In re Kauffman, 02-5888-3F7.

• Decision Date: 15 September 2003
• Docket Number: No. 02-5888-3F7.,02-5888-3F7.
• Citation: 299 B.R. 641
• Parties: In re Virginia L. KAUFFMAN, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

Page 641

299 B.R. 641

In re Virginia L. KAUFFMAN, Debtor.

No. 02-5888-3F7.

United States Bankruptcy Court, M.D. Florida, Jacksonville Division.

September 15, 2003.

Patricia M. Moring, Crystal River, FL, for Debtor.

Richard A. Perry, Ocala, FL, for Thomas Read.

Gregory L. Atwater, Orange Park, FL, trustee.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JERRY A. FUNK, Bankruptcy Judge.

This case came before the Court upon Motion to Strike Amendment to Schedule C filed by Thomas Eugene Read ("Read") and Objection to Debtor's Claim of Exemptions filed by Read. The Court conducted a hearing on April 16, 2003. In lieu of argument, the Court elected to take the matter under advisement and instructed the parties to file memoranda in support of their positions. Upon review of the memoranda, the Court makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

Debtor and Read married in 1963. On April 4, 2000 the Circuit Court in and for Citrus County, Florida entered a Final Judgment of Dissolution of Marriage (the "Final Judgment") dissolving the parties' marriage. (Read's Ex. 2.) The Final Judgment incorporated an agreement between the parties dated March 31, 2000 (the "Settlement Agreement"). The Settlement Agreement provided in pertinent part:

The parties recognize that [Debtor] is entitled to one-half of the pension earned by [Read] from the State of Florida, Department of Agriculture, Forestry Division. The parties also recognize that if [Debtor] receives one-half of such pension, [Read]'s income will be reduced by one-half and [Debtor]'s income from social security disability will also be reduced. Therefore, the parties agree that so long as [Read] complies with this paragraph or until [Debtor] can receive one-half of the pension without her social security disability being effected [sic], [Debtor] will not directly take one half of [Read]'s pension.

Therefore, [Read] shall pay on behalf of [Debtor] the amount as calculated in the following paragraph directly to Regions Visa. Upon [Debtor] reaching the age of 62 years, at which time she will receive regular social security payments, she shall receive one-half of the State of Florida, Department of Agriculture, Forestry Division pension earned in the name of [Read] directly from the State of Florida. The parties shall split one-half of the cost of the transfer including preparation of whatever orders are necessary.

Should [Read] fail to make payments as set out hereunder, [Debtor] shall have the option of electing to receive one-half of the pension form the State of Florida or moving for contempt to enforce this provision.

(Read's Ex. 2.) Paragraph 11 of the Final Judgment provided that "[b]oth [Read] and [Debtor] waive and shall receive no alimony". Id. The Circuit Court has not entered an order requiring that the State of Florida pay half of Read's retirement benefits directly to Debtor.

Debtor filed a Chapter 7 bankruptcy petition on June 24, 2002. Debtor failed to list her interest arising from the Final Judgment as personal property on Schedule B of her bankruptcy petition or as exempt property on Schedule C of her bankruptcy petition. However, Debtor indicated on Item 4 of her Statement of Affairs that she was the petitioner in a post-dissolution action against Read in the Circuit Court for Citrus County, Florida.

During the latter part of 2002 Read contacted the Trustee and offered to purchase Debtor's interest arising from the Final Judgment. On December 20, 2002 the Trustee filed Notice of Intent to Sell Property of the Estate at Private Sale (the "Notice to Sell"). (Doc. 15.) The Notice to Sell indicated that the Trustee intended to sell to Read for $10,000.00 the bankruptcy estate's interest in Debtor's rights or interest arising out of the Final Judgment. The Notice to Sell provided that "[t]he property is being sold subject to all liens and encumbrances of record, if any. The Trustee is only sell[ing] whatever interest, if any, the bankruptcy estate has in this property. The property is being sold `as is'. The trustee makes no representations or warranties of any kind with regard to the property. The proceeds of the sale shall become property of the estate and distributed according to the Bankruptcy Code." The Notice to Sell contained a negative notice legend giving interested parties twenty days to object to the sale. Debtor filed an objection to the Notice to Sell indicating that her rights arising from the Final Judgment were exempt pursuant to 11 U.S.C. § 522(b) and Fla. Stat. § 222.21. (Doc. 16.) On February 19, 2003 the Court conducted a hearing on Debtor's objection to the Notice to Sell. On February 24, 2003 the Court entered Order Overruling Debtor's Objection to Trustee's Notice of Intent to Sell Property of the Estate at Private Sale and Approving Sale. (Doc. 22.) Noting that Debtor had not claimed the property as exempt as of the date of the hearing, the order overruled the objection and approved the sale.

