In re Brown, Case No. 06-30199 (Bankr. N.D.N.Y. 7/23/2007)
| Decision Date | 23 July 2007 |
| Docket Number | Case No. 06-30199.,Case No. 06-30872. |
| Parties | IN RE: SHERRY LYNN BROWN Chapter 7, Debtor IN RE: MICHAEL GLOSS Chapter 13, Debtor |
| Court | U.S. Bankruptcy Court — Northern District of New York |
THE CROSSMORE LAW OFFICE Attorneys for CFCU Community Credit Union Ithaca, New York, EDWARD Y. CROSSMORE, ESQ. Of Counsel
LAW OFFICE OF PETER D. GRUBEA Attorneys for Debtor Michael Gloss Buffalo, NY, STEVEN DOLSON, ESQ.
JEFFERY H. COLEMAN, ESQ. Attorney for Debtor Sherry Brown Ithaca, NY.
ANDREW D. BING, ESQ. Deputy Solicitor General Office of the Attorney General The Capitol Albany, New York.
LYNN HARPER-WILSON, ESQ. Staff Attorney for Chapter 13 Trustee Syracuse, New York.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
Under consideration by the Court are objections to exemptions claimed by the debtors, filed by Edward Y. Crossmore, Esq. ("Crossmore") on behalf of CFCU Community Credit Union (the "Credit Union"), in the chapter 7 case of Sherry Lynn Brown ("Brown") and the chapter 13 case of Michael Gloss ("Gloss") (collectively, the "Debtors"). The objection in the Brown case was filed on December 14, 2006 and scheduled to be heard in Syracuse, New York on January 9, 2007. The Credit Union's objection in the Gloss case was filed on December 6, 2006 and scheduled to be heard in Binghamton, New York on February 13, 2007. The Debtors filed responses to the objections of the Credit Union on December 18, 2006 and January 16, 2007, respectively. In the interim, on December 27, 2006, Gloss filed a motion to avoid a judgment lien held by the Credit Union. The Credit Union filed opposition to that motion on January 10, 2007.
A hearing on the Credit Union's objection in the Brown chapter 7 case was held in Syracuse, New York on January 9, 2007 and adjourned to February 6, 2007. The hearing on the Credit Union's objection to Gloss's claim of exemptions in his chapter 13 case, as well as the hearing on Gloss's motion seeking to avoid the Credit Union's lien, was held in Binghamton, New York on February 13, 2007. The Court adjourned both to its Binghamton chapter 13 calendar on March 13, 2007, despite the fact that Brown's case was a chapter 7 filing. At that hearing, the Court heard oral argument by Crossmore, as well as by the attorneys representing the individual Debtors. The Court indicated that it would allow the parties an opportunity to provide additional memoranda of law. The motions were originally submitted for decision on April 16, 2007.1 This date was ultimately extended to July 5, 2007, by virtue of a letter from the Court, dated June 25, 2007.2
The Court has core jurisdiction over the parties and subject matter of these contested matters pursuant to 28 U.S.C. §§ 1334, 157(a), (b)(1), (b)(2)(A), (B) and (O).
Brown filed a voluntary petition ("Brown Petition") pursuant to chapter 7 of the U.S. Bankruptcy Code, 11 U.S.C. §§ 101-1330 ("Code") on October 20, 2006. Brown listed the Credit Union as holding an unsecured claim in the amount of $8,503, which she indicates arose in October 2002 and which she describes as "credit." See Schedule F, attached to Brown Petition. According to Crossmore's affidavit, sworn to on December 16, 2006 in support of the Credit Union's objection ("Crossmore Affidavit") (Brown Docket No. 9), the Credit Union obtained a judgment on May 22, 2006, which was allegedly filed in the Tompkins County Clerk's Office on June 14, 2006, in the amount of $9,699.26. Brown indicated in her Statement of Financial Affairs that the Credit Union had garnished her wages, effective June 15, 2006. Brown claims a number of exemptions, including $40 in cash, $712 in checking and savings accounts and a tax refund of $1,500 pursuant to D&CL § 283. See Schedule C, attached to Brown Petition. The Credit Union objects to Brown's claim of exemption, totaling $2,252, comprised of the cash, checking and savings accounts and tax refund. It is the Credit Union's position that the exemption is a bankruptcy-specific exemption which is otherwise unavailable to judgment debtors in civil enforcement proceedings in New York State. The Credit Union makes the argument that "New York's allowance of said exemption exclusively to debtors in a bankruptcy case violates the geographical uniformity requirement of Article 1, Section 8, Clause 4 of the U.S. Constitution." Crossmore Affidavit at ¶12. The Credit Union also takes the position that New York's enactment of bankruptcy-specific exemptions violates the Supremacy Clause. The Credit Union contends that when the Constitution was enacted, the states ceded to the federal government the power to enact bankruptcy legislation and that such power was reserved to Congress exclusively.
