In re James
| Decision Date | 10 October 2013 |
| Docket Number | 12–13300.,Nos. 11–16354,s. 11–16354 |
| Citation | 498 B.R. 813 |
| Parties | In re Alvin Lebron JAMES, Debtor. In re Delorese Juanette James, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
OPINION TEXT STARTS HERE
Richard P. Jahn, Jr., Chattanooga, TN, for Trustee.
Thomas E. Ray, Samples, Jennings, Ray & Clem, Chattanooga, TN, for Debtor.
The trustees seek substantive consolidation of the two cases in order to sell a condominium owned by the debtors as tenants by the entirety for the benefit of the debtors' joint creditors. Before the court determines whether substantive consolidation is warranted, it must determine whether the trustees can overcome the exemption that each debtor has claimed in their respective entirety interests in the condominium. Mr. Jahn, Mr. James' trustee, has objected to Mr. James' claim of exemption in an interest in the condominium and seeks a finding by this court that his objection is timely because either the exemption was fraudulently asserted or, in the alternative, allowance of the exemption would be a legal fraud or an abuse of process which the court may prohibit under 11 U.S.C. § 105(a). [In re Alvin James, Bankr.Case No. 11–16354, Doc. No. 47]. Mr. Farinash, Mrs. James' trustee, has filed an objection to her claim of exemption in her entirety interest in the condominium on the basis that she is not entitled to the exemption under applicable nonbankruptcy law because joint creditors exist, or alternatively, that she should not be allowed an exemption on equitable grounds. [ In re Delorese James, Bankr.Case No. 12–13300, Doc. No. 16].1
Mr. James opposes the relief requested on the basis that he has committed no fraud and his trustee missed the deadline to object to his exemptions. [In re Alvin James, Bankr.Case No. 11–16354, Doc. No. 48]. His wife opposes the relief requested on the basis that she committed no fraud and that her husband's discharge left her with no joint creditors. [ In re Delorese James, Bankr.Case No. 12–13300, Doc. No. 28]. If no joint creditors existed at the time her case was filed, her entirety interest is wholly exempt under Florida law.
Based upon a review of the evidence provided at the hearing, the arguments of counsel and the entire record in these contested matters, the court finds that no actual fraud was committed by Mr. James. As such, the court does not find that the exemption was fraudulently asserted by Mr. James. Having missed the deadline to object, Mr. James' trustee has waived his objection to the exemption of $260,000 claimed for the entirety interest. Mr. James has received his discharge, but joint creditors continue to exist to the extent that a joint debt secured by the condominium was reaffirmed and there is any value above $260,000 in the condominium. For these reasons, the objection of Mr. James' trustee will be sustained only as to any value in excess of the amount claimed as exempt.
The legal and equitable reasons for allowing an exemption for Mr. James do not apply to Mrs. James. Her trustee timely filed an objection. Her case was filed within months of her husband's case. Her financial problems arise from joint debt or debt related to Mr. James' business. Her valuation of her interest in the condominium failed to take into account information she received after her husband filed. For Mrs. James to be entitled to an exemption other than that which her husband has already claimed would be an abuse of the bankruptcy process. For these reasons, the objection of Mrs. James' trustee to her exemption will be sustained.
In order to prevent a double exemption on the same property and to preserve the value in excess of the claimed exemption for the benefit of joint creditors, the court finds that limited substantive consolidation is appropriate. The trustees' joint motion to consolidate will be granted in accordance with this memorandum. [Bankr.Case No. 11–16354, Doc. No. 64; Bankr.Case No. 12–13300, Doc. Nos. 62].
These are the court's finding of facts and conclusions of law made pursuant to Fed. R. Bankr.P. 7052 as made applicable to contested matters by Fed. R. Bankr.P. 9014(c). This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(2)(O).
Alvin Lebron James filed his individual petition for relief under Chapter 7 of the United States Bankruptcy Code on November 15, 2011. [Bankr.Case No. 11–16354, Doc. No. 1]. Mr. Jahn was appointed as his trustee. Delorese Juanette James, his wife, filed an individual petition for relief under Chapter 7 on June 28, 2012, seven and a half months after Mr. James' filing. [Bankr.Case No. 12–13300, Doc. No. 1]. Mr. Farinash was appointed as trustee for Mrs. James. Both debtors are represented by Thomas E. Ray.
Mr. James filed bankruptcy because his construction company, A.L. James Construction & Development, had failed. The same day he personally filed, he also filed a chapter 7 case for the company. Mr. Jahn was also appointed as the company's trustee. In re A.L. James Construction and Development, LLC, Case No. 11–16353 (Bankr.E.D.Tenn.) (J. Cook). In his individual case, the four pieces of real property listed by Mr. James in Schedule A are shown as jointly owned. Schedule A reflects that the values of the four properties total $1,962,000.
