In re Abernathy

Decision Date08 March 2001
Docket NumberNo. 00-6098EM.,00-6098EM.
Citation259 BR 330
PartiesIn re Josephine L. ABERNATHY, Debtor. Josephine L. Abernathy, Debtor-Appellant, v. John V. LaBarge, Jr., Trustee-Appellee.
CourtU.S. Bankruptcy Appellate Panel, Eighth Circuit

COPYRIGHT MATERIAL OMITTED

Gary D. Bollinger, St. Louis, MO, for Appellant.

Mary Deborah Benoit, Kruger & Benoit, St. Louis, MO, for Appellee.

Before: KOGER, Chief Judge, WILLIAM A. HILL and SCOTT, Bankruptcy Judges.

KOGER, Chief Judge.

The debtor, Josephine L. Abernathy, appeals from the Bankruptcy Court's ruling that she was only entitled to claim one-third of the homestead exemption provided under Missouri law because she was one of three joint tenant owners of the real estate in which she claimed the homestead. For the reasons that follow, we reverse.

Factual Background

Ms. Abernathy, a single person, filed a voluntary petition under Chapter 7 of the Bankruptcy Code on May 2, 2000. She claimed an $8,000 homestead exemption under Mo.Rev.Stat. § 513.475.1 in real property that she co-owns as joint tenants with her two sisters. The Chapter 7 Trustee filed an objection to the homestead exemption, conceding that Ms. Abernathy had a right to claim a homestead exemption in the property, but asserting that since she was one of three joint tenants in the property, she was entitled to claim only one-third of the $8,000 exemption allowed under Missouri statute. The Bankruptcy Court sustained the Trustee's objection and entered an Order reducing Ms. Abernathy's homestead exemption to $2,667.67. Ms. Abernathy appeals.

Standard of Review

Because this appeal involves no factual dispute, and the sole question is whether the Bankruptcy Court erred as a matter of law by limiting Ms. Abernathy's homestead exemption to her proportional interest in the real estate, our review is de novo. See Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346, 1349 (8th Cir. 1990).

Discussion

The parties do not dispute that Ms. Abernathy's one-third interest in the real estate became property of her estate when she filed her bankruptcy petition. See 11 U.S.C. § 541(a)(1);1Winters v. George Mason Bank, 94 F.3d 130, 134 (4th Cir. 1996) ("Most courts find that the debtor's interest in property jointly held by a nondebtor becomes property of the estate upon the filing of the bankruptcy petition, but that the nondebtor's interest is not property of the estate."); In re Reed, 940 F.2d 1317, 1323 (9th Cir.1991) (holding that the bankruptcy estate had an interest in one-half of the net proceeds of the sale of joint tenancy property, less debtor's California homestead exemption); Garner v. Strauss (In re Garner), 952 F.2d 232, 234 (8th Cir.1991) ("Section 541(a)(1) `is certainly broad enough to include an individual debtor's interest in property held as a tenant by the entirety.'") (quoting Napotnik v. Equibank & Parkvale Sav. Ass'n, 679 F.2d 316, 318 (3rd Cir. 1982)); Rimmel v. Fey (In re Fey), 91 B.R. 524, 525 (Bankr.E.D.Mo.1988) (holding that the debtor's one-half interest in stock certificates held as joint tenants with her spouse was property of estate). According to Ms. Abernathy's Schedule A, the real estate has a value of $30,000-$35,000, so her present one-third interest in the property has a value of $10,000-$11,700. See Rubin v. Glass (In re Glass), 92 B.R. 880, 881-82 (Bankr.W.D.Mo.1988) (holding that state law determines what property becomes property of the estate as of the date of the filing of the bankruptcy; under Missouri law, the interests of joint tenants are presumed to be equal and, absent proof by a party claiming the interests of joint tenants are unequal, the presumption of equal ownership will prevail).

The sole issue presented here is the extent to which Ms. Abernathy may claim an exemption in her interest in that property. As permitted by 11 U.S.C. § 522(b)(2)(A), Missouri has chosen to opt out of the exemption scheme provided under the Bankruptcy Code. See Mo.Rev. Stat. § 513.427. Debtors domiciled in Missouri may exempt from property of the estate any property that is exempt from attachment and execution under Missouri state law or under any federal law except the Bankruptcy Code. Id. Missouri's homestead exemption provides, in pertinent part:

1. The homestead of every person, consisting of a dwelling house and appurtenances, and the land used in connection therewith, not exceeding the value of eight thousand dollars, which is or shall be used by such person as a homestead, shall, together with the rents, issues and products thereof, be exempt from attachment and execution. The exemption allowed under this section shall not be allowed for more than one owner of any homestead if one owner claims the entire amount allowed under this subsection; but, if more than one owner of any homestead claims an exemption under this section, the exemption allowed to each of such owners shall not exceed in the aggregate, the total exemption allowed under this subsection as to any one homestead.

