In re Hart

• Decision Date: 13 October 2005
• Docket Number: No. 04-CV-0314-B.,04-CV-0314-B.
• Citation: 332 B.R. 439
• Parties: In re Vickie HART, Debtor. Vickie Hart, Appellant, v. Lester L. Crawford, Jr., Appellee.
• Court: U.S. Bankruptcy Court — District of Wyoming

Page 439

332 B.R. 439

In re Vickie HART, Debtor.

Vickie Hart, Appellant, v. Lester L. Crawford, Jr., Appellee.

No. 04-CV-0314-B.

United States Bankruptcy Court, D. Wyoming.

October 13, 2005.

COPYRIGHT MATERIAL OMITTED

Stephen R. Winship, Winship & Associates, Casper, WY, for Appellant.

Timothy Michael Stubson, Brown Drew & Massey, Casper, WY, for Appellee.

Order Affirming the Bankruptcy Court's Order on Debtor's Claim of Exemption

BRIMMER, District Judge.

This matter comes before the Court on Appellant Vickie Hart's appeal from the Order on Debtor's Claim of Exemption issued by the United States Bankruptcy Court of the District of Wyoming on October 28, 2004. This order denied Hart's homestead exemption claim. The issue in this appeal is whether a homestead interest under Wyoming law is sufficient to support a bankruptcy exemption in favor of a debtor who owns no other interest in the subject property. After considering the motions, having reviewed the materials on file, having heard oral argument, and being fully advised in the premises, the Court FINDS and ORDERS as follows:

Statement of Parties and Jurisdiction

Appellant Vickie Hart is a resident of Wyoming who filed for protection under Chapter 7 of the Bankruptcy Code. Her filing included a homestead exemption claim for real property located at 5910 South Cedar Street, Casper, Wyoming.

Appellee Lester L. Crawford, Jr. acquired the disputed property from Hart's husband and later sold the property. Crawford properly objected to Hart's homestead exemption claim in the bankruptcy court.

This Court's jurisdiction is proper under 28 U.S.C. § 158. Hart elected to have this Court hear her appeal under 28 U.S.C. § 158(c)(1).

Background

The salient facts in this case are undisputed. At some time in the past, Mr. Bill Hart, Appellant Hart's husband, purchased the house at 5910 South Cedar Street, Casper, Wyoming. Later, Mr. Hart transferred title to the property to himself and Appellant Hart. On April 8, 2002, Appellant Hart quitclaimed her interest back to Mr. Hart. This quitclaim deed included a release and waiver of "all rights under and by virtue of the homestead exemption laws of the State of Wyoming."

On August 20, 2003, Mr. Hart executed a mortgage on the property in favor of Crawford. Appellant Hart also signed this mortgage. Paragraph 22 of the mortgage stated that the mortgagor "relinquishes and waives all rights under and by virtue of the homestead exemption laws of the State of Wyoming."¹

On March 30, 2004, Mr. Hart conveyed the property to Crawford by a warranty deed in lieu of foreclosure. Appellant Hart did not sign the warranty deed and allegedly did not know about this conveyance. Crawford later sold the property.

On June 10, 2004, Mr. Hart filed for Chapter 7 bankruptcy protection. Appellant Hart filed separately for Chapter 7 protection on August 24, 2004. In violation of a Notice to Quit obtained by Crawford, Mr. Hart and Appellant Hart both resided at the Cedar Street property on August 24th. In their separate bankruptcy filings, both Mr. Hart and Appellant Hart claimed homestead exemptions derived from the property. Appellant Hart's homestead exemption claim was asserted against sale proceeds held by Crawford, and he objected.

After a non-evidentiary telephone hearing, the United States Bankruptcy Court of the District of Wyoming denied Appellant Hart's claimed homestead exemption.² The bankruptcy court did so because, inter alia, Wyoming law does not provide a homestead exemption to a "mere occupier" and Hart did not own an interest in the property.

Standard of Review

This Court reviews the legal conclusions of a bankruptcy court de novo. In re Branding Iron Motel, Inc., 798 F.2d 396, 399-400 (10th Cir.1986); Fed. R. Bankr.P. 8013. This Court is not constrained by the bankruptcy court's legal analysis, and may affirm on any legal grounds supported by the record. Wolfgang v. Mid-America Motorsports, Inc., 111 F.3d 1515, 1524 (10th Cir.1997) (citing United States v. Taylor, 97 F.3d 1360, 1364 (10th Cir.1996)). However, this Court may not disturb the bankruptcy court's findings of fact unless they are clearly erroneous. Branding Iron Motel, 798 F.2d at 399-400; Fed. R. Bankr.P. 8013. A finding of fact is "`clearly erroneous' when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525 (1948)); Hall v. Vance, 887 F.2d 1041, 1043 (10th Cir.1989).

