In re Hall

• Citation: 441 B.R. 680
• Decision Date: 04 December 2009
• Docket Number: BAP No. KS-08-88,Bankruptcy No. 06-40887
• Parties: In re David HALL, also known as Day Hall, also known as Dae Hall, also known as The Tire Cutters, Inc., and Linda M. Hall, Debtors. Darcy D. Williamson, Trustee, Appellant, v. David Hall and Linda M. Hall, Appellees.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit

441 B.R. 680 In re David HALL, also known as Day Hall, also known as Dae Hall, also known as The Tire Cutters, Inc., and Linda M. Hall, Debtors. Darcy D. Williamson, Trustee, Appellant, v. David Hall and Linda M. Hall, Appellees. BAP No. KS-08-88. Bankruptcy No. 06-40887. United States Bankruptcy Appellate Panel of the Tenth Circuit. Dec. 4, 2009.

Submitted on the briefs.^*

Darcy D. Williamson, pro se.

Larry E. Schneider, Topeka, Kansas, for Appellees.

Before: MICHAEL, BROWN, and ROMERO, Bankruptcy Judges.

ROMERO, Bankruptcy Judge.

The Chapter 7 Trustee, Darcy D. Williamson (the "Trustee"), appeals from the Bankruptcy Court's Order of October 17, 2008. The Trustee raises two issues on appeal: (1) whether the Bankruptcy Court erred in determining Debtors could each elect to exempt as homestead a residence occupied by the family of Debtor David Hall ("D. Hall"), but not by him personally, on the date of filing; and (2) whether the Bankruptcy Court erred in determining property acquired by Debtor Linda Hall ("L. Hall") as the named beneficiary of pay on death, transfer on death, or similar designation was not property of the bankruptcy estate.

I. BACKGROUND FACTS

D. Hall and L. Hall (collectively referred to herein as "Debtors") filed a voluntary Chapter 7 petition on September 6, 2006. As of the petition date, the Debtors owned a tract of land consisting of 1.33 acres in the city limits of Centralia, Kansas (the "Property"). On the Property are a house bearing the address 1104 4th Street, Centralia, Kansas (the "House") and a mobile home with the address 1104 1/2 4th Street, Centralia, Kansas (the "Mobile Home"). Pursuant to a state court order, D. Hall moved out of the House in early 2004 and began living in the Mobile Home. Although under the court order D. Hall could have returned to the House after April 19, 2004, he still lived in the Mobile Home on the date of the filing of the bankruptcy petition. On the petition date, L. Hall and the couple's children lived in the House. The Debtors' Schedule C ¹ lists as exempt property "1104 4th Street, City of Centralia, Nemaha County, Kansas." The value of the claimed exemption is listed as $32,500.00, and the value of the property without deducting the exemption is listed as $40,000.00.

L. Hall's father, Robert J. Frederick Sr., passed away on September 24, 2006, 18 days post-petition. As a result, L. Hall became entitled to receive (a) certificates of deposit totaling $38,947.86; (b) a one-fifth interest in real property in Topeka, Kansas; (c) United States bonds in the amount of $3,731.33; (d) life insurance policy proceeds in the amounts of $6,651.19 and $4,005.75; (e) an individual retirement account in the amount of $2,858.54; (f) a pro rata share of personal property proceeds in the amount of $4,386.45; and (g) a pro rata share of the decedent's checking account in the amount of $370.74. With the exception of the personal property proceeds and the funds from the checkingaccount which were received through intestate succession and therefore property of the estate, L. Hall received all the property as a payable on death beneficiary or similar beneficiary designation. ²

On October 17, 2006, the Trustee filed an Objection to Debtors' Homestead Exemption.³ The Trustee's objection stated D. Hall did not occupy the House as his residence, and should not be allowed to claim an exemption for a one-half interest in the House. Further, she contended neither D. Hall nor L. Hall should be allowed to claim an exemption "of 1104 4th Street or any part thereof or connected to or known as 1104 1/2 4th Street, Centralia, KS." ⁴ According to the Trustee, the Debtors did not make a full disclosure of their living arrangements and may have engaged in behavior that would disqualify the exemption. The Trustee also alleged the large above-ground pool and other buildings and improvements should not be included in the claimed exemptions and the homestead exemption could not include any land over one acre.⁵

Contemporaneously with her Objection to Homestead Exemption, the Trustee filed a Motion for Turnover of Real Estate and Personal Property.⁶ Inter alia, she requested turnover of "all property or funds or inheritance due the debtors as a result of the death of Robert J. Frederick Sr." ⁷

