In re Jackson
| Decision Date | 07 August 2018 |
| Docket Number | No. 16-12666-j7,16-12666-j7 |
| Parties | In re: DAVID WAYNE JACKSON, Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico |
The Court held a final, evidentiary hearing on Opal Jackson's Claim No. 8 and the Chapter 7 Trustee's objection to the claim (Docket No. 83) on July 31, 2018 and took the matter under advisement. Jacqueline N. Ortiz appeared at the final hearing on behalf of Clarke C. Coll, Chapter 7 Trustee. Opal Jackson appeared, pro se. The Debtor, David Wayne Jackson, also appeared, pro se. Ms. Jackson filed a claim based on her contribution to the purchase price of a condominium in Las Vegas, Nevada located at 2831 Geary Pl. (the "Nevada Condo"). Because the Nevada Condo and the funds Ms. Jackson contributed to purchase the Nevada Condo are community property, Ms. Jackson does not have a claim against the bankruptcy estate for the funds she contributed to purchase the Nevada Condo. The Court will, therefore, sustain the Chapter 7 Trustee's objection and disallow Ms. Jackson's claim.
The parties stipulated to the following facts:
1. David Wayne Jackson filed a voluntary petition under Chapter 7 of the Bankruptcy Code on October 28, 2016. See Docket No. 1.1
2. David Wayne Jackson and Opal Jackson were married in Las Vegas, Nevada.
3. David Wayne Jackson and Opal Jackson were married when they purchased the Nevada Condo. 4. David Wayne Jackson and Opal Jackson were married when Opal Jackson paid a portion of the purchase price for the Nevada Condo.
5. Opal Jackson filed a proof of claim in David Wayne Jackson's bankruptcy case on March 29, 2018 as Claim No. 8.
Based on the evidence admitted at the final hearing, the Court makes the following additional findings of fact in accordance with Fed. R. Bankr. P. 9014(c) and 7052.
Opal Jackson filed a proof of claim for $40,000, and stated the following as the basis for her claim:
Husband filed bankruptcy, lost condo in Las Vegas NV it was paid off. It was sold $125,000 value 189,000. I spen[t] $40,000 towards purchase. I have been separated from David for 2 years. I was not given notice of any deadline to file a proof of claim.
Attached to the proof of claim are the following documents: 1) Residential Purchase Agreement dated January 14, 2015 for the Nevada Condo; 2) a copy of a receipt for Opal Jackson from High Plains Federal for $11,200 (Exhibit 1); 3) a copy of an envelope from Merrill Lynch sent to Opal Jackson with a hand-written note stating "check deposited 11/3/2014 $11,200 hold for 5 day's 11/10/14" (Exhibit 2); 4) a copy of an envelope from Merrill Lynch sent to Opal Jackson with a handwritten note stating "10,000.00 401k Retirement for David condo in Vegas 2/13/13" (Exhibit 2); copies of various statements from a Walmart 401(K) plan for Opal Jackson (Exhibit 3); and 5) a copy of a statement from a Merrill Lynch retirement account for Opal Jackson (Exhibit 4).
David Wayne Jackson and Opal Jackson were married in 1967 or 1968; Ms. Jackson could not recall the exact year. They have been together for forty-eight years. Although they are now separated, they remain legally married to this day. No separation papers have been filed with any court, though Ms. Jackson considers herself separated from Mr. Jackson since beforeMr. Jackson filed his bankruptcy petition. Opal Jackson is listed on the docket of Mr. Jackson's bankruptcy case as his non-filing spouse. Opal Jackson began receiving notices concerning Mr. Jackson's bankruptcy case some time in 2017. She was not aware that Mr. Jackson filed his bankruptcy petition at the time he filed it.
Opal Jackson's retirement accounts are the result of her employment with Walmart. Ms. Jackson worked for Walmart from around 1985 until this past June. Ms. Jackson was married to Mr. Jackson for the entire period of her employment at Walmart.
David Wayne Jackson and Opal Jackson purchased the Nevada Condo in 2015 while they were married. All the money Ms. Jackson contributed to purchase the Nevada Condo came from Ms. Jackson's retirement accounts. When Mr. Jackson filed the Chapter 7 case, David Wayne Jackson and Opal Jackson both owned the Nevada Condo.
