In re Kingsbury, Bankruptcy No. 89-10265.
| Decision Date | 22 February 1991 |
| Docket Number | Bankruptcy No. 89-10265. |
| Citation | 124 BR 146 |
| Parties | In re Bruce KINGSBURY and Kimberly Kingsbury, Debtors. |
| Court | U.S. Bankruptcy Court — District of Maine |
Elizabeth A. Hoglund, Hoglund & Associates, Portland, Me., for debtors.
Dennis G. Bezanson, South Portland, Me., Trustee.
This matter came before the court for hearing on February 13, 1991, on debtors' motion for turnover of exempt property. The following facts are undisputed.
On June 30, 1989, the debtors, Bruce and Kimberly Kingsbury, filed a joint Chapter 7 petition in bankruptcy. As required by Bankruptcy Rule 4003(a)1 and 11 U.S.C. § 522(l),2 they executed Schedule B-4 — Property Claimed as Exempt. This court's notice of July 5, 1989, set August 14, 1989, as the date for the Section 341 meeting. An amended notice later issued appointing Dennis Bezanson interim trustee3 and fixing August 4, 1989 as the date for the Section 341 meeting. In accordance with the provisions of Bankruptcy Rule 4003(b), both notices instructed that "unless extended, objections to debtor(s) claim of exempt property must be filed within 30 days after the Section 341(a) meeting."4
Item No. 4 on the debtors' schedule of exempt property listed "earnings" from the sale of milk held by Agri-Mark in the amount of $6,238.69.5 Employing ditto marks, the debtors indicated the statutory authority for the exemption claim to be identical to that provided for the preceding item on the schedule. The preceding item was also milk "earnings," although purportedly held by a third party, in the amount of $1,500.00. The Kingsburys asserted their exemption entitlement under 14 M.R.S.A. § 4422(1), (3), (7), (15), and (16); and under 14 M.R.S.A. §§ 3127, 3127-A, 3127-B, and 3128.6
A section 341 meeting was held on August 4, 1989. Pursuant to the amended notice and Bankruptcy Rule 4003(b), objections to the debtors' claims of exempt property were to be filed by September 5, 1989. Until the pending motion was initiated, no objections, timely or otherwise, were filed.7
Section 522(l) provides that unless a party-in-interest objects, the property claimed as exempt on debtors' list is exempt. The Kingsburys argue that since the trustee failed to file a timely objection he must pay over to them the $6,238.69 he holds and which they listed as exempt. The trustee answers that he elected not to file an objection to the claimed exemption because it was utterly without statutory basis and that under such circumstances filing a formal objection was unnecessary.
Although the case law is extensively developed elsewhere, the First Circuit has not yet addressed the issue raised by the debtors' motion. Nor has it been addressed by courts in this district. Cf. In re Langley, 21 B.R. 772, 773 (Bankr.D.Me.1982) ().
The Kingsburys urge the court to follow cases articulating a "bright line" rule, holding that, if an objection is not filed on time, there can be no examination of the merits of a claimed exemption. See e.g. In re Payton, 73 B.R. 31 (Bankr.W.D.Tex.1987) () A recent decision of the Tenth Circuit would appear to adopt the "bright line" standard. In re Brayshaw, 912 F.2d 1255, 1256 (10th Cir.1990) ()
A second line of cases holds that an objection is not necessary if the exemption claimed is invalid under state or federal law. See e.g. In re Stutterheim, 109 B.R. 1010 (D.Kan.1989). Such an approach pays lip service to Rule 4003(b), but renders its 30-day limitation period for filing objections toothless.
A third line of cases occupies the middle ground. Under it, a late objection will be considered only to determine whether there exists a good faith statutory basis for the exemption claim. This approach has been employed in the Sixth Circuit, In re Dembs, 757 F.2d 777 (6th Cir.1985), and, more recently, in the Eighth Circuit, In re Peterson, 920 F.2d 1389 (8th Cir.1990).8 As well as any approach can, it strikes a balance between accepting "exemption by declaration" and condoning disregard for Bankruptcy Rule 4003(b)'s time limits. As the Eighth Circuit explained:
In re Peterson, supra, 920 F.2d at 1393-94. See In re Bennett, 36 B.R. 893 (Bankr. W.D.Ky.1984) ().
