In re Gregory

Decision Date07 March 2013
Docket Number–JRL, No. 12–05456–8–JRL.,–JRL, No. 12–05451–8,–JRL, No. 12–06847–8,–JRL, No. 12–05538–8,–JRL, No. 12–02763–8,No. 12–06668–8,–JRL, No. 12–06693–8,12–06668–8
Citation487 B.R. 444
CourtU.S. Bankruptcy Court — Eastern District of North Carolina
PartiesIn re Ross Tyler GREGORY and Barbara Jane Gregory. Brianna Michelle Howard Joseph James Moylan, Jr. and Patricia Bigsby Moylan Lilian Lee Neiswender Douglas James Perry Stephen Carlyle Quintyne and Djamila Djuraeva Quintyne Steven Robert Stewart and Denise Morrison Stewart, Debtors.

OPINION TEXT STARTS HERE

William E. Brewer, Jr., The Brewer Law Firm, Raleigh, NC, for Debtors.

Gregory B. Crampton, Nicholls & Crampton, P.A., Raleigh, NC, Trustee in No. 12–05451–8–JRL.

ORDER

J. RICH LEONARD, Bankruptcy Judge.

These matters came before the court on the objection of Gregory B. Crampton (trustee) to the above-captioned debtors' claims of exemptions in Schedule C–1 of their petitions. A hearing on the matters took place on January 15, 2013 in Raleigh, North Carolina. At the conclusion of the hearing, the court took the matter under advisement.

BACKGROUND

Each of the above-captioned debtors (collectively “debtors”) filed voluntary petitions for relief under chapter 7 of the Bankruptcy Code between April 10, 2012 and September 25, 2012. The trustee was appointed as chapter 7 trustee and conducted the meeting of creditors pursuant to § 341(a) in each case. The Schedule C–1, filed by the debtors in each case, contained the following prefatory paragraph:

We, ... the undersigned Debtors, claim the following property as exempt pursuant [to] § 522 and the laws of the State of North Carolina and non-bankruptcy Federal law. Undersigned Debtors are claiming and intend to claim 100% of Debtors' interest and 100% fair market value in each and every item listed,irrespective of the actual value claimed as exempt.

(emphasis in original) (hereinafter “100% language”).

The trustee timely objected to the 100% language present in the prefatory paragraphs of the debtors' Schedule C–1. According to the trustee, the debtors were not entitled to exempt 100% of their interest or 100% of the fair market value in every item listed as exempt, irrespective of the item's actual value. Because this language was precatory, it would apply to each of the items claimed by the debtors as exempt in their Schedule C or Schedule C–1. Responding to the objections raised by the trustee, the debtors indicated that they would amend their Schedule C–1 to delete the language forming the basis of the trustee's objection.1

The amended Schedule C–1 removed the 100% language in the prefatory paragraph and to address further objections by the trustee, the debtors submitted to the court and the trustee the following provision amending their Schedule C–1:

NOTICE: With respect to each asset claimed as exempt on this Claim of Exemptions, the debtor asserts that the value listed is the actual fair market value on the date of the petition, and that the nature and/or use of the asset is such that it qualifies for the exemption claimed. The debtor also asserts that the liens listed are valid and enforceable liens against the asset and the amount of each lien is accurate as of the date of the petition. If the “net value” of an asset listed below is equal to or less than the amount of the exemption claimed and if that value is less than the maximum amount of the exemption allowance under applicable law, the debtor exempts the asset from the estate and his entire interest in the asset from the estate. If the “net value” is greater than the amount of the exemption claimed or the maximum amount of the exemption allowance under applicable law, he limits his claim of exemptions to the lesser of the amount claimed or the maximum amount allowed under the law. Where the value of an asset is listed as “unknown” and the asset is claimed as exempt pursuant to a provision that limits the maximum amount of the allowable exemption to that maximum amount, neither the trustee no[r] any party in interest needs to object to the claim of exemption to preserve for the estate any value that actually exceeds the allowable amount of the exemption.