The Court set July 3, 2017 as the deadline to file proofs of claims in this bankruptcy case. See Docket No. 23. On April 2, 2018, the Court entered an order extending the deadline to file a proof of claim in Mr. Jackson's bankruptcy case to April 30, 2018. See Order Fixing Deadline to File Proofs of Claim - Docket No. 79. The Order Fixing Deadline to File Proofs of Claim provided further that all timely filed proofs of claim filed in the bankruptcy case would be deemed allowed unless a timely objection is filed. Id. Eight proofs of claim have been filed. American Heritage Bank filed a claim characterized in its proof of claim as fully secured. The other claims, exclusive of the claims filed by Opal Jackson and the New Mexico Department of Taxation and Revenue Department, total approximately $18,500. The New Mexico Department of Taxation and Revenue Department filed a claim in the amount of $694,035.91. Mr. Jackson stated to the Court that this claim arises from the operation of a business. The proof of claimindicates that the business was known as New Vision Group Home. Ms. Jackson's proof of claim is the only claim that received a timely objection.
The Chapter 7 Trustee objected to Opal Jackson's proof of claim on the following grounds: 1) the proof of claim was untimely filed; 2) the Nevada Condo is community property that became property of the bankruptcy estate; and 3) the documentation attached to the proof of claim fails to demonstrate that the funds were used to improve the Nevada Condo. Opal Jackson asserts that she is entitled to recover an amount equal to the $40,000 she contributed from her retirement accounts to purchase the Nevada Condo.2 The Chapter 7 Trustee sold the Nevada Condo for $125,000.
Although the parties presented the issue to the Court in the form of an objection to a proof of claim, Ms. Jackson's claim is not the type of claim for which a proof of claim must be filed. Instead, it is a claim to sale proceeds under 11 U.S.C. § 363(j).3 As discussed below, Section 363(j) governs the claim of a co-owner of property sold by a bankruptcy trustee to a portion of the proceeds of sale prior to the trustee's proposed distribution under § 726. The Chapter 7 trustee has not yet proposed a distribution under § 726. Therefore, the Court will treat Opal Jackson's proof of claim as a motion for payment of sale proceeds to a co-owner ofproperty under § 363(j). Because Ms. Jackson was not required to file a proof of claim to protect a claim to sale proceeds under § 363(j), the Court concludes that the Chapter 7 Trustee's objection to the proof of claim on the ground that it is untimely is without merit. And in any event, even if Ms. Jackson had been required to file a proof of claim, Ms. Jackson's proof of claim, filed March 29, 2018, was timely filed by the April 30, 2018 deadline fixed by the Court's order extending the time to file a proof of claim. See Docket No. 79.
The Court also concludes, based on the evidence, that Ms. Jackson does not have a valid claim to sale proceeds under § 363(j). As discussed below, when the Chapter 7 case was commenced Ms. Jackson owned a community property interest in the Nevada Condo that became property of the bankruptcy estate. Opal Jackson may only claim an interest in the proceeds from the Chapter 7 Trustee's sale of community property, including the Nevada Condo, if there is a surplus in the bankruptcy estate after the Chapter 7 Trustee pays all community claims in full. See 11 U.S.C. § 726(c)(2) (). Thus, Opal Jackson's claim to any proceeds from the Chapter 7 Trustee's sale of community property is governed by § 726(c)(2), not § 363(j). Any claim to funds under § 726(c)(2) made now would be premature because the Chapter 7 Trustee has not yet proposed a distribution to creditors and other parties in interest. The Court will discuss § 726(c)(2) further below.
Opal Jackson's claim to sale proceeds is not
the type of claim for which a proof a claim is filed
Section 501 governs claims against the bankruptcy estate for which proofs of claim are filed. Except as provided by § 501(d), proofs of claim are filed for claims that arose prior to the commencement of the bankruptcy case. Section 501(d) applies to postpetition claims that are given the status of prepetition claims. 4 Collier on Bankruptcy ¶ 501.05 (Richard Levin & HenryJ. Sommer eds., 16th ed.). A debtor or nonfiling spouse who asserts a claim to proceeds from a bankruptcy trustee's sale of estate property does not have a claim against the bankruptcy estate for which a proof of claim must be filed because such a claim does not arise prior to the commencement of the bankruptcy case and is not a type of claim governed by § 501(d). Rather, the claim arises due to the Chapter 7 Trustee's post-petition sale of the asset. And, as explained below, § 726(c)(2) determines whether the proceeds from the sale are sufficient to create a surplus in the bankruptcy estate from which a debtor or nonfiling spouse may be entitled to a distribution.
A claim to proceeds of a trustee sale by a co-owner of an asset or by an owner
where the asset became property of the estate arises under § 363(j) or § 726
If an asset sold by the bankruptcy trustee was co-owned by the bankruptcy estate and a third party, the third party's claim to a portion of the sale proceeds is governed by § 363(j). Section 363(j) provides:
After a sale of property to which subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor's spouse or the co-owners of such property, as the case may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse or co-owners, and of...
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