In re Duncan

• Decision Date: 03 January 2002
• Docket Number: BAP No. WY-01-042.,Bankruptcy No. 98-20313.
• Citation: 271 B.R. 196
• Parties: In re Glenn Allen DUNCAN, Debtor. Tracy Lynne Zubrod, Trustee, Appellant, v. Glenn Allen Duncan, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

271 B.R. 196

In re Glenn Allen DUNCAN, Debtor.

Tracy Lynne Zubrod, Trustee, Appellant, v. Glenn Allen Duncan, Appellee.

BAP No. WY-01-042.

Bankruptcy No. 98-20313.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

January 3, 2002.

James R. Belcher of Holland & Hart, LLP, Cheyenne, WY, for Appellant.

The Appellee did not appear or file a brief.

Before BOULDEN, CORNISH, and KRIEGER, Bankruptcy Judges.

OPINION

BOULDEN, Bankruptcy Judge.

Tracy L. Zubrod, the Chapter 7 trustee (Trustee), appeals an "Order on Debtor's Motion for Turnover of Homestead Exemption Proceeds" (Order) entered by the United States Bankruptcy Court for the District of Wyoming. The Order required the Trustee to turn over $10,000 to Glen Allen Duncan (the Debtor) pursuant to the Debtor's homestead exemption in his residence located in Laramie, Wyoming (Property) claimed under Wyo. Stat. Ann. §§ 1-20-101 and 1-20-102(a)(b). The Trustee asserts that the Debtor is not entitled under 11 U.S.C. § 522(g)(1)(A)¹ to claim a homestead exemption in the Property because she avoided the Debtor's transfer of the Property to himself and his spouse, Deborah Sue Duncan (Duncan), as tenants by the entireties in a fraudulent transfer action. For the reasons set forth below, we affirm the bankruptcy court.

I. Background

In 1993 the Debtor, an attorney, purchased the Property, acquiring a fee interest in his name only. In 1994, the Debtor transferred title to the Property to himself and Duncan as tenants by the entireties (1994 Transfer). The Property was used by the Debtor and Duncan as their residence, and also as the business location of the Debtor's law practice.

On March 12, 1998, the Debtor filed a Chapter 7 petition pro se. Duncan is not a debtor in the Debtor's Chapter 7 case. The Debtor's Schedule A discloses that he holds an interest in the Property with Duncan as a tenant by the entirety. The Property is listed as having a market value of $200,000, and a secured claim against it in the amount of $95,117.94. In the Debtor's Schedule C, he claimed a homestead exemption under Wyo. Stat. Ann. §§ 1-20-101 and 1-20-102(a) and (b) in the amount of $10,000.² No party objected to the Debtor's claimed exemption.

The Trustee commenced an adversary proceeding against the Debtor and Duncan (collectively, the Defendants), seeking to avoid the Debtor's 1994 Transfer to Duncan as a fraudulent transfer under § 544(b) and Wyo. Stat. Ann. §§ 34-14-101 through 34-12-113. On cross motions for summary judgment, the bankruptcy court entered a judgment in favor of the Trustee avoiding the Debtor's 1994 Transfer to Duncan (Fraudulent Transfer Judgment). The Defendants appealed the Fraudulent Transfer Judgment, but that appeal was voluntarily dismissed.

The Trustee filed a notice of intent to sell the Property and a motion seeking approval to conduct the sale. The Debtor then moved for turnover of his homestead proceeds at the conclusion of the Trustee's Property sale (Turnover Motion). In the Turnover Motion, the Debtor did not contest the Property sale, but rather argued that he was entitled to the first $10,000 of sale proceeds under § 522(b) and Wyo. Stat. Ann. §§ 1-20-101 and 1-20-102 on account of his valid, uncontested homestead exemption. The Trustee objected to the Turnover Motion, stating that the Debtor was not entitled to a homestead exemption under § 522(g)(1) as a result of the Fraudulent Conveyance Judgment. The Debtor responded by objecting to the Property sale to the extent that the Trustee failed to pay the Debtor $10,000 for his homestead exemption. The bankruptcy court ultimately authorized the sale of the Property, and the parties agreed that approximately $45,000 of net proceeds would be held pending the outcome of the Turnover Motion. After a hearing, the court issued its Order granting the Debtor's Turnover Motion and requiring the Trustee to disburse the homestead exemption proceeds in the amount of $10,000 to the Debtor. This appeal followed.

II. Appellate Jurisdiction and Standard of Review

Upon independent review, we conclude that the Court has jurisdiction over this appeal. The Trustee timely filed a notice of appeal from the bankruptcy court's final Order, and the parties have consented to this Court's jurisdiction over the appeal inasmuch as they did not elect to have the appeal heard by the United States District Court for the District of Wyoming. See 28 U.S.C. §§ 158(a)(1) & (c)(1); Fed. R. Bankr.P. 8001(a) & 8002(a); 10th Cir. BAP L.R. 8001-1.

