In re Bradley

• Decision Date: 21 August 2002
• Docket Number: No. 5:01-bk-81522.,5:01-bk-81522.
• Citation: In re Bradley, 282 B.R. 430 (Bankr. W.D. Ark. 2002)
• Parties: In re Michael Todd BRADLEY and Vicki D. Bradley, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

Page 430

282 B.R. 430

In re Michael Todd BRADLEY and Vicki D. Bradley, Debtors.

No. 5:01-bk-81522.

United States Bankruptcy Court, W.D. Arkansas, Fayetteville Division.

August 21, 2002.

Charles W. Baker, Rose Law Firm, Little Rock, AR, for Debtors.

Thomas S. Streetman, Streetman & Meeks, Crossett, AR, for Renee S. Williams, Chapter 7Trustee.

ORDER

ROBERT F. FUSSELL, Bankruptcy Judge.

Pending before the Court are the objection to exemptions and objection to amended exemptions filed by Renee S. Williams("Trustee"), the duly appointed Chapter 7trustee, on December 11, 2001, and January 15, 2002, respectively.The Court conducted a hearing on the Trustee's objections on May 21, 2002.For the reasons set forth herein, the Court sustains in part and overrules in part the Trustee's objections to exemptions and objections to amended exemptions, as discussed in further detail in this opinion.

I.JURISDICTION

The Court has jurisdiction to enter a final judgment in this matter pursuant to 28 U.S.C. § 1334and28 U.S.C. § 157, and this is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (B).The following opinion constitutes findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

II.PROCEDURAL HISTORY

Debtors Michael Todd Bradley and Vicki D. Bradley filed a skeletal voluntary petition for relief under Chapter 7 of the Bankruptcy Code on October 4, 2001.Debtors' schedules, statements, and all remaining documents were filed on October 19, 2001.Claimed as a homestead on Debtors' Schedule C, Property Claimed as Exempt, was real property located in the Har-Ber Meadowssubdivision in Springdale, Arkansas (the "Har-Ber Meadows property").The Har-Ber Meadows property was described in Debtors' Schedule C as 6272 Wells Circle, Springdale, Arkansas, and the current market value was listed as $480,000.00.Debtors' original Schedule C did not set forth the acreage of the Har-Ber Meadows property.

The Trustee filed objections to Debtors' claims of exemptions on December 11, 2001.In her objections, the Trustee argued that the purchase of the Har-Ber Meadows property was facilitated by numerous transfers made with the intent to hinder, delay, or defraud creditors; that the Har-Ber Meadows property is 1.9 acres in area and thus in excess of the Arkansas homestead exemption; and that Debtors should not be allowed to "carve out" a one quarter acre homestead from the Har-Ber Meadows property because the property is subject to restrictive covenants.Debtors responded on December 31, 2001.They admitted that the transfers were made, but denied that they were made with the intent to hinder, delay, or defraud creditors.They also admitted that the Har-Ber Meadows property exceeds the Arkansas homestead exemption, but stated that they were in the process of obtaining a survey to "carve out" one quarter acre.

On January 11, 2002, Debtors filed amended schedules.The amended schedules included an "Attachment A," which divided the Har-Ber Meadows property into two tracts.Tract "A" consisted of a one quarter acre carve out and was listed on Debtors' amended Schedule C as ".25 acres ... located at 6272 Wells Circle, Springdale, AR 72762."The current market value of the carve out was listed as $477,500.00.Tract "B" consisted of the Har-Ber Meadows property minus the one quarter acre carve out.The value of Tract "B" was listed as $2500.00.

The Trustee filed objections to Debtors' amended claim of exemptions on January 15, 2002.The Trustee's objections to amended exemptions re-stated the arguments set forth in her December 11, 2001, pleading, and also argued that Debtors acted arbitrarily, capriciously, and unreasonably in attempting to carve out the one quarter acre tract.Debtors responded on January 17, 2002, restating their previous response, and denying they acted arbitrarily, capriciously, and unreasonably in attempting to carve out the one quarter acre tract.

An evidentiary hearing on the pending objections to exemptions and objections to amended claim of exemptions was conducted on May 21, 2002, at the conclusion of which the Court took the matter under advisement.

III.FINDINGS OF FACT

In July 1997, Debtor Michael Todd Bradley purchased the flatbed truck division of his former employer, J.B. Hunt, and formed Charger, Incorporated, an entity that eventually was liquidated in a chapter 7 bankruptcy case.In order to finance the $45 million purchase, Bradley borrowed $40 million from Associates, a lending institution in Dallas, Texas.Bradley personally guaranteed the $40 million loan.In addition, Bradley personally borrowed $5 million from FIS, Incorporated(J.B. Hunt).