The Eighth Circuit explanation and critique of the approaches that might be followed and its reasons for adopting the "middle ground approach" are persuasive.9 The debtors' exemption claim will be sustained if there is a "good-faith" statutory basis for it. If the claim is merely uncertain under existing law, it will be upheld in the face of the failure of a trustee or other party-in-interest to file a timely objection as required by the Rule 4003(b). In re Dembs, supra, 757 F.2d at 780. Thus, the Kingsburys' claims will be examined to ascertain whether, in light of the substantive content of the statutes upon which they rely, there can be found a good faith basis for their assertion.
The Kingsburys were blocked in their pre-petition attempts to obtain the funds withheld from them by Agri-Mark by force of a Massachusetts court order. They claim that the restraining order denied them the funds which, if they had been received, would have constituted cash available for their own use, including "claiming as exempt property pursuant to 14 M.R.S.A. § 4422 to pay creditors of the debtors in the ordinary course of business or used as the debtor's wages, for the purchase of food, clothing and other exempt items."10 The debtors put forward 14 M.R.S.A. § 4422(1), (3), (7), (15), (16), and 14 M.R.S.A. §§ 3127, 3127-A, 3127-B, and 3128 as statutory bases for their claims.
Title 14 M.R.S.A. §§ 3127, et seq. address the enforcement of judgments. Sections 3127, 3127-A, and 3127-B provide for installment payments to a judgment creditor upon a disclosure hearing. Section 3127-A provides for an order to third parties to hold and answer, and Section 3127-B authorizes issuance of a withholding order to a judgment debtor's employer or payor of earnings. Section 3128 sets forth factors considered in determining the amount of an installment payment order. These sections incorporate the exemptions established in 14 M.R.S.A. §§ 4421-4426.11 They do not, of themselves, create or enlarge categories of exempt property. In light of their substance, the debtors' reliance on them cannot have a good faith basis.
The other claimed statutory authorities for exemption are found within the state's primary statutory exemption provision12 and include the 14 M.R.S.A. § 4422(1) — the homestead exemption; § 4422(3) — clothing, furniture, appliances, and similar items; § 4422(7) — food, produce and animals; § 4422(15) — other property; and § 4422(16) — unused residence exemption. The court can dismiss out of hand subsections (1), (3), (7), and (16). The funds held by Agri-Mark were not part of the debtors' interest in a residence or a burial plot. They cannot be exempted under § 4422(1). Their claim finds no support in § 4422(3), which exempts each debtor's interest, not to exceed $200.00 in value in any particular item, in household furnishings, household goods, wearing apparel, etc. Similarly, § 4422(7) exempts a debtor's interest in the following items: food provisions, seeds, fertilizers, and feed, and tools and equipment reasonably necessary for raising and harvesting food, held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. Again, the exemption claim obviously fails.
The debtors assert that, had the funds been available for their use, they would have purchased items qualifying for exemption. However, the statute exempts categories of items, some of which must be held for qualifying purposes, e.g. personal, family or household use or use in the debtor's trade. See 14 M.R.S.A. §§ 4422(4), 4422(5). Nowhere does the statute provide for exemption of funds with which a debtor might choose to acquire exempt property. To the contrary, Maine law substantially negates exemption claims based on "eve of bankruptcy" acquisition of exempt assets.13
The Kingsburys' argument that the money is exempt because it represents the "proceeds" of exempt property under § 4422(7) falls short, as well. Even if the "milk earnings" were considered "proceeds," rather than "products" of animals or food,14 they would be proceeds from business sales of milk,15 rather than from sale of food, produce or animals previously held for "personal, family or household use" as subsection (7) requires.
The debtors also proffer § 4422(16) as a statutory basis for their claim. That section permits each debtor to exempt his interest, equal to any unused amount of the homestead exemption but not exceeding $4,500.00, in any property otherwise exempt under § 4422(3) — clothing,...
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