In re Kimble

• Decision Date: 13 June 2006
• Docket Number: No. 05-53517.,05-53517.
• Citation: 344 B.R. 546
• Parties: In re Harold E. KIMBLE and Christine E. Kimble, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

344 B.R. 546

In re Harold E. KIMBLE and Christine E. Kimble, Debtors.

No. 05-53517.

United States Bankruptcy Court, S.D. Ohio, Eastern Division, at Columbus.

June 13, 2006.

COPYRIGHT MATERIAL OMITTED

John R. Bates, New Philadelphia, OH, for Debtors.

AMENDED MEMORANDUM OPINION ON TRUSTEE'S OBJECTION TO EXEMPTION

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

Harold and Christine Kimble ("Debtors") hold a remainder interest in property located at 35900 Gundy Ridge Road, Scio, Ohio ("Property") and occupy the Property under an oral lease agreement with the life tenant, Dessie Kimble — Mr. Kimble's mother. The issue before the Court is whether the Debtors may exempt their remainder interest under the homestead exemption provided by Ohio Revised Code § 2329.66(A)(1)(b). Thomas Hazlett, the Chapter 7 Trustee ("Trustee"), has filed an objection to the claimed exemption ("Objection"), arguing that the Debtors' remainder interest in the Property is not exemptible as a homestead under Ohio law.

Ohio courts have yet to address the question of whether the holder of a remainder interest in real property on which he/she resides may claim a homestead exemption in that property if it is subject to the rights of a life tenant. Thus, the Court must predict how the Ohio Supreme Court would rule if it were confronted with this issue. Because the express terms of the statute do not preclude the exemption claimed by the Debtors, and because Ohio courts liberally construe exemption laws in favor of debtors and their dependents, the Court concludes that the Debtors' remainder interest in the Property qualifies for exemption under Ohio Revised Code § 2329.66(A)(1)(b).

I. Jurisdiction

The Court has jurisdiction to hear and determine this contested matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2)(B).

II. Factual Background

The Debtors filed their voluntary petition for relief under Chapter 7 of the Bankruptcy Code on March 9, 2005 ("Petition Date"). On the Schedule A (Real Property) that the Debtors filed with their petition, they listed their joint tenancy in the Property with right of survivorship interest, subject to Dessie Kimble's life estate. The Debtors valued their interest in the Property at $12,180.92. According to Schedule A, Debtors arrived at this value by multiplying the "[c]ounty assessed value of the entire estate [$21,620.00]" by the "Social Security figure for value of [Debtors'] remainder interest after life estate at age 80 [0.56341]." The value of the Debtors' remainder interest is not in dispute.

In their amended Schedule F (Creditors Holding Unsecured Nonpriority Claims), Debtors list a total of $15,670 in unsecured debt. They disclose a verbal lease agreement with Dessie Kimble — under which Debtors claim the "right to live in [the] mobile home on property in which Dessie has a life estate and in which they hold the remainder" — in their Amended Schedule G (Executory Contracts and Unexpired Leases). Amended Schedule G (Doc. 13).

In support of their claimed exemption, the Debtors submitted the affidavits of Dessie M. Kimble and Harold E. Kimble (collectively, "Affidavits"). The Trustee does not dispute the facts set forth in the Affidavits. The Affidavits establish that: (1) Dessie Kimble deeded the Property to the Debtors on September 13, 1993 and retained a life estate; (2) since September 1993 Dessie Kimble and the Debtors have continuously resided on the Property — she in her house and the Debtors in a mobile home also situated on the land; (3) at the time she deeded the Property to the Debtors and retained her life estate, Dessie Kimble and the Debtors entered into a verbal agreement under which she agreed that the Debtors could reside on the Property during her lifetime, and the Debtors, in turn, agreed to maintain her house in good condition so long as she lived; and (4) this arrangement has continued in effect from September 1993 to the present.

III. Arguments of the Parties

The Trustee argues that because the Debtors' remainder interest does not entitle them to the Property's present possession or use, they are not entitled to exempt the interest as a homestead under Ohio Revised Code § 2329.66(A)(1)(b). In support of his position, the Trustee relies on an unreported decision by Judge Sellers in In re Britton, Case No. 96-53923 (Bankr. S.D.Ohio November 5, 1996) ("Britton Order.") (Doc. 22-1). In Britton, the Chapter 7 trustee objected to the homestead exemption claimed by the debtor in real estate in which she held a remainder interest. The court applied the following three-part test to determine whether the debtor was entitled to claim a future interest in property exempt as a homestead:

1. The debtor must have a future legal interest in the real property;

2. The debtor must actually occupy or possess the real property at the time the bankruptcy petition is filed; and

3. The debtor's future interest must be coupled with a present right to possession of the realty.

Britton Order at 2. The Britton court sustained the objection because "the debtor did not demonstrate any present right to possession of [the] property, [and][n]o evidence was introduced of any written or oral lease conveying any present possessory right upon her." Id. According to the Trustee, because the Debtors — like the debtor in Britton — have no legal right to occupy the Property, their remainder interest may not be exempted under Ohio Revised Code § 2329.66(A)(1)(b).

