In re Kelley

• Decision Date: 16 August 2011
• Docket Number: No. 2:10–bk–17145M.,2:10–bk–17145M.
• Citation: 455 B.R. 710
• Parties: In re Patrick KELLEY, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

455 B.R. 710

In re Patrick KELLEY, Debtor.

No. 2:10–bk–17145M.

United States Bankruptcy Court, E.D. Arkansas,Helena Division.

Aug. 16, 2011.

OPINION TEXT STARTS HEREWest CodenotesHeld UnconstitutionalWest's A.C.A. § 16–66–218(a)(2, 4) Donald E. Knapp, Jr., Knapp Law Firm, Helena, AR, for Debtor.

ORDER

JAMES G. MIXON, Bankruptcy Judge.

On September 30, 2010, Patrick Kelley (Debtor) filed a voluntary petition for relief under the provisions of Chapter 7 of the United States Bankruptcy Code. James C. Luker was appointed the Chapter 7 Trustee. The Debtor claims on his amended schedules filed March 8, 2011, that his residence located at 2179 Highway 242 West, Lexa, Arkansas, is exempt pursuant to the Arkansas Constitution, Article 9, Section 4, in the sum of $350,000.00. He claims exempt personal property consisting of a 1999 GMC van, cash in the sum of $200.00, and tools and equipment valued at $750.00. The claim of exemption for the truck, tools and equipment are made pursuant to Arkansas Code Annotated § 16–66–218(a)(2) & (4) and the cash of $200.00 pursuant to Arkansas Constitution, Article 9, Section 1.

On May 2, 2011, the Trustee filed an objection to the Debtor's claim of homestead exemption on the grounds that the property is urban in nature and is limited in size to 1/4 an acre pursuant to Article 9, Section 5 of the Arkansas Constitution. The Trustee also objects to the homestead exemption because the Debtor caused a deed of trust in the sum of $353,000.00 to issue from him to his mother and father which was filed 30 days before the petition was filed and that said deed of trust represents a voluntary transfer avoidable by the Trustee and recoverable for the benefit of the estate pursuant to 11 U.S.C. § 550 and § 551 and other unspecified sections of the Bankruptcy Code. The Trustee objects to the exemption for tools and equipment because they are not described with sufficient particularity. The Debtor denies all of the Trustee's allegations and claims the deed of trust was for a legitimate pre-existing debt.

Trial on the merits was held in Helena, Arkansas, on June 7, 2011, and the matter was taken under advisement. Both parties have filed briefs and the Court, at the invitation of both parties, viewed the property. The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and the Court has jurisdiction to enter a final judgment in this case.

I.PERSONAL PROPERTY

The Debtor claims on Schedule C an exemption in a 1999 GMC Van, tools and equipment pursuant to Arkansas Code Annotated § 16–66–218(a)(2) & (4). ¹ The Debtor's claim of exemptions in personal property pursuant to state law is limited to the following property:

The personal property of any resident of this State, who is not married ... in specific articles to be selected by such resident, not exceeding in value the sum of two hundred dollars, in addition to his and her wearing apparel, shall be exempt from seizure on attachment, or sale on execution or other process from any court, issued for the collection of any debt by contract....Article 9, Section 1, Arkansas Constitution (1874).

Because Arkansas Code Annotated § 16–66–218(a)(2) and (4) provides for exemptions in excess of the amount set by the Arkansas Constitution, the statutory exemptions are unconstitutional and disallowed.² See Fed. Sav. & Loan Ins. Corp. v. Holt (In re Holt), 894 F.2d 1005 (8th Cir.1990); In re Hudspeth, 92 B.R. 827 (Bankr.W.D.Ark.1988); In re Giller, 127 B.R. 215 (Bankr.W.D.Ark.1990); In re Williams, 93 B.R. 181 (Bankr.E.D.Ark.1988). Therefore, the Debtor having already claimed his $200.00 in cash is not allowed a claim of exemption in any other personal property except his personal clothing.

II.REAL PROPERTY

The Debtor claims his residence and approximately eight acres located at 2179 Highway 242 West, Lexa, Arkansas, as an exempt rural homestead pursuant to Article 9, Section 4 of the Arkansas Constitution. The Debtor purchased the property in 1995 or 1996 with money loaned by Merchants & Farmers Bank. He has paid the loan in full. (Tr. at 62 & 84.) He was not married when he purchased the home but then he married in 1999 and he was divorced in 2009. During the marriage he lived in the residence with his wife. (Tr. at 85.)

Highway 242 West is also known as North Fourth Street Road as it leaves Plaza Street in downtown West Helena and travels north about two miles to the location of the Debtor's residence. (Tr. at 13 & 108.) The Debtor's property corners with the city limit of the town of Helena–West Helena on the southeast side. (Def.'s Ex. 3 & Tr. at 95.) The Debtor acknowledged he is about a five minute drive from all of the urban amenities Helena–West Helena has to offer (gas stations, Wal–Mart, liquor store, bank, pawn shop, etc.). (Tr. at 108.)