It is well-settled that: "For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). The Trustee does not dispute the bankruptcy court's findings of fact in this case, but rather only questions the proper application of § 522(g)(1). Thus, we will review this matter de novo. In conducting a de novo review, we will independently determine the issues, giving no special weight to the decision under review. Salve Regina College v. Russell, 499 U.S. 225, 238, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991); United States v. First City Nat'l Bank, 386 U.S. 361, 368, 87 S.Ct. 1088, 18 L.Ed.2d 151 (1967).

III. Discussion

The bankruptcy court held that § 522(g)(1) does not prohibit the Debtor's exemption. For the reasons set forth below, we agree.

Section 522(g) provides:

Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section ... 550 ... of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if —

(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and

(B) the debtor did not conceal such property[.]

11 U.S.C. § 522(g)(1) (emphasis added).

While it would appear that § 522(g)(1) operates to bar the Debtor's claimed exemption in the Property due to the Fraudulent Transfer Judgment and the Debtor's admission that the 1994 Transfer to Duncan was voluntary,³ a closer examination reveals that it does not, because his exemption is not claimed in property that the Trustee "recovered" under § 550. As set forth below, the Trustee's Fraudulent Transfer Judgment avoiding the 1994 Transfer that created a tenancy by the entireties in the Property between the Debtor and Duncan, resulted in a recovery of property from Duncan alone. This being the case, § 522(g)(1) has no application to the exemption claimed by the Debtor in the Property, and the Debtor is entitled to his exemption, which was not otherwise timely objected to by the Trustee.

Prior to the 1994 Transfer, the Debtor was the sole owner of the Property. The 1994 Transfer resulted in the Debtor and Duncan's joint ownership of the Property as tenants by the entireties. A tenancy by the entireties is a form of joint ownership that can exist only between a husband and wife under which each spouse holds an "undivided" interest in the whole of a property so that upon the death of one spouse the entire property belongs to surviving spouse. Ward Terry & Co. v. Hensen, 75 Wyo. 444, 297 P.2d 213, 214-15 (1956). Thus, after the 1994 Transfer, the Debtor held an undivided interest in the whole of the Property, and Duncan owned an undivided interest in the whole of the Property. When the Debtor filed Chapter 7, his undivided interest in the Property passed to the estate, subject to exemption under § 522, and Duncan continued to hold a separate, undivided interest in the Property. See discussion infra. The Trustee's avoidance of the 1994 Transfer by way of the Fraudulent Transfer Judgment did not affect the Debtor's undivided interest in the Property, but rather resulted in an avoidance and recovery of Duncan's undivided interest in the Property for the benefit of the estate.

Duncan's separate, undivided interest being the only property recovered by the Trustee pursuant to § 550, § 522(g)(1) does not apply to the Debtor's equally separate, undivided interest in the Property. Accordingly, there are no bars to the Debtor's claimed exemption in his separate, undivided interest in the Property.⁴

The Trustee maintains that because property held by a husband and wife as tenants by the entireties is an "undivided" interest under Wyoming law, there can be no recognition of the Debtor and Duncan's separate interests in the Property. Thus, according to the Trustee, when she avoided the 1994 Transfer there was only one interest that was recovered. We decline to adopt this argument under our reading of bankruptcy law and Wyoming law.

When the Debtor filed his Chapter 7 case, an estate was created comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). In the seminal case of In re Ford, 3 B.R. 559 (Bankr.D.Md.1980) (en banc), aff'd sub nom Greenblatt v. Ford, 638 F.2d 14 (4th Cir.1981), followed by the great majority of jurisdictions, including the District of Wyoming, it has been established that a debtor's interest in property as a tenant by the entireties is property of the estate. In re Wenande, 107 B.R. 770, 774 (Bankr.D.Wyo.1989); In re Anselmi, 52 B.R. 479, 483 (Bankr.D.Wyo.1985); see Fairfield v. United States (In re Ballard), 65 F.3d 367, 371 (4th Cir.1995) (recognizing this point as a "general rule"); In re Garner, 952 F.2d 232, 234 (8th Cir.1991) (same); Liberty State Bank & Trust v. Grosslight (In re Grosslight), 757 F.2d 773, 775 (6th Cir.1985) (same and citing cases); but see In re Lambert, 34 B.R. 41 (Bankr.D.Colo.1983) (joint tenancy is severed upon bankruptcy filing, and estate is comprised of one-half interest in property; Ford distinguished and...