Discussion

Hart argues that Wyoming law provides for a homestead exemption when a debtor merely occupies the homestead property. And, since she occupied the Cedar Street property when she filed for Chapter 7 protection, she is entitled to a homestead exemption against the sale proceeds of that property. Her argument fails. The federal and state exemption laws allow a debtor to prevent creditors from seizing certain property owned by the debtor, but these laws do not allow a debtor to take assets from their rightful owners where she does not otherwise have a legal or equitable interest in those assets or proceeds. Hart has no such interest in the Cedar Street property, and therefore she is not entitled to a homestead exemption. In addition, a homestead property is only exempt when occupied by an owner or the owner's family, or a person entitled to ownership or that person's family. Hart and her husband do not qualify, and therefore the Cedar Street property does not qualify for an exemption.

I. A debtor may claim a bankruptcy exemption under 11 U.S.C. § 522 only where the property subject to the exemption is within the debtor's bankruptcy estate.

Chapter 7 of the federal Bankruptcy Code³ "provides the mechanism for taking control of the property of the debtor, selling it, and distributing the proceeds to creditors in accordance with the distribution scheme of the Code." 1 Collier on Bankruptcy ¶ 1.03[2][a] (Lawrence P. King et al eds., 15th Ed. revised). This process was designed to serve two different purposes:

From the creditors' viewpoint, chapter 7 established the concept of equitable distribution among creditors of a debtor's resources which, in most cases, are insufficient to permit full payment to all. From the individual debtor's vantage point, chapter 7 permits the honest debtor to obtain a new financial life through the discharge of unpaid debts.

Id.

To help debtors achieve the promise of a new financial life — the proverbial "fresh start" — Section 522(b) allows debtors to exempt certain property from the bankruptcy estate. 11 U.S.C. § 522(b); Collier on Bankruptcy ¶ 522.01. The Bankruptcy Code establishes a federal list of property that may be exempted and the maximum value of each exemption. Id. § 522(d). To exempt qualifying property, the debtor must file a list of claimed exemptions. Id. § 522(1). If the debtor fails to file, a dependent of the debtor may file on behalf of the debtor. Id. When the debtor files for an exemption, any party in interest may object and must do so or the claimed exemption is granted.⁴ Id. If there is an objection, "the validity of an exemption is determined as of the date of the filing of the petition." In re Johnson, 184 B.R. 141, 145 (Bankr.D.Wyo.1995), citing 11 U.S.C. § 522(b)(2)(A).

States may opt out of the federal list of exemptions and offer their own list, or no exemptions at all. 11 U.S.C. § 522(b)(1); Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 1835, 114 L.Ed.2d 350 (1991). Wyoming has opted out, so Wyoming's specific bankruptcy exemptions, including the homestead exemption, are defined by state law. Wyo. Stat. § 1-20-109. Thus, in Wyoming, federal law controls exemptions generally and exemption procedures, but state law governs the specific property that may be exempted and value of such exemptions.

It is important to understand that "Section 522(b) provides that the debtor may exempt certain property `from property of the estate'; obviously, then, an interest that is not possessed by the estate cannot be exempted." Owen, 500 U.S. at 308, 111 S.Ct. at 1835 ("An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor."). Thus, "[n]o property can be exempted ... unless it first falls within the bankruptcy estate." Id. (emphasis in original); see also Naqvi v. Fisher, 192 B.R. 591 (D.N.H.1995) ("Property cannot be exempted from the estate, however, unless that property is first made part of the bankruptcy estate. Simply put, an interest that is not part of the bankruptcy estate cannot be exempted from it."). Hart's exemption must fail, then, if the Cedar Street property was not in her bankruptcy estate.

A bankruptcy estate is created under Section 541 when a debtor files for bankruptcy. 11 U.S.C. § 541. "An estate in bankruptcy consists of all the interests in property, legal and equitable, possessed by the debtor at the time of filing, as well as those interests recovered or recoverable through transfer and lien avoidance provisions." Owen, 500 U.S. at 308, 111 S.Ct. at 1835. Hart gave up legal ownership of the Cedar Street property when she quitclaimed it to her husband in 2002, so the property did not pass into her bankruptcy estate because of any legal interest.⁵,⁶ Recognizing this, she claimed her homestead exemption solely upon an inchoate "homestead" interest in the property. (Appendix to Appellant's Brief at 6.) The question is whether this is an adequate interest to support a bankruptcy exemption.

"In the absence of any controlling federal law, `property' and `interests in property' are creatures of state law." Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 1389, 118 L.Ed.2d 39 (1992) (citing McKenzie v. Irving Trust Co., 323 U.S. 365, 370, 65 S.Ct. 405, 408, 89 L.Ed....