(emphasis added) (hereinafter “notice provision” or “provision”). This provision, placed at the top of the Schedule C–1, presents three separate scenarios for each item listed as exempt. First, debtors exempt the asset and their entire interest from the estate where the “net value” of the asset is less than or equal to the claimed exemption and the “net value” is less than the maximum exemption amount allowed under applicable law. Second, if the “net value” of the asset is greater than the exemption amount claimed or the maximum amount allowed under applicable law, the claim of exemptions is limited to the lesser of the amount claimed or the maximum allowed by applicable law. Third, where a value of “unknown” is assigned to the asset, the value of the debtors' exemption is expressly limited to the maximum amount allowed by statute, and neither the trustee nor a party in interest need object to preserve any value for the estate that exceeds the allowable amount of the exemption. The debtors have clearly sought to maximize their exemptions by inserting this provision. However, the effect of the phrase emphasized above would permit the debtors to exempt their entire interest of every item listed in the debtors' Schedule C–1 whenever the “net value” is less than the allowable exemption, irrespective of the item's actual fair market value. To illustrate, as the court understands this language, if an individual debtor listed the “net value” in his residence as $30,000.00 and claimed that amount as exempt, the trustee would be unable to administer the property if his investigation revealed the value to be higher unless he had timely objected; this is so despite the fact that the $30,000.00 is within the permissible exemption amount.

Although satisfied with the portions regarding a “net value” greater than the maximum exemption allowed and an “unknown” valuation attributed to an exemption, the trustee contends that the remainder of the provision requires him to object within the thirty-day period proscribed by Federal Rule of Bankruptcy Procedure 4003 (hereinafter “Bankruptcy Rule 4003), to preserve his right to subsequently administer the property. Neither the Bankruptcy Code nor Schwab v. Reilly, ––– U.S. ––––, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010) require the trustee to object to a claim of exemption, based on a debtor's scheduled value of the item. The emphasized portion of this provision, according to the trustee, interposes ambiguity into the debtors' claims for exemptions, causing him and other trustees to guess whether the debtors are claiming an exemption in the item itself, regardless of any statutory limitation placed on the amount of the particular exemption.

The debtors contend that the notice provision would, in the absence of a timely objection by the trustee under Bankruptcy Rule 4003, allow an exemption for the entire value of the item or the situation to which the emphasized portion applies. The debtors maintain that, under Schwab, they are authorized to claim the full value of an item as exempt and the notice provision is sufficient to indicate their intent to claim, as exempt, their entire interest in an item in accordance with North Carolina law.

DISCUSSION

When a debtor files a voluntary petition for relief under chapter 7, a bankruptcy estate is created that contains “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Bankruptcy Rule 4003(a) provides that every “debtor shall list the property claimed as exempt under § 522 of the [Bankruptcy] Code on the schedule of assets required to be filed by Rule 1007.” Fed. R. Bankr.P. 4003(a); Fed. R. Bankr.P. 1007. The trustee or a party in interest must “file an objection to the list of property claimed as exempt ... 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.” Fed. R. Bankr.P. 4003(b). “Unless a party in interest objects, the property claimed as exempt ... is exempt.” 11 U.S.C. § 522( l ). Even where an exemption claimed on Schedule C is without legal justification and the debtor “ha[s] no colorable statutory basis for claiming it the exemption[,] it will stand absent an objection from a party in interest within the thirty-day period. Taylor v. Freeland & Kronz, 503 U.S. 638, 642–43, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). The Supreme Court established, in Taylor, “the straightforward proposition that an interested party must object to a claimed exemption if the amount the debtor lists as the ‘value claimed exempt’ is not within statutory limits, a test the value ($ unknown) in Taylor failed....” Schwab, 130 S.Ct. at 2666 (distinguishing Taylor). Bankruptcy Rule 4003(c) provides that in cases involving objections to exemptions, ‘the objecting party has the burden of proving [by a preponderance of the evidence] that the exemptions are not properly claimed.’ In re Britt, 368 B.R. 471, 474 (Bankr.E.D.N.C.2007) (quoting Fed. R. Bankr.P. 4003(c)); In re Man, 428 B.R. 644, 653 (Bankr.M.D.N.C.2010).