Based on the uncontroverted affidavit testimony, the Debtors argue that the Court should allow their claimed homestead exemption because, unlike the debtor in Britton, they do have a right to present possession of the Property. The Debtors urge the Court to follow Denzer v. Prendergast, 267 Minn. 212, 126 N.W.2d 440 (1964) — a decision from the Minnesota Supreme Court that they assert is on all fours with the present case. The Denzer court upheld the exemption claimed by the debtors in their remainder interest under the Minnesota exemption statute because their future interest was coupled with an oral agreement granting the debtors a right of possession.

IV. Legal Analysis

A. The Bankruptcy Estate

The filing of a petition under the Bankruptcy Code¹ creates an estate consisting of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). See Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) ("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."); Forbes v. Lucas (In re Lucas), 924 F.2d 597, 600 (6th Cir. 1991) ("The filing of a bankruptcy petition under Title 11 of the United States Code creates an estate comprised of `all legal or equitable interests of the debtor in property as of the commencement of the case.'" (quoting 11 U.S.C. § 541(a)(1))). Here, there is no dispute that the Debtors' remainder interest is property of their bankruptcy estate.

B. Exemptions from the Estate

"Federal bankruptcy law allows a debtor to exempt some of his property — mainly basic necessities — from the bankruptcy estate. The exemptions can afford the debtor some economic and social stability, which is important to the fresh start guaranteed by bankruptcy." Sheehan v. Morehead (In re Morehead), 283 F.3d 199, 202-03 (4th Cir.2002) (citing Williams v. U.S. Fid. & Guar. Co., 236 U.S. 549, 554-55, 35 S.Ct. 289, 59 L.Ed. 713 (1915)). See 11 U.S.C. § 522(b); Rousey v. Jacoway, 544 U.S. 320, 325, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005) ("To help the debtor obtain a fresh start, the Bankruptcy Code permits him to withdraw from the estate certain interests in property, such as his car or home, up to certain values." (citations omitted)); Owen, 500 U.S. at 308, 111 S.Ct. 1833 ("An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor. Section 522 determines what property a debtor may exempt."); Holland v. Star Bank, N.A. (In re Holland), 151 F.3d 547, 548 (6th Cir.1998) ("The Bankruptcy Code allows debtors to exempt certain property from the bankruptcy estate."); Storer v. French (In re Storer), 58 F.3d 1125, 1127 (6th Cir.1995) (same). Exemptions "give the debtors a so-called `grub-stake' to begin their fresh start and ... act as a safety net, so that the debtor and his family are not completely impoverished due to creditor collection action or bankruptcy such that they become wards of the state." In re Robinson, 292 B.R. 599, 606 (Bankr.S.D.Ohio 2003) (internal quotation marks omitted).

Section 522(b)(1) of the Code offers a debtor the choice between exempting the property specified in § 522(d) or utilizing the exemptions provided by federal non-bankruptcy law or state law "unless the State law that is applicable to the debtor ... specifically does not so authorize[.]" 11 U.S.C. § 522(b)(1). Because Ohio has chosen to "opt out" of the federal exemption scheme, the Debtors are limited to the exemptions provided under Ohio law.² See Storer, 58 F.3d at 1127 ("Ohio has replaced the federal exemptions with its own state exemptions, which are those generally available to debtors under Ohio's general debtor-creditor law.").

C. Burden of Proof in Exemption Litigation

The party objecting to an exemption — here, the Trustee — has the burden of proving that the exemption is not properly claimed. See Fed. R. Bankr.P. 4003(c) ("A party in interest may file an objection to the list of property claimed as exempt...."); Robinson, 292 B.R. at 612 n. 9. "The [T]rustee, as the objecting party, has the burden of producing evidence which rebuts the prima facie presumption that the exemption is correct." In re Mann, 201 B.R. 910, 915 (Bankr.E.D.Mich. 1996) (citing Lester v....