In re Kwiecinski
| Decision Date | 17 March 2000 |
| Docket Number | BAP No. WY-99-042. Bankruptcy No. 98-10362. |
| Citation | 245 BR 672 |
| Parties | In re Eric F. KWIECINSKI and Kathy L. Kwiecinski, Debtors. Eric F. Kwiecinski and Kathy L. Kwiecinski, Appellants, v. Community First National Bank of Powell, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
Carl J. Hildebrand, Casper, Wyoming, for Appellants.
John C. Patton and Raymond D. Macchia of Patton & Davison, Cheyenne, Wyoming, for Appellee.
Before PUSATERI, BOULDEN, and ROBINSON, Bankruptcy Judges.
Debtors Eric F. and Kathy L. Kwiecinski ("Debtors") appeal the bankruptcy court's order determining, under Wyoming law, that their homestead exemption does not extend to a sixty-acre tract of farmland that is contiguous with the twenty-acre tract on which their home sits because they received separate deeds to the two tracts when they bought them. As a result of this ruling, confirmation of their proposed chapter 13 plan was denied. On a motion for leave to appeal, another panel of this Court decided that the exemption ruling was a final, appealable order, but that the ruling denying confirmation was interlocutory and leave to appeal it should be denied. Consequently, only the exemption ruling remains to be resolved in this appeal. For the reasons stated below, we reverse the bankruptcy court's ruling on this issue.
In 1992, the Debtors bought an eighty-acre farm and house. At least some farm land in the area was apparently identified in a publicly-filed "Farm Unit Plat" in which this tract was called "Farm Unit D." The Debtors financed the purchase. According to the Debtors, they agreed to the lender's suggestion to divide Farm Unit D into two tracts: a twenty-acre tract that included the house, and a sixty-acre tract. Under a Wyoming statute, Wyo. Stat. Ann. § 1-18-103, this split would make a mortgage on the twenty-acre tract subject to the non-agricultural real estate redemption period of three months, while a mortgage on the sixty-acre tract would be subject to the agricultural real estate redemption period of twelve months. This statute also provided that if a mortgage covered more than one tract, any one of which was agricultural real estate, the redemption period for all the tracts would be twelve months. Wyo. Stat. Ann. § 1-18-103(b). Presumably due in part to this provision, the lender took a mortgage on the twenty-acre tract only. One of the Debtors indicated he understood the lender took this action so the mortgage would qualify as a residential real estate mortgage that could be sold on the secondary market, while an agricultural real estate mortgage would not. In 1996, the Debtors gave Community First National Bank—Powell ("Community Bank") a second mortgage on the twenty-acre tract. One of the Debtors testified that he always treated the eighty acres as a unit, and did not know where the line between the twenty- and sixty-acre parcels was. According to exhibits admitted at a hearing before the bankruptcy court, twenty-five of the eighty acres are irrigated, eighteen are grazing land, thirty-five are bog and waste land, and the remaining two make up the "farmstead" (presumably the house and outbuildings).
The Debtors filed a chapter 13 bankruptcy petition on September 24, 1998. On Schedule C, they claimed their "family residence and 80 acres" as exempt to the extent of $20,000 under "WS 1-20-101." At that time, the house and twenty-acre tract were worth less than the balance owed on the first and second mortgages, and the Debtors were still living in the house. No objections to their exemptions were filed within the time fixed by Federal Rule of Bankruptcy Procedure 4003(b).
In January 1999, the Debtors filed their second amended chapter 13 plan, indicating that they would surrender the house and twenty acres to the mortgage holders. Apparently the unencumbered sixty-acre tract was worth $20,000 or less, and the Debtors subtracted its value from the amount that would be distributed to unsecured creditors if their estate were liquidated under chapter 7. Thus, they treated that tract as being covered by their homestead exemption. They testified that they hoped to build or move living quarters on the tract when their financial situation improved. Community Bank objected that the Debtors were giving up their homestead by surrendering the twenty-acre tract and that unsecured creditors would be entitled to receive the value of the sixty-acre tract in a chapter 7 liquidation. The bank stated that its second mortgage on the twenty-acre tract was probably undersecured, so it contended it had standing as an unsecured creditor to the extent its claim plus the first mortgage exceeded the value of the tract.
The bankruptcy court stated that the legitimacy and effect of exemptions are determined as of the date of the filing of the bankruptcy petition, and that the Debtors' claimed exemptions were valid. Nevertheless, relying on its own previous decision, the court declared that even though two parcels of property are contiguous, a debtor's homestead exemption is limited to the one on which the home is placed. The court declared its view that, under Wyoming law, an unsecured judgment creditor could have initiated an execution