In re Burgess, Bankruptcy No. 78-31799.
Decision Date | 05 December 1979 |
Docket Number | Bankruptcy No. 78-31799. |
Citation | 1 BR 421 |
Parties | In re Elaine Picard BURGESS, Bankrupt. James M. JONES, Trustee, Plaintiff, v. Elaine Picard BURGESS, Defendant. |
Court | U.S. Bankruptcy Court — Middle District of Tennessee |
James M. Jones, Nashville, Tenn., pro se.
Michael W. Edwards, Hendersonville, Tenn., for defendant.
The trustee has filed a complaint to have the bankrupt turn over to him a valuable diamond ring which the bankrupt failed to include in her original property schedules. The bankrupt has responded by filing an amendment to her property schedules which includes claiming the ring as exempt in Schedule B-4, a motion to allow the amendment and an answer to the complaint alleging that she inadvertently omitted the ring from her original schedules and asserting that she still is entitled to claim the ring as exempt property.
The Bankruptcy Act provides for the exemptions of bankrupts in § 6, 11 U.S.C. § 24 (1966) as follows:
This Act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the laws of the United States or by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months immediately preceding the filing of the petition, or for a longer portion of such six months than in any other State: Provided, however, That no such allowance shall be made out of the property which a bankrupt transferred or concealed and which is recovered or the transfer of which is avoided under this Act for the benefit of the estate, except that, where the voided transfer was made by way of security only and the property recovered is in excess of the amount secured thereby, such allowance may be made out of such excess.
The court is satisfied that the bankrupt would have been entitled to retain the ring as exempt property under applicable Tennessee law1 had she made a timely claim to it in her original schedules filed with her petition as required by § 7a(8) of the Bankruptcy Act, 11 U.S.C. § 25(a)(8) (1976)2 and Rules 108(a) & (b)3 and 403(a)4 of the Federal Rules of Bankruptcy Procedure (hereinafter the Bankruptcy Rules). The issues before the court are whether the bankrupt may amend her schedules to claim the ring as exempt at this stage in the administration of her case5 and, if so, whether she is entitled to have the ring set apart to her as exempt property.
With regard to the bankrupt's right to amend Schedule B-4 to claim the ring as exempt, Rule 110 of the Bankruptcy Rules provides:
A voluntary petition, schedule, or statement of affairs may be amended as a matter of course at any time before the case is closed. The court may, on application or motion of any party in interest or on its own initiative, order any voluntary petition, schedule, or statement of affairs to be amended. Every amendment under this rule shall be filed in the same number as required of the original paper, and the court shall give notice of the amendment to such persons as it may designate.
Prior to the adoption of the Bankruptcy Rules, which became effective as to liquidation cases such as this on October 1, 1973, amendments to schedules were governed by General Order 11 which made their allowance discretionary with the court. In a recent opinion the Third Circuit Court of Appeals, the first appellate court to construe and apply Rule 110, reviewed the procedure under the general order and concluded that the new rule had made a significant change:
When the bankrupt files an application to amend a voluntary petition in bankruptcy, the court\'s only role under Rule 110 is to decide who should be given notice of the amendment. It does not have discretion to deny leave to amend or to require a showing of good cause.
In re Gershenbaum, 598 F.2d 779, 781 (3d Cir. 1979).
Most bankruptcy courts have construed and applied Rule 110 in the same manner as the Third Circuit. "Since this case has not been closed, it is not necessary for the debtor to obtain the Court's leave to amend its schedules." In re Teena Creations, Inc., 18 C.B.C. 135 (S.D.N.Y.1978) (B.J.). "Bankruptcy Rule 110 provides that a voluntary petition or schedule may be amended as a matter of course at any time before a case is closed, and under pre-rule law the matter of the allowance of amendments thereafter is a matter of discretion; citation omitted." In re Farmer, 2 Bankr.Ct.Dec. 1533, 1534 (W.D.Pa.1976) (B.J.). "No longer, pursuant to former General Order 11, is it necessary to seek leave of court for this amendment to schedule before case closed." In re Perucci, 1 Bankr.Ct.Dec. 998 (E.D.Pa.1975) (B.J.). "I construe Rule 110 to mean that, as long as the case is not closed, the bankrupt's schedule may be amended as a matter of course, even without obtaining the Court's order or permission." In re Schreibman, 1 Bankr.Ct.Dec. 112, 113 (S.D.N.Y.1974) (B.J.).
All of these cases, including Gershenbaum, involved amendments to add creditors. There is, however, no indication in the plain language of the rule itself nor in the Advisory Committee's Note that the rule would not be equally applicable to amendments to claim additional property as exempt. The one reported decision which this court has been able to uncover involving such an amendment is In re Wilcoxon, 3 Bankr.Ct.Dec. 1220 (N.D.Ga.1977) (B.J.). The holding in that case as to the application of Rule 110 is not altogether clear and it will be discussed in some detail below. In any event this court concludes that Rule 110 governs amendments to schedules to claim additional property as exempt and since this case has not been closed the bankrupt may so amend her schedules and may do so without having to obtain the permission of the court.
Amending the schedules is only the initial step — although an indispensible one — and merely gives the bankrupt the right to claim the property as exempt. Whether the bankrupt is entitled to have the property set apart to her as exempt is a separate issue. This was recognized by the Third Circuit in Gershenbaum when that court indicated that there were two wholly separate issues to be resolved before the claim of the creditor whose name was being added to the schedules would be barred. The only issue before that court was whether the schedules could be amended. The court recognized that there was a second issue which involved the scope of the discharge under § 17 of the Bankruptcy Act, 11 U.S.C. § 35 (1966). Thus, this court must now address the second issue — whether having claimed the ring as exempt the bankrupt is entitled to have it awarded to her.
One approach to this issue is that taken by the bankruptcy court in In re Wilcoxon, 3 Bankr.Ct.Dec. 1120 (N.D.Ga.1977) (B.J.). In that opinion the bankruptcy judge determined in effect that the right of a bankrupt to have additional property awarded him as exempt terminated when the trustee filed his report and set apart property previously claimed as exempt pursuant to Bankruptcy Rule 403(b).6 The court stated pertinently at 1223:
Since it establishes a definite time after which a bankrupt can no longer successfully claim property as exempt this approach obviously promotes an orderly administration on bankruptcy cases. It is predicated in large part on the Supreme Court decision in White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301 (1924) in which the Court...
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