Two of the four are significant in the court's analysis. The first is a property in Georgetown Bay Subdivision, Ooltewah, Tennessee (the “Georgetown Property”). He listed the value as $1,200,000 securing a claim of $1,113,714.22 held by Northwest Georgia Bank (“NWGB”). The second piece is a condominium located at 4621 South Atlantic Avenue, Unit 8102, Ponce Inlet, Florida (the “Condominium”). Mr. James listed the Condominium with a value of $260,000 securing a claim of $160,000 also held by NWGB. Hearing Ex. B, Statement of Financial Affairs and Schedules (“Schedules”) at 16. The Georgetown Property is significant because when NWGB foreclosed, a deficiency of approximately $600,000 resulted, not equity of $87,000 as Schedule A indicated. The Condominium is significant because the debtor's exemption in this property is the subject of both trustees' objections. The schedule reflects an anticipated deficiency for all the properties of $3,378.37. Schedule D at 22.
On Schedule D–Secured Debt, only three of the four properties were shown as collateral for joint debts with Mrs. James. Id. at 22. One debt of $199,433.18, secured by 455 Winding Ridge Road, Lafayette, Georgia, (“Winding Ridge Property”) owed to First Horizon/First Tennessee, is shown as only Mr. James' debt. Id. The secured debts total $1,778,525.77.
On Schedule F–Creditors Holding Unsecured Nonpriority Claims, Mr. James lists $3,787,914.70 of unsecured debts held by 64 different creditors. Hearing Ex. B, Schedule F. Of these unsecured debts, nine creditors hold debts designated as joint. These nine total $85,501.15 and appear to be credit card debts and have the designation “Business” in the column headed “Date Claim Was Incurred and Consideration for Claim.” Id.
On February 27, 2012, Mr. James reaffirmed his debt to NWGB on the Condominium for $164,036.17. [Bankr.Case. No. 11–16354,In re Alvin James, Doc. No. 40 at 2]. On February 29, 2012, Mr. James received his discharge.
Mrs. James filed bankruptcy approximately four months after Mr. James' discharge was granted. Her schedules reflected jointly held assets except for jewelry and an IRA. Her liabilities are a subset of those listed in Mr. James' schedules. On Schedule A she listed only the Condominium and the Winding Ridge Property in her Schedule of Real Property. She valued the Condominium at $260,000 with a debt of $160,000. The Georgetown Property is not listed since it had been foreclosed by NWGB prior to her filing. On Schedule D–Secured Debts, she listed two debts—the NWGB Condominium debt and the First Horizon/First Tennessee debt secured by the Winding Ridge Property. The latter debt is described as a nonrecourse joint debt, contrary to her husband's schedule which reflected it as his individual debt. Hearing Ex. C, Schedule D. On Schedule F–Unsecured Non Priority Creditors, she lists 27 unsecured creditors, 26 of which were listed in Mr. James' schedules, totaling $1,753,159.53. The 27th is a servicing address for Bank of America and appears to have been added only for notice related to two other Bank of America accounts. The total of her unsecured debts is significantly larger than Mr. James' because it includes a $600,000 deficiency claim resulting from the foreclosure of the Georgetown Property by NWGB. Most of the descriptions of the debts contain the word “Business.” Compare Hearing Ex. C at pp. 23–28 with Hearing Ex. B at pp. 25–37. At trial Mrs. James testified that the creditors she listed for $1.00 were added for notice purposes and she was not really sure whether she was jointly liable for the debts. The court finds that all of these debts arose from Mr. James' business since Mrs. James testified that her only employment had been as a bookkeeper for her husband's business for the last twelve years with no other employment until two weeks prior to the hearing in this court. Testimony of Delorese James, May 17, 2013 Hearing at 9:38–9:39 a.m.
In their respective schedules C—Property Claimed as Exempt, both debtors list the Condominium under the heading “Description of Property.” Both claimed 11 U.S.C. § 522(b)(3)(B) as the law providing the exemption. Both listed the “Value of the Claimed Exemption” to be $260,000. Both listed the “Current Value of the Property Without Deducting Exemption” to be $260,000. Mrs. James also reaffirmed the debt to NWGB secured by the Condominium. Neither party claimed a homestead exemption under either Tennessee or Florida law.
At the hearing, Mrs. James testified that she and her husband had listed the Condominium for sale prior to her bankruptcy...
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Whatley v. Stijakovich-Santilli (In re Stijakovich-Santilli)
...that the Trustee failed to timely investigate the Debtor's claim of exemption.The bankruptcy court relied heavily on In re James, 498 B.R. 813 (Bankr.E.D.Tenn.2013), but we hold that James is distinguishable. In James, the court found, as a matter of fact, that "no actual fraud was committe......