In re Bartley, Bankruptcy No. 882-82775-18

• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York
• Writing for the Court: C. ALBERT PARENTE
• Citation: 33 BR 768
• Parties: In re Mary E. BARTLEY, Debtor. Ronald LIPSHIE, Plaintiff, v. Mary E. BARTLEY, Defendant.
• Docket Number: Bankruptcy No. 882-82775-18,Adv. No. 883-0524-18.
• Decision Date: 19 October 1983

33 B.R. 768 (1983)

In re Mary E. BARTLEY, Debtor.
Ronald LIPSHIE, Plaintiff,
v.
Mary E. BARTLEY, Defendant.

Bankruptcy No. 882-82775-18, Adv. No. 883-0524-18.

United States Bankruptcy Court, E.D. New York.

October 19, 1983.

33 BR 769

Ronald Lipshie, Baldwin, N.Y., for trustee.

Mirkin & Gordon, P.C., Great Neck, N.Y., for debtor.

DECISION

C. ALBERT PARENTE, Bankruptcy Judge.

This is an adversary proceeding commenced by trustee, Ronald Lipshie, against debtor, seeking an order requiring debtor to turn over certain shares of publicly-traded stock on the grounds that such stock is not exempt property.

BACKGROUND

On November 8, 1982, the debtor filed a petition under Chapter 7 of the Bankruptcy Code. At the December 16, 1982 first meeting of creditors, Ronald Lipshie was appointed as trustee of this bankruptcy estate. Prior to and at the December 16, 1982 first meeting of creditors, the trustee objected to the debtor's claimed exemption of shares of American Telephone and Telegraph Company stock valued at $550. Counsel for the debtor asserted that the corporate shares of stock were properly claimed as exempt property. On February 22, 1983, this court granted the debtor's discharge.

On June 21, 1983, the trustee commenced an adversary proceeding against the debtor, seeking a turnover of debtor's stock and revocation of her discharge. On July 19, 1983, the debtor served her answer with two affirmative defenses.

On August 4, 1983, the trustee and debtor's counsel appeared before this court for trial of the adversary proceeding. The trustee retracted his requested relief regarding revocation of the debtor's discharge, and both counsel stipulated to the aforementioned facts. Decision was reserved.

Three issues have been posited for resolution:

(I) Is the objection taken by the trustee to debtor's claimed exemption time-barred?

33 BR 770

(II) Does Section 283(2) of the New York Debtor and Creditor Law permit a debtor in bankruptcy to exempt corporate stock under its contingent alternative bankruptcy exemption?

(III) Is Section 283(2) inconsistent with the bankruptcy exemption statute, 11 U.S.C. § 522, thus offending the Constitution as a violation of the supremacy clause?

I. TIMELINESS OF TRUSTEE'S OBJECTION TO DEBTOR'S CLAIMS OF EXEMPTIONS.

Debtor asserts that the trustee did not file a written objection to debtor's claim of exempt property within fifteen (15) days after the first meeting of creditors which was closed on December 16, 1982. Debtor is, thus, apparently relying upon Rule 403 of the Bankruptcy Rules which went into effect on October 1, 1973.

Code Rule 403 required the trustee in Act cases to submit a report to the court, enumerating and evaluating a bankrupt's claimed exemptions, and required that such report be submitted no later than 15 days after the trustee qualifies.

Bankruptcy rules in effect at the time the Bankruptcy Reform Act of 1978 ("Code") was enacted apply to the extent not inconsistent with the Code unless supplanted by new rules. In re Vigil, 23 B.R. 172, 9 B.C.D. 812 (Bkrtcy.D.Colo.1982).

Code section 522(l), however, does not establish a time frame constraining the filing of objections to exempt property. This section merely requires the debtor to file a schedule of exempt property. In the absence of objection thereto the property is deemed exempt. The trustee has no obligation to file a trustee's report under the Code. Thus, Rule 403 and the time periods set forth therein are inconsistent with § 522(l) and reliance thereon is misplaced. See In re Vigil, Id.; In re Bessel, 18 B.R. 320, 8 B.C.D. 1155 (Bkrtcy.W.D.Wis.1982).

It should be noted parenthetically that effective August 1, 1983, subsequent to the dates of the transactions at issue herein, the filing of trustee's objections to claims of exemptions are governed by new Rule 4003(b) which sets a limit of thirty (30) days from the conclusion of the first meeting of creditors for the filing of trustee's and creditor's objections.

Notwithstanding the inapplicability of Rule 403, trustee's substantial delay in commencing the adversary proceeding should be evaluated to determine whether such delay prejudiced the debtor. In re Vigil, Id.; see In re Cipa, 11 B.R. 968, 7 B.C.D. 1026 (Bkrtcy.W.D.Penn.1981); In re Sisemore, 602 F.2d 742, 5 B.C.D. 847 (5th Cir.1979). However, debtor acknowledges that he was aware of the objection to his claim of exemptions at the first meeting. Thus, there is no basis to conclude that debtor was prejudiced by the later commencement of the adversary proceeding. Debtor cannot claim surprise nor can he assert that he changed positions in reliance upon the trustee's inaction.

II. PERMISSIBILITY OF EXEMPTING CORPORATE STOCK UNDER SECTION 283 2. OF THE DEBTOR AND CREDITOR LAW.

Pursuant to 11 U.S.C. § 522(b), New York State has created an exemption scheme for the benefit of its domiciliaries who are debtors in bankruptcies and has, in addition, precluded such persons from electing the federal exemptions set forth in § 522(d). These exemptions are contained in the New York "opt-out" statute, Debtor and Creditor Law, article 10-A, sections 282-284.

Section 283 2. provides that a debtor in bankruptcy who does not avail himself of the homestead exemption of N.Y.C.P.L.R. § 5206, may exempt in addition to certain property listed in N.Y.C.P.L.R. § 5205 and in addition to certain "benefits, rights, privileges and options of annuity contracts," a sum of cash representing the lesser of the differential in value between $5,000 and the value of the § 5205 property and annuity contracts exempted or twenty-five hundred...