The Debtors responded to both the Objection to Homestead Exemption and the Motion for Turnover. In their Response to the Objection to Homestead Exemption,⁸ they stated D. Hall's intent to claim an exemption as to the Mobile Home and indicated they were willing to amend their claimed homestead exemption to include only one acre of property.⁹ In their Response to the Motion for Turnover,¹⁰ the Debtors alleged "most of the property received as a result of the post-petition death of the father of Linda M. Hall was received other than by bequest, devise, or inheritance, and is therefore not property of the estate." ¹¹

The Debtors filed amended statements and schedules on May 9, 2007, nearly seven months after the filing of the Objection to Homestead Exemption and Motion for Turnover, including an amended Schedule C containing a more detailed description of claimed exempt property and adding the Mobile Home.¹² Specifically, they claimed a homestead exemption of $40,000.00 on the House and real property, and a personal property exemption of $300.00 for a "1973 Bell mobile home with no tongue and no wheels." ¹³

On June 14, 2007, the Trustee filed an Objection to Debtors' Amended ScheduleC and Homestead Exemption.¹⁴ She objected to the claimed exemption in the House for the reasons previously argued, and also objected to exemptions of personal property and household goods.

On June 13, 2008, the Trustee filed a Motion for Summary Judgment as to the Objection to Homestead Exemption and Motion for Turnover.¹⁵ On June 16, 2008, the Debtors filed their Response to Trustee's Motion for Summary Judgment and Counter-Motion for Partial Summary Judgment ¹⁶ to which the Trustee filed a Reply on July 21, 2008.¹⁷ On August 21, 2008, the Bankruptcy Court issued a Memorandum Opinion and Order Partly Granting, and Partly Denying, Trustee's Motion for Summary Judgment on Trustee's Motion for Turnover and Objection to Exemptions ("the Section 541 Opinion").¹⁸ The Bankruptcy Court ruled on all the issues relating to assets received by L. Hall on account of her father's death, and finding it necessary to resolve certain factual issues before ruling on the Trustee's objection to the Debtors' homestead exemption, set the homestead issue for trial.

Regarding the Motion for Turnover, the Bankruptcy Court noted the parties agreed the life insurance proceeds constituted property of the bankruptcy estate under 11 U.S.C. § 541(a)(5)(C). However, although the Debtors could have claimed an exemption for the proceeds, they had never done so. The Court therefore granted the Motion for Summary Judgment as to the life insurance proceeds.¹⁹ That ruling has not been appealed.

In addition, the Debtors stipulated L. Hall's pro rata share of the proceeds from the sale of her father's personal property and her pro rata share of the funds in his checking account constituted property of the estate. Accordingly, the Bankruptcy Court granted the Trustee's Motion for Summary Judgment as to those funds and ordered their turnover.²⁰ That ruling was not appealed.

In the Section 541 Opinion, the Bankruptcy Court framed the homestead issue as follows:

The Court must decide whether the fact that one of the two co-debtors, David Hall, occupied a different structure (a mobile home) on the same 1.33 acre tract where the house (in which his co-debtor wife and children reside) is situated impairs the homestead exemption on the house and/or the mobile home for one or both Debtors.²¹

The Bankruptcy Court found two issues of material fact remained to be tried before it could determine this issue: (1) whether D. Hall intended to return to the House in the future; and (2) whether D. Hall intended to create a new and permanent homestead in the Mobile Home. It also noted the existence of unresolved legal issues about the possibility of two homesteads. Accordingly, it denied the Trustee's Motion for Summary Judgment as to the Objection to Homestead Exemption. The Bankruptcy Court then concluded the matter would be set for trial:

to resolve the issue of whether David Hall intended to and did abandon his homestead interest in the family home,and whether he established a new homestead in the mobile home located on the land adjacent to the family home... and the Trustee's Motion for Turnover to the extent that motion relates to the turnover of any property not otherwise decided by this opinion.²²

Following the trial, the Bankruptcy Court issued its Memorandum Opinion and Order Partly Granting Trustee's Objection to Debtors' Homestead Exemption and Denying Remainder of Trustee's Motion for Turnover of Personal Property (the "Homestead Opinion").²³ In the Homestead Opinion, the Bankruptcy Court found the Debtors could not seek an exemption in both the Mobile Home and the House. However, the Bankruptcy Court went on to disagree with the Trustee's assertion that D. Hall could not exempt a one-half interest in the House and L. Hall could not exempt a one-half interest in the Mobile home, finding:

At the time the bankruptcy petition was filed, David Hall's residence consisted of the mobile home located at 1104 1/2 4th Street, and Linda Hall's residence consisted of the house at 1104 4th Street. Each owned a joint interest in the other's residence, and each residence would qualify as an exempt homestead for the respective resident.²⁴

The Bankruptcy Court went on to hold a homestead does not have to be occupied by both the owner and the owner's family, but may be occupied by the owner, the owner's family, or by both the owner and the owner's family. It concluded:

In light of this decision, Debtors will be required to amend their schedules to expressly reflect which homestead they will

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