In re Brown

• Decision Date: 05 September 2007
• Docket Number: No. HM 05-90399.,HM 05-90399.
• Citation: 375 B.R. 362
• Parties: In re Loren J. BROWN, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Michigan

375 B.R. 362

In re Loren J. BROWN, Debtor.

No. HM 05-90399.

United States Bankruptcy Court, W.D. Michigan.

September 5, 2007.

COPYRIGHT MATERIAL OMITTED

Robert D. Heikkinen, Esq., Marquette, MI, attorney for the Debtor.

A. Brooks Darling, Esq., Traverse City, MI, attorney for the Chapter 7 Trustee.

OPINION RE: TRUSTEE'S DECEMBER 20, 2006 OBJECTION TO EXEMPTIONS

JEFFREY R. HUGHES, Bankruptcy Judge.

Loren J. Brown ("Debtor") filed a petition for relief under Chapter 13 of the Bankruptcy Code¹ on May 9, 2005. Debtor's schedules indicate that he owned a fee simple interest in his McMillan, Michigan home immediately preceding the commencement of his case. That interest, of course, became property of the estate pursuant to Section 541(a)(1).

Debtor has claimed as exempt a portion of the bankruptcy estate's interest in the McMillan residence. Debtor's first attempt to claim this exemption is set forth in the Schedule C he filed on the same date as his petition.² That schedule, when read in conjunction with Schedules A and D filed on the same date, indicates: 1) that, in Debtor's opinion, the bankruptcy estate's net equity in the McMillan residence was $50,400.00; 2) that Debtor was electing the state scheme of exemptions as permitted by Section 522(b)(2)(B) (pre-BAPCPA); 3) that Debtor claimed an exemption based upon MICH. COMP. LAWS § 600.6023a(1)(n); and 4) that the value of the exemption claimed was $30,000.00.

Debtor then amended his Schedule C on June 21, 2005. His amended Schedule C also claimed the McMillan residence as exempt under state law and continued to set the bankruptcy estate's net equity in the residence at $50,400.00. However, Debtor changed the exemption claimed to MICH. COMP. LAWS § 600.5451(1)(n). He also increased the amount of the claimed exemption to $45,000.00.

Neither the Chapter 13 trustee nor any other party in interest objected to the exemption originally claimed by Debtor or to the amended exemption. Debtor's Chapter 13 plan was then confirmed without objection at a hearing held on July 19, 2005.

Debtor performed under his confirmed plan until September 15, 2006, when Debtor himself elected to convert the case to a Chapter 7 proceeding. Conversion of the case prompted both the appointment of a Chapter 7 trustee to replace the Chapter 13 trustee and the scheduling of a new meeting of creditors under Section 341(a).³ This "second" meeting of creditors was originally set for November 17, 2006, but was then rescheduled for December 13, 2006.⁴

The Chapter 7 trustee filed her objection to Debtor's claimed exemption in the McMillan residence on December 20, 2006. Her objection challenges the constitutionality of MICH. COMP. LAWS § 600.5451(1)(n), that being the state statute Debtor currently relies upon to claim his exemption. She cites as support In re Wallace, 347 B.R. 626 (Bankr.W.D.Mich.2006).⁵

Debtor has not contested the substance of the Chapter 7 trustee's objection.⁶ However, Debtor does contend that the Chapter 7 trustee's objection is untimely. Debtor relies upon Rule 4003(b) of the Federal Rules of Bankruptcy Procedure.⁷

A party in interest may file an objection to the list of property claimed as exempt only within 30 days after the meeting of creditors held under § 341(a) is concluded ...

FED.R.BANKR.P. 4003(b).

Debtor argues that the meeting of creditors referenced in this rule is the meeting of creditors that was previously held during the Chapter 13 proceeding and that, therefore, the Chapter 7 Trustee is time-barred from now filing an objection. The Chapter 7 Trustee, on the other hand, contends that another opportunity arose to object to Debtor's claimed exemptions when the subsequent meeting of creditors was scheduled upon conversion of the case to Chapter 7 and that, therefore, her objection is timely.⁸

DISCUSSION

The courts have gone back and forth for years as to whether a trustee or other party in interest in a converted Chapter 7 case may have a second opportunity to object to exemptions already claimed by the debtor in either a previous Chapter 11 or Chapter 13 case.⁹ Although the division between the two camps is roughly equal, their respective positions have nonetheless been described as majority and minority views.