Mo.Rev.Stat. § 513.475.1.

Under the plain language of this statute, if the property is owned by more than one owner, a single owner can claim the entire homestead amount. See Van Der Heide v. LaBarge (In re Van Der Heide), 164 F.3d 1183, 1186 (8th Cir.1999) (stating that in Missouri, a co-tenant is authorized to claim the full homestead exemption); Lashley v. Fuhrer (In re Lashley), 206 B.R. 950, 953 (Bankr.E.D.Mo. 1997) ("If the property is owned by more than one owner, a single owner can claim the entire amount."); Gorman v. Hale, 109 Mo.App. 176, 82 S.W. 1110, 1111 (1904) (holding that a homestead may be claimed in lands held in joint tenancy). The only limit to this is that if more than one owner claims an exemption in the same homestead, their total claimed exemptions cannot exceed $8,000 in the aggregate. See In re Smith, 254 B.R. 751, 753-54 (Bankr. W.D.Mo.2000) ("Debtors in Missouri are bound by the express language of the Missouri homestead statute, and that statute allows only one joint owner to claim the entire amount of the homestead exemption."); In re Riebow, 114 B.R. 656, 657 (Bankr.E.D.Mo.1990) (holding that § 513.475 "permits a homestead exemption in the amount of $8,000.00 per homestead, and provides that if more than one owner of the homestead claims the exemption, the total exemptions shall not exceed in the aggregate the total amount of $8,000.00."); see also In re Galvin, 158 B.R. 806, 807 (Bankr.W.D.Mo.1993) (Missouri homestead laws are to construed with great liberality); Hallauer v. Lackey, 353 Mo. 1244, 188 S.W.2d 30, 33 (1945) (same); Regan v. Ensley, 283 Mo. 297, 222 S.W. 773, 774 (1920) (same).

Since the record in this case reveals no suggestion that one of the other joint tenants has claimed or is claiming an exemption in this property, under the plain meaning of the statute, Ms. Abernathy is entitled under Missouri law to claim the entire homestead exemption. Nevertheless, the Trustee asserts, in effect, that the Eighth Circuit's decision in In re Van Der Heide creates an exception to the statutory language in the bankruptcy context. Because the Bankruptcy Court reduced Ms. Abernathy's homestead exemption to one-third of the $8,000 allowed under the statute, the Bankruptcy Court appears to have agreed with the Trustee.2

In In re Van Der Heide, Gerard Van Der Heide and his wife owned a residence as tenants by the entirety in Missouri. He filed a petition under Chapter 13 of the Bankruptcy Code; his wife did not join him in the filing. At the time of the filing, Van Der Heide and his wife owed general unsecured creditors approximately $23,180. Van Der Heide proposed to pay the creditors $2,858 in his Chapter 13 plan. The trustee objected to confirmation of the plan, asserting that it did not satisfy the best interests of creditors test pursuant to § 1325(a)(4). Specifically, the parties agreed that after deducting transactional costs, the residence would yield $24,495 in a hypothetical Chapter 7 liquidation, but they disagreed as to how those proceeds should be distributed. Van Der Heide contended that only one-half of the proceeds, or $12,247.50, would be subject to the bankruptcy estate because his wife had an indivisible interest in the residence under Missouri law. Of this amount, Van Der Heide claimed $9,900 in exemptions, leaving $2,347.50 for the creditors. Because his proposed plan payments exceeded the value of the entireties property available to the creditors, Van Der Heide asserted that he had satisfied § 1325(a)(4). The trustee disagreed, arguing that $14,595 ($24,495 less exemptions of $9,900) should be distributed to the joint creditors.

The Eighth Circuit ruled that pursuant to its previous decision in Garner v. Strauss (In re Garner), 952 F.2d 232 (8th Cir.1991), only one-half of the hypothetical sale proceeds, less exemptions, were subject to distribution to the joint creditors through the bankruptcy estate. Van Der Heide, 164 F.3d at 1184-85. The other half belonged to the non-filing spouse. According to the Eighth Circuit:

An interest of the debtor in property held as a tenant by the entirety at the commencement of the case is exempt under bankruptcy law to the extent that it is exempt from process under applicable nonbankruptcy law. See 11 U.S.C. § 522(b)(2)(B). The applicable nonbankruptcy law in this case is Missouri property and exemption law. In Missouri, entireties property is not subject to the claims of the creditors of only one of the tenants, but is subject to such claims by creditors of joint debtors. See Garner, 952 F.2d at 234-35. Missouri\'s homestead exemption law provides that the homestead of every person, not to exceed $8,000, is exempt from attachment and execution. See Mo.Rev.Stat. § 513.475(1) (1994). If the property is owned by more than one owner, a single owner can claim the entire amount. See id.
Because a residence is incapable of partition and because Van Der Heide\'s wife is jointly
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