Schwab modified Taylor by recognizing that where the face value of a debtor's exemption is valid, the objection deadline set forth in Bankruptcy Rule 4003 is inapplicable, and the trustee is not required to object to preserve the estate's right to retain any value beyond the value of the exempt interest claimed by the debtor. 130 S.Ct. at 2669. In Schwab, the debtor claimed an exemption in certain business equipment in a specific dollar amount, which was within the limit permitted by § 522(d). Id. at 2658. The debtor objected to the sale of her business equipment by the trustee, arguing that she had exempted it in its entirety by claiming the exemption in an amount equal to...

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7 cases
  • In re Gifford
    • United States
    • U.S. Bankruptcy Court — Middle District of North Carolina
    • November 12, 2021
    ...state law exemptions. 11 U.S.C. § 522(b)(1), (2), and (3). North Carolina has opted out of the federal exemptions. In re Gregory, 487 B.R. 444, 449 (Bankr. E.D.N.C. 2013) (citing N.C. Gen. Stat. § 1C–1601(f) ("(f) Federal Bankruptcy Code.--The exemptions provided in The Bankruptcy Code, 11 ......
  • Miller v. Young (In re Young), Case No. 16–10434
    • United States
    • U.S. Bankruptcy Court — Middle District of North Carolina
    • November 28, 2017
    ...of the debtor.This section permits debtors to exempt value in property, rather than the specific property. See In re Gregory, 487 B.R. 444, 449–52 (Bankr. E.D.N.C. 2013).5 Therefore, when a debtor claims an exemption in household goods, "the trustee is not required to object to preserve the......
  • In re Gonzales
    • United States
    • U.S. Bankruptcy Court — Eastern District of North Carolina
    • June 24, 2013
    ...party has the burden of proving [by a preponderance of the evidence] that the exemptions are not properly claimed." In re Gregory, 487 B.R. 444, 447 (Bankr. E.D.N.C. 2013) (quoting In re Britt, 368 B.R. 471, 474 (Bankr. E.D.N.C. 2007)). A tenancy by the entirety is a statutory creature, who......
  • Brantley v. Citifinancial, Inc. (In re Brantley), CASE NO. 13-00483-8-DMW
    • United States
    • U.S. Bankruptcy Court — Eastern District of North Carolina
    • January 15, 2015
    ...the statutory limits, and thus raised no "warning flags" warranting an objection from the Trustee. Id. at 789; see In re Gregory, 487 B.R. 444, 448 (Bankr. E.D.N.C. 2013) (finding that the trustee had no obligation to object within the deadline set by Rule 4003 in the context of an action "......
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3 books & journal articles
  • Postpetition Proceeds of Exempt Interests in Property: Who Owns the Appreciation?
    • United States
    • American Bankruptcy Law Journal Vol. 95 No. 4, December 2021
    • December 22, 2021
    ...9th Cir. Mar. 9, 2012); Hefei v. Schnittjer (In re Hefei), No. 11-1010, 2011 WL 3292929, at *4 (N.D. Iowa July 29, 2011); In re Gregory, 487 B.R. 444, 454 (Bankr. E.D.N.C. 2013); In re Luckham, 464 B.R. 67, 75-76 (Bankr. D. Mass. 2012); In re Salazar, 449 B.R. 890, 897 (Bankr. N.D. Tex. 201......
  • VII. Procedure to Claim Exemptions
    • United States
    • North Carolina Bar Association North Carolina Bankruptcy Practice Manual (NCBA) Chapter VII Exemptions
    • Invalid date
    ...Rule 4003-1. It is unacceptable in all three North Carolina districts to claim "100% of Fair Market Value" as exempt. See In re Gregory, 487 B.R. 444 (Bankr. E.D.N.C. 2013). The forms referenced in the local rules for each of the three districts in North Carolina are available from the resp......
  • VII. Procedure to Claim Exemptions
    • United States
    • North Carolina Bar Association North Carolina Bankruptcy Practice Manual 2023 (NCBA) Chapter VII Exemptions
    • Invalid date
    ...Rule 4003-1. It is unacceptable in all three North Carolina districts to claim "100% of Fair Market Value" as exempt. See In re Gregory, 487 B.R. 444 (Bankr. E.D.N.C. 2013). The forms referenced in the local rules for each of the three districts in North Carolina are available from the resp......

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