In re Fonke

• Decision Date: 01 February 2005
• Docket Number: No. 03-41389.,03-41389.
• Citation: 321 B.R. 199
• Parties: In re Ronald E. FONKE, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

321 B.R. 199

In re Ronald E. FONKE, Debtor.

No. 03-41389.

United States Bankruptcy Court, S.D. Texas, Houston Division.

February 1, 2005.

C. Mark Murrah, Stumpf Craddock et al., Peter Johnson, Law Offices of Peter Johnson, Houston, TX, for Debtor.

Gretchen Gauer McCord, Houston, TX, for trustee.

MEMORANDUM OPINION

MARVIN ISGUR, Bankruptcy Judge.

The Court finds that the deadline to object to exemptions does not recommence when a case under chapter 13 is converted to a case under chapter 7.

Background

The facts of this case are undisputed. Ronald Fonke (the "Debtor") filed a voluntary petition under chapter 13 of the Bankruptcy Code on August 7, 2003. The Debtor properly filed his list of exempt property. Neither the chapter 13 trustee nor any creditor objected. This case was converted to chapter 7 on June 10, 2004, Docket no. 79¹ and a chapter 7 trustee (the "Trustee") was appointed on June 15, 2004.

Upon conversion, the United States Trustee issued a new Notice of Bankruptcy and scheduled a new meeting of creditors pursuant to 11 U.S.C. § 341(a). This second § 341 meeting concluded on August 20, 2004. The Trustee filed an objection to the Debtor's exemptions on September 17, 2004. Docket no. 103. The Debtor objects to the Trustee's exemption objection as untimely under Rule 4003(b). Docket no. 115. The Trustee contends that the Rule 4003(b) deadline recommences upon conversion from chapter 13 to chapter 7. This is the central question before the Court.

Analysis

A substantial number of courts have held that the Rule 4003(b) deadline does not recommence upon the conversion of a chapter 13 case to chapter 7.² This view has been referred to as the majority position. See In re Campbell, 313 B.R. 313, 318 (10th Cir. BAP 2004). Another line of jurisprudence holds that the deadline does recommence upon conversion. While termed the minority position, a large number of courts have nonetheless adopted this analysis.³

There is no controlling authority in this Circuit. The result in this opinion is consistent with the results in opinions issued by the Second and Ninth Circuits⁴ and inconsistent with an Eighth Circuit opinion. See In re Smith, 235 F.3d 472 (9th Cir.2000); In re Bell, 225 F.3d 203 (2nd Cir.2000); In re Alexander, 236 F.3d 431 (8th Cir.2001).

The principal analytical distinction between the positions are the respective courts' interpretations of Bankruptcy Rules 1019(2) and 4003(b). Rule 1019(2) states:

When a chapter 11, chapter 12, or chapter 13 case has been converted or reconverted to a chapter 7 case: ... 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 thereafter reconverted to a chapter 7 case and the time for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of the dischargeability of any debt, or any extension thereof, expired in the original chapter 7 case.

Courts adopting the majority position have focused on Rule 1019(2) and employed the principle of statutory construction known as "expressio unius est exclusio alteriu." In re Hopkins, 317 B.R. 726, 731 (Bankr.E.D.Mich.2004). This principle states that the enumeration of one or more exceptions to a rule implies an intention to exclude any other exceptions. Id. Employing this rule of statutory construction, majority position courts rely on the omission of the Rule 4003(b) deadline—from the conversion deadlines created in Rule 1019(2)—as evidence of an intent not to recommence the Rule 4003(b) deadline. Thus, the majority courts construe Rule 1019(2) to mean that there is no new filing period for objections to exemptions. See In re Rogers, 278 B.R. 201, 203 (Bankr. D.Nev.2002).

Courts adopting the minority position discount this omission and claim that the plain language of Rule 4003(b) controls this issue. Rule 4003(b) states in relevant part:

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 or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.

Courts adopting the minority position hold that the plain language of Rule 4003(b) is unambiguous when read with §§ 341(a)⁵ and 348(a).⁶See In re Campbell, 313 B.R. at 318. This reasoning is aptly displayed> in Campbell:

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.

Id, at 318 (emphasis added). Thus, the minority courts claim that the plain language supports their view due to an absence of language limiting the Rule 4003(b) deadline to the initial meeting of creditors.

Unlike the majority and minority courts, this Court finds both Rule 1019(2) and Rule 4003(b) inherently ambiguous regarding this issue. First, the Court finds Rule 4003(b)—the basis for the minority position—ambiguous due to a lack of precision in the language regarding the creditors' meeting(s). Specifically, when the Court reads Rule 4003(b) in conjunction with §§ 348 and 341, the Court is unable to determine whether, in Rule 4003(b), "the" meeting of creditors refers to the initial meeting of creditors or every meeting of creditors held pursuant to § 341(a). In fact, Rule 2003—which implements § 314(a)—uses the articles "the" and "a" interchangeably.⁷ As it is undisputed that both creditors' meetings are held pursuant to § 341(a), Rule 4003(b) may or may not refer to both of them.⁸ Further, this Court is not compelled by Rule 4003(b)'s failure to explicitly limit itself to the initial meeting of creditors. The Court finds it plausible that the drafters either did not consider this issue, or considered Rule 1019(2) as governing, thus making explicit mention of the 4003(b) deadline needlessly superfluous. Accordingly, this Court concludes that Rule 4003(b) is ambiguous as to whether the deadline recommences.

The Court likewise finds the majority position analysis of Rule 1019(2) unpersuasive. As discussed above, the majority position courts rely on the exclusion of the Rule 4003(b) deadline from Rule 1019 as their basis for not recommencing the deadline to object. The Court declines to adopt the majority analysis of this issue for the same reasons the Court declines to follow the minority analysis. Specifically, Rule 1019(2) may not need to mention Rule 4003(b), because Rule 4003(b) arguably states that the deadline recommences. As such, this Court finds both rules facially ambiguous as to the present issue.

The minority courts also base their decisions on policy considerations. Specifically, they find that it would be highly inequitable to deny the chapter 7 trustee the opportunity to pursue valid objections in his effort to liquidate and administer the estate. See Campbell, 313 B.R. at 322. These courts reason that the purpose of exemptions is different in a chapter 13 case than in a chapter 7 case. Specifically, these courts claim that the purpose of exemptions in chapter 7 is "allow the debtor to retain possession of the property or to obtain a share of sale proceeds when the property is liquidated," while in chapter 13, the purpose of exemptions is to determine whether the plan meets the best interests of creditors test under § 1325(a)(4). Id. Thus, these courts reasons that in some instances, the value of the exemption would not be contested in a chapter 13 because it would not produce a greater return than in a chapter 7. Despite these arguments, the Court will not base its decision on policy considerations where such a decision would result in a violation of the Code.

Based on the above mentioned statutory conflicts and ambiguities, this Court is obligated to return to the fundamentals of statutory interpretation, and begins its analysis with the statutes in question. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). When a debtor files bankruptcy, all of the debtor's property becomes property of the estate pursuant to § 541(a)(1) and (a)(2). The estate even includes the property that the debtor intends to claim as exempt under § 522. Taylor v. Freehand & Kronz, 503 U.S. 638, 641, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). As explained below, the debtor's property may then be removed from the estate via the § 522 exemption procedure.

Under § 522, a debtor may exempt property by filing a list of property that the debtor claims is exempt under § 522(b). At this time, the property is still considered property of the estate. The property may then only become exempt if the requirements of § 522(0 are met. Section 522(0 states, "the debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section ... Unless a party in interest objects, the property claimed as exempt on such list is exempt". Therefore, the property's exempt status is...