In July 1998, Charger was experiencing financial difficulties, which caused Bradley to obtain a $1.5 million credit line increase on his $5 million loan.By December 1999, due to the continuing poor financial condition of Charger, Bradley was engaged in efforts with Associates, Mercedes Benz, and FIS Inc., to reorganize the debt structure of Charger.On about December 15, 1999, Bradley's efforts to reorganize Charger's debt structure failed.Charger filed a voluntary petition under chapter 7 of the bankruptcy code on December 28, 1999.

Bradley, who had been the sole shareholder and president of Charger since its inception, was unemployed from the time Charger filed bankruptcy until he began working for Cantrell Waind, a real estate business in Fayetteville, Arkansas, in September 2000.During the time Charger was experiencing financial difficulties, Bradley made a number of transfers that have become the subject of controversy in this matter.In 1998, Bradley sold a herd of calves for $14,354.00.He testified that this transfer was not unusual, in that he sold his calf herd every year.In 1999, Bradley sold his entire remaining herd of cattle for $20,384.00.Bradley testified that he sold the cattle because he had net operating losses that year, and any income generated from the sale would be applied toward those losses and not taxed.In January 2000, Bradley liquidated a 401(k) plan from which he netted $84,459.54.Bradley also liquidated a horse trailer in March 2000 for $3500.00 and a rent house in Fayetteville, Arkansas for $106,000, from which he netted $51,510.00.Also in March 2000, Bradley sold three horses at a total price of $3750.00.In April 2000, Bradley sold a four wheeler for $700.00.Finally, Bradley testified that at some point he liquidated a Merrill Lynch security account worth approximately $5000.00.According to Bradley's testimony, which the Court credits, none of the sales set forth above were to a relative or business associate of Bradley or his wife.None of the transactions or funds have been hidden, and all the sales were public.Bradley testified that he deposited the funds in his checking account and used the funds to live on, to pay off a mortgage on a residence in West Fork, Arkansas, and to partially fund the purchase of the Har-Ber Meadows property.

The Trustee testified that she reviewed Debtors' records and had no reason to believe any of the transfers were to insiders.She did not object to any of the sales of property that occurred pre-petition, and stated that all of the sales appear to have been for fair consideration.The Trustee also testified that Debtors had records of all their transactions and gave her all the information she requested.

Prior to purchasing the Har-Ber Meadows property, Debtors resided on 250 acres in West Fork, Arkansas, in a four bedroom, three and a half bath, two-story home that Debtors contracted to have built in 1994.Debtors lived on the West Fork property from 1994 until its sale on August 7, 2000.Included in the sale of the West Fork property were furniture and certain other items of personal property.The gross sale price of the West Fork property and personal property was $542,549.85, and the net to Bradley and his wife was $433,630.96.

On August 10, 2000, Bradley purchased the Har-Ber Meadows property.Bradley used the sale proceeds from the West Fork property to partially cover the $480,000.00 purchase price of the Har-Ber Meadows property.The difference in the purchase price was drawn from Bradley's checking account, which was funded by the various liquidations set forth above.

The Har-Ber Meadows property is located in the Har-Ber Meadowssubdivision in Springdale, Arkansas.Har-Ber Meadows is a planned unit development, or PUD.A PUD is a zoned classification whereby the city and the developer enter into an agreement that requires the developer to submit a preliminary plat for the entire piece of property that details how the property will be developed.As each phase of the development is completed, a final plat is filed and lots are sold.

Ken Childress, president of the Har-Ber Meadows development, testified that the Har-Ber Meadowssubdivision consists of seven such phases, and contains condominiums, single family homes, two story homes, patio homes, rear alley homes, side garage homes, and "estate homes."Estate homes are built on "estate lots" in an area separate from the remainder of the subdivision referred to as "Phase VII."The Har-Ber Meadows property is an estate home, and is located in Phase VII of the subdivision.

The term "estate lot" is defined in the "Declaration of Covenants, Conditions and Restrictions for Har-Ber Meadows Planned Unit Development,"(the "Covenants") which was filed in Washington County, Arkansas on June 9, 1997, and introduced into evidence at the evidentiary hearing as Plaintiff's Exhibit "8.""Estate lot" is defined as follows:

"Estate Lot" shall mean and refer to Lots shown on any recorded Plat of the Development as being an Estate Lot on which there is intended to be constructed a single family residence.

The estate homes within Phase VII are governed by certain covenants, restrictions, and building guidelines.Specifically, the Covenants provide that:

Section 8.No Lot...