According to the Debtor, state legislation does not violate the Supremacy Clause as long as it does not contradict the provisions of the Bankruptcy Code, citing to Perez v. Campbell, 402 U.S. 637 (1971). As for the Uniformity Clause, a/k/a Bankruptcy Clause, the Debtor points out that its limitations impact Congress, not state legislatures. Furthermore, pursuant to Code § 522(b), Congress specifically authorized the states to update their exemption laws, which it found to be "`outmoded and . . . hopelessly inadequate.'" In re Vasko, 6 B.R. 317, 321 (Bankr. N.D. Ohio 1980), quoting H.Rep. No. 95-595, 95th Cong.; 1st Sess. 126-127 (1977), U.S.Code Cong. & Ad.News 1978, p. 6087.
Gloss filed a voluntary petition ("Gloss Petition") pursuant to chapter 13 of the Code on October 18, 2006. According to Gloss's schedules, Option One Mortgage holds a first mortgage on the real property located at 72 South Street, Dryden, New York (the "Residence"). See Schedule D, filed by Gloss on October 30, 2006. There is also a second mortgage held by Robert and Shirley Geddes in the amount of $15,000. Id. Gloss lists the Credit Union as holding a claim in the amount of $14,665.01 based on a judgment entered April 3, 2002. See Schedule F, filed on October 30, 2006. Gloss originally estimated the value of the Residence to be $79,800 based on tax assessment information. See Schedule A, filed on October 30, 2006. However, on March 5, 2007, Gloss's counsel acknowledged that there were actually two separate tax parcels used by Gloss as a single homestead and that based on the assessed value of both parcels at a 90% equalization rate, the market value of the Residence was actually $88,666.67.
On October 26, 2006, a proof of claim was filed in the Gloss case on behalf of Option One Mortgage in the amount of $57,617.28. The Credit Union filed a proof of claim on November 22, 2006, in the amount of $16,261.80. The bar date for filing proofs of claim was March 13, 2007. According to the claims register in the case, Robert and Shirley Geddes did not file a timely proof of claim.
Gloss claims a number of exemptions, including $2,400 pursuant to D&CL § 282(1) with respect to a 1998 Chevrolet Monte Carlo, which he valued at $2,950. He also claims a $50,000 homestead exemption in the Residence pursuant to § 5206(a) of the New York Civil Practice Law and Rules ("CPLR").
The Credit Union objects to Gloss's claim of a $50,000 homestead exemption based on the fact that it obtained its judgment against Gloss on April 3, 2002, well prior to the 2005 amendment to CPLR § 5206, which increased the homestead exemption for New York State residents from $ 10,000 to $50,000, effective August 30, 2005. It is the Credit Union's position that the amendment was not intended to apply to judgment liens in existence prior to August 30, 2005. See Crossmore Affidavit (Gloss Docket No. 18), sworn to December 5, 2006, at ¶ 6. In addition, the Credit Union contends that applying the exemption to its judgment lien also impairs the contract between it and Gloss in violation of Article 1, Section 10 of the U.S. Constitution. Furthermore, the Credit Union argues that it violates the Taking Clause of the Fifth Amendment.
The Credit Union further objects to Gloss's claim of an exemption in a motor vehicle pursuant to D&CL § 282 on the same constitutional grounds as its objection in the Brown case. The Credit Union argues that the statute is unconstitutional based on the Supremacy Clause and the Bankruptcy Clause of the U.S. Constitution, relying extensively on the cases of In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006) and In re Cross, 255 B.R. 25 (Bankr. N.D. Ind. 2000). The Credit Union takes the position that Congress could not and did not re-delegate to the states the power to create bankruptcy-specific exemptions in enacting Code § 522(b)(2)(A).3
Gloss contends that New York State, in enacting D&CL § 282, has not made an effort to create its own bankruptcy process. He argues that state-created exemptions can only be used by a debtor in a federal bankruptcy case and not in state proceedings involving a judgment debtor.
New York State's Attorney General (the "State") takes the position that D&CL § 282-283 are constitutional. The State argues that Code § 522(b)(2), now § 522(b)(3), grants the states significant latitude with which to adopt their own exemption schemes. According to the State, there is nothing in Code § 522(b) that precludes the states from creating exemption schemes that are specifically applicable to bankruptcy proceedings. The Credit Union responds that there is nothing in Code § 522(b) that expressly authorizes the states to enact bankruptcy-specific exemptions. Furthermore, it is the Credit Union's position that Congress is without authority to delegate what the Credit Union argues is the exclusive power to legislate bankruptcy laws. It is the Credit Union's position that while in opt-out, New York State prohibited its residents from selecting the exemptions set forth in Code § 522(d), the State's residents were then limited to those exemptions available to other non-bankruptcy judgment debtors as set forth...
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