Under one line of cases, designated as a "minority rule," the thirty-day period to object to a debtor's claimed exemptions recommences when a Chapter 13 case is converted to Chapter 7. Courts adopting this minority rule state it is supported by relevant Bankruptcy Code and Bankruptcy Rule provisions. In particular, under § 348(a), the conversion of a Chapter 13 to Chapter 7 "constitutes an order for relief under the chapter to which the case is converted, but ... does not effect a change in the date of the ... order for relief." Because the conversion of a Chapter 13 case to Chapter 7 constitutes an order for relief, a new meeting of creditors must be called in the converted Chapter 7 case pursuant to § 341(a) and Federal Rule of Bankruptcy Procedure 2003(a). The objection period set forth in Bankruptcy Rule 4003(b) runs within thirty days after the "meeting of creditors held under § 341(a) is concluded...." Given that there is nothing in Bankruptcy Rule 4003(b) limiting the "meeting of creditors" to the initial meeting of creditors in the Chapter 13 case, courts adopting the minority view hold that parties in interest have thirty days from the conclusion of the meeting of creditors called in the converted Chapter 7 case to object to a debtor's claimed exemption. Under this view, exemptions claimed by a debtor in his or her Chapter 13 case may be objected to within thirty days of the conclusion of the meeting of creditors in the Chapter 13 case, or within thirty days of the conclusion of the meeting of creditors in the converted Chapter 7 case. Courts adhering to the minority view also support it with policy and fairness considerations.

The other line of cases, designated as the "majority view," holds that the thirty-day objection period in Bankruptcy Rule 4003(b) does not commence anew upon the conversion of a Chapter 13 case to Chapter 7. The majority view is based in part on Bankruptcy Rule 1019(2), which states, in relevant part, that: "A new time period for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of dischargeability of any debt shall commence pursuant to Rules 3002, 4004, or 4007...." Because the thirty-day objection period in Bankruptcy Rule 4003(b) is not mentioned in Bankruptcy Rule 1019(2), courts adopting the majority view hold that it may not be reset upon the conversion of a case. The refusal of some courts to recommence the thirty-day period in Bankruptcy Rule 4003(b) is also based in part on the fact that § 348(a) states that conversion of a case does not change the date of the order for relief and, therefore, all deadlines, such as the exemption objection deadline, should not be affected by conversion. Additionally, some courts reason that to allow a new objection period upon conversion is not compatible with § 522(l) because, under that section, the property in the preconverted case is exempt and it cannot be brought back into the estate. Finally, courts adhering to the majority view point to the importance of finality in exemption matters articulated in Taylor [v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992)].

In re Campbell, 313 B.R. 313, 318-19 (10th Cir. BAP 2004) (footnotes omitted).

In re Page, 240 B.R. 548, 551 (Bankr. W.D.Mich.1999), adopts the majority view.

Although the cases are not unanimous, the better reasoned decisions hold that the 30-day period for objecting to exemptions commences at the conclusion of the "first" first meeting of creditors, and not at the conclusion of any subsequent meetings that may be held as a consequence of a conversion of the case from one chapter to another. Therefore, the convening of a subsequent meeting of creditors following the conversion of the Debtor's case from chapter 13 to chapter 11 did not trigger a new 30-day period for objecting to exemptions.

See also, In re Brown, 178 B.R. 722 (Bankr.E.D.Tenn.1995); In re Halbert, 146 B.R. 185 (Bankr.W.D.Tex.1992).

However, I agree with the minority's interpretation.¹⁰ Granted, Rule 4003(b)'s drafters could have been more specific in expressing their intention to permit further objections to exemptions already claimed whenever a case is converted. There is also no question that adopting the minority view presents issues regarding the administration of property that the debtor may have claimed as exempt months or even years before. Nonetheless, the unambiguous language of Rule 4003(b) itself allows for only one construction: that the conversion of a case and the attendant scheduling of another meeting of creditors gives the trustee and other parties in interest a new opportunity to object to the exemptions claimed.

[T]he only reasonable construction of § [sic] 4003(b) is to allow the language to convey its plain meaning and to permit the Chapter 7 Trustee an opportunity to object to the claimed exemptions, provided that the Trustee files the objection within thirty (30) days after the § 341 meeting following conversion.

Weissman v. Carr (In re Weissman) 173 B.R. 235, 237 (M.D.Fla.1994) (footnote omitted). See also, In re Mims, 249 B.R. 378 (Bankr.D.N.J.2000).

The majority, though, contends that Rule 4003(b) is still subject to interpretation because of conflicting language in Rule 1019(2).

When a chapter 11, chapter 12 or chapter 13 has been converted or reconverted to a chapter 7 case:

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(2) New Filing Periods. A new time period for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of dischargeability of any debt shall commence pursuant to Rules 3002, 4004, or 4007, provided that a new time period shall not commence if a chapter 7 case had been converted to a chapter 11, 12, or 13 case and...