The nearest gas station is at Fourth and Quarrels Lane at a convenience store about a mile a one-half south toward Plaza Street. There is beer joint nearby that sells beer, (fish) bait, and groceries. (Tr. at 107.) There is a church near the residence. (Tr. at 107.) There is a private school south of the Debtor's property less than a mile away. There is no public school nearby, but the residence is in the Helena–West Helena school district. (Tr. at 15 & 107.) The streets and roads in the area are all paved by the state or the city. (Tr. at 14.) No public sidewalk exists and the Debtor's postal address is Lexa, Arkansas, not Helena–West Helena, Arkansas. The residence has fire protection from the city of Helena–West Helena because it is within five miles of the city and there is a fire hydrant located near the house. (Tr. at 104.) The property is served by the city of Helena–West Helena water and garbage pick up. (Tr. at 103–104). Electric services are provided by Entergy, not a rural co-op. The Debtor has telephone service. (Tr. at 104.) The Debtor's property does not have city sewer service and is on a septic tank. (Tr. at 87.) The sheriff serves the property rather than the city police because it is in the county. (Tr. at 50 & 66–67.)

Thomas Larry Delk, an employee of Helena National Bank who lives 6/10ths of a mile west of the Debtor's residence and passes by the residence every day, described the area as, “it's residential all the way from, you know, West Helena, Plaza Street, all the way out there, but I know a good mile or so past there it's all houses, you know.” (Tr. at 14.) Most of the houses in the immediate area are located on tracts larger than one acre and are all facing the highway. (Tr. at 14 & 81.)

The Trustee described the area as follows, “when you leave Highway 1 and come through Lexa, there's a long straight stretch that there are quite a number of homes, but there is considerable agricultural activity along the way, as well. And then, when you get within about a half a mile of the end of Fourth Street, then for the next half mile it's built up, one home after another on both sides of the road, with nice homes. And as you turn that curve and come south into West Helena, immediately as you come around that curve, Mr. Kelley's home is on the right, which is the west side of the road as you are coming this way. And on both sides of the road, from that point on, all the way into town, it's pretty well solidly built up. There may be one or two spots where there will be a vacant area along the highway.” (Tr. at 39.)

The shape of the city boundaries along north Fourth Street Road is partially in the shape of a strip to include only the houses on either side of the road until the city boundary reaches the east boundary of the Debtor's land. (Tr. at 60 & Def.'s Ex. 2 & 3.) Immediately behind the Debtor's property (to the west) is an active pecan orchard consisting of 80 or 90 acres. (Tr. at 68.) Across the highway (to the east) is the national forest. (Tr. at 68.) To the south of the Debtor's property, toward the town of Helena–West Helena is Jerry Robertson's personal residence which consists of 16 acres of land. (Tr. at 68.) Originally Robertson bought 27 acres that was used to raise vegetables for retail and “truck patching.” (Tr. at 63.) Robertson testified that he sold the eight acres of his 27 acres to the Debtor in 1995 for $200,000.00. (Tr. at 62 & 71.) The city limit line is actually on Robertson's property. (Tr. at 65.) Robertson testifies he now owns 16 acres of the 27–acre block and he uses eight acres of the 16 as a horse pasture. (Tr. at 64.) Adjacent and south of Robertson's 16 acres, he owns a 10–acre plot that contains salvage vehicles. (Tr. at 66.) Directly north of the Debtor, is a 114–acre tract of farmland owned by Katherine Nobles. (Tr. at 86.) Across Highway 242 which runs in front of the Debtor's property and slightly northeast is three acres of woods also owned by Nobles which is adjacent to the forest. (Tr. at 87.)

Andrew Valley, the former city attorney for the city of Helena–West Helena identified the city boundaries of the city of Helena–West Helena when the two cities were consolidated. (Tr. at 47 & Def. Ex. 2 and 3.) According to the last census, the population has declined from 15,000 residents to 12,000 residents. (Tr. at 53.) Valley stated that the residence was 1/10th to 2/10ths of a mile north of the city limits and is not part of the municipality of Helena–West Helena. (Tr. at 48.) He stated that the Debtor's eight acres cornered on the city limits and based on his experience of 12 years as the city attorney, he does not consider the Debtor's property part of the municipality of Helena–West Helena. (Tr. at 51.) He explained, “Fourth Street all the way toward Lexa you have houses bordering on each side of the road. Beyond the residence you have on the right side of the road, you have rural land on both sides behind that, that would not be in the city limits.” (Tr. at 60.)

The Debtor's house sits on the rear of the eight acres and behind the residence is a barn and a swimming pool. (Tr. at 13 & 38.) The property has a white fence on the front...