On February 26, 2003 Debtor filed Amendments to Schedule B and C of her bankruptcy petition, listing and claiming as exempt her "1/2 interest in State of Florida Retirement Pension earned by former husband and awarded to Debtor in a dissolution of marriage action". (Docs. 23, 24.) The bases of Debtor's claim of exemption were Article X, Section 4 of the Florida Constitution, Fla. Stat. § 222 and Fla. Stat. § 122.15. On March 20, 2003 Read filed Motion to Strike Amendment to Schedule C and Objection to Exemptions. (Docs. 25, 26.) On April 16, 2003 Debtor filed Second Amendment to Schedule C, adding Fla. Stat. § 121.131 as a basis for the exemption. (Doc. 30.) On that same day the Court conducted a hearing on the Motion to Strike Amendment to Schedule C and Objection to Exemptions. On May 15, 2003 Read filed Motion to Strike Second Amendment to Schedule C and Amended Objection to Exemptions. (Docs. 35, 36.)¹

CONCLUSIONS OF LAW

I. Does the Court have discretion to disallow Debtor's Amendment to Schedule C?

The threshold issue before the Court is whether it has discretion to disallow Debtor's Second Amendment to Schedule C. Bankruptcy Rule 1009 provides that a debtor may amend her bankruptcy schedules as a matter of course at any time before the case is closed. Absent a showing of bad faith on the part of the debtor or prejudice to creditors, a court does not have discretion to deny a debtor's amendment to exemptions. Doan v. Hudgins (In re Doan), 672 F.2d 831, 833 (11th Cir.1982). Bad faith or prejudice to creditors must be shown by clear and convincing evidence. In re Talmo, 185 B.R. 637, 645 (Bankr.S.D.Fla.1995) (citation omitted).

A debtor's deliberate and intentional delay in amending an exemption in order to gain an economic or tactical advance at the expense of creditors and interests of the estate constitutes bad faith sufficient to disallow the amendment. Talmo, 185 B.R. at 648. Debtor testified that she did not intend to defraud her creditors by failing to list the asset on Schedules B and C of her bankruptcy petition. Patricia Moring, Debtor's attorney, testified that she, not Debtor, mistakenly failed to list the asset on Debtor's schedules. The Court finds Moring's failure to list the asset on Debtor's bankruptcy schedules to be the result of Moring's inadvertence and oversight. The Court finds no evidence of bad faith on the part of Debtor.

Delay in filing an amendment, standing alone, does not prejudice creditors. Doan at 833. Additionally, the fact that the allowance of an amendment would result in the allowance of the exemption does not constitute prejudice to creditors. Id. The Court finds that Read failed to show that he would be prejudiced by the allowance of the amendment.² The Notice to Sell clearly and unequivocally indicated that Read was only purchasing whatever interest the bankruptcy estate had in the property. The basis of Debtor's Objection to the Notice to Sell was that the property which the Trustee sought to sell to Read was exempt. The Court finds that any prejudice to Read is the result of his calculated decision to purchase the asset from the Trustee in the face of probable litigation as to its exempt nature rather than the result of the allowance of the amendment. Because there is no showing of bad faith on the part of Debtor or prejudice to creditors, the Court does not have discretion to disallow the amendment. The Court will enter an order denying Read's Motion to Strike Debtor's Second Amendment to Schedule C.

II. Does Read have Standing to Object to Debtor's Amended Claim of Exemptions?

Having determined that it does not have discretion to disallow Debtor's Amendment to Exemptions and must therefore deny Read's Motion to Strike Debtor's Second Amendment to Schedule C, the Court must determine whether Read has standing to object to Debtor's claim of exemptions. Bankruptcy Rule 4003 provides that a party in interest may object to a debtor's claim of exemptions. Neither the Bankruptcy Code nor the Bankruptcy Rules define party in interest. The Court finds that Read is a party in interest by virtue of having purchased Debtor's rights arising out of the Final Judgment and thus has standing to object to Debtor's Amended Claim of Exemptions.

III. Are Debtor's Rights Arising out of the Final Judgment Exempt?

The final issue before the Court is whether Debtor's rights arising out of the Final Judgment are exempt pursuant to Article 10, Section 4 of the Florida Constitution, Fla. Stat. § 222.21(2), Fla. Stat. § 122.15 or Fla. Stat. § 121.131. The Florida Constitution does not have an exemption for retirement benefits. Additionally, Fla. Stat. § 222.21 is limited to ERISA qualified plans.³ In re Fernandez, 236 B.R. 483, 487-488 (Bankr.M.D.Fla.1999); In re Cason, 211 B.R. 72, 73 (Bankr.N.D.Fla.1997). State retirement plans are specifically excluded from ERISA coverage. 29 U.S.C. § 1003(b)(1); 29 U.S.C. § 1002(32) (West 2003). Accordingly, § 222.21 does not apply.

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