homestead exemptions for a husband and a wife who are separated and residing in individually owned homesteads. After a thorough analysis of Florida law and policy, this Court agrees.

II. Standard of Review

Conclusions of law issued by bankruptcy courts are reviewed de novo. See In re Sublett, 895 F.2d 1381, 1383 (11th Cir. 1990). De novo review requires the Court to make a judgment "independent of the bankruptcy court's, without deference to that court's analysis and conclusions." Moody v. Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir.1984). Where an issue raises a mixed question of law and fact, District Courts are instructed to review a bankruptcy court's determination de novo. See In re Marks, 131 B.R. 220, 222 (S.D.Fla.1991), aff'd, 976 F.2d 743 (11th Cir.1992).

District Courts must give considerable deference to a bankruptcy court's findings of fact, and will not overturn a bankruptcy court's factual findings unless it determines that those findings are clearly erroneous. See In re Chase & Sanborn Corp., 904 F.2d 588, 593 (11th Cir.1990); In re Pepenella, 103 B.R. 299, 300 (M.D.Fla. 1988).³ A finding of fact is clearly erroneous when the record lacks substantial evidence to support it such that an appellate court's review of the evidence results in a firm conviction that a mistake has been made. See Blohm v. Commissioner of Internal Revenue, 994 F.2d 1542, 1548 (11th Cir.1993).

III. Discussion and Analysis

This appeal raises the issue whether a married couple, living separately for an extended period of time in property deeded in their individual capacities, and on which Florida has conferred individual homestead exemptions, can seek to avoid a creditor's claims in bankruptcy proceedings. No Florida court has addressed this specific issue. Although it may appear to be a question of first impression, some precedent exists to support the conclusion that Appellants are entitled to both homestead exemptions.

As a threshold matter, courts must not lose sight of the overriding policy of the Code, which is to release the debtor from the burdens of his indebtedness and provide him with a new opportunity in life, free from the pressures of pre-existing debt. See Perez v. Campbell, 402 U.S. 637, 648, 91 S.Ct. 1704, 1710-11, 29 L.Ed.2d 233 (1971). Because the purpose behind the Code is to provide a debtor with a fresh start, there is a presumption that the debt is dischargeable. See In re Armento, 127 B.R. 486, 489 (Bankr. S.D.Fla.1991).

A case commenced under Title 7 of the Code creates an estate comprised of all the property in which the debtor has a legal or equitable interest as of the date of filing the bankruptcy petition. See 11 U.S.C. § 541(a). However, an individual may exclude property from the estate by claiming exemptions authorized by 11 U.S.C. § 522. See In re Allen, 203 B.R. 786, 791 (Bankr. M.D.Fla.1996). States are permitted to opt out of the federal exemptions enumerated in § 522(d), and may limit residents to those exemptions provided under state law. 11 U.S.C. § 522(b). Florida has opted out of the federal scheme, making a debtor's exemptions subject to state law. See § 222.20, Fla.Stat.; In re Hall, 752 F.2d 582, 584 (11th Cir.1985); In re Kelley, 21 B.R. 375, 376 (Bankr.M.D.Fla.1982). Thus, under Florida law, Florida residents who file for bankruptcy may avail themselves of those exemptions permitted by § 220.20 of the Florida Statutes and Article X, § 4 of the Florida Constitution. Only if an exemption is not covered within these two sources, may a debtor utilize the federal exemptions contained in 11 U.S.C. § 522. See In re Wilbur, 206 B.R. 1002, 1006 (Bankr.M.D.Fla.1997). A party objecting to an exemption provided under Florida law must prove, by a preponderance of the evidence, that the debtor is not entitled to the claimed exemption. Id.

A. Florida's Constitutional Homestead Exemption

Section 522(b)(2)(A) permits a debtor to except from his bankrupt estate property classified as exempt under either federal or state law on the date of filing the petition. Under the current Code, the estate is created from all property in which the debtor has an interest, and the debtor is then able to claim as exempt property designated as such under local law. See In re Snape, 172 B.R. 361, 363 (Bankr.M.D.Fla.1994) citing Hanover Bank v. Moyses, 186 U.S. 181, 189-90, 22 S.Ct. 857, 861, 46 L.Ed. 1113 (1902).

One of Florida's strongest exemptions is that which protects homestead property. See Sherbill v. Miller Mfg. Co., 89 So.2d 28, 31 (Fla.1956) ("no policy of this State is more strongly expressed in the constitution, laws and decisions of this State than the policy of our exemption laws"); see also In re Meola, 158 B.R. 881, 882 (Bankr. S.D.Fla.1993) ("A homestead exemption is one of the exemptions available under Florida law and has long been embodied in the organic law of this state."); Olesky v. Nicholas, 82 So.2d 510, 513 (Fla.1955) ("We find no difficulty in holding that the Florida constitutional exemption of homesteads protects the homestead against every type of claim and judgment except those specifically mentioned in the constitutional provision."). The homestead exemption serves a compelling public purpose of promoting the stability and welfare of the state by securing to the householder a home, so that the householder may live beyond the reach of financial misfortune. See Public Health Trust of Dade County v. Lopez, 531 So.2d 946, 948 (Fla.1988). In fact, the underlying public policy of the exemption is so compelling that the right has been held to override even criminal statutes. See, e.g., Butterworth v. Caggiano, 605 So.2d 56 (Fla. 1992).

The Florida Constitution provides that:

There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase improvement or repair thereto, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:

(1) a homestead, if located outside a municipality, to the extent of the one hundred and sixty acres of contiguous land and improvement thereon, . . . or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or his family.

Art. X, § 4, Fla. Const.

The protection granted to homesteads is a constitutionally guaranteed right, which must be liberally construed to effectuate its remedial purpose. See In re Lazin, 221 B.R. 982, 988-89 (Bankr.M.D.Fla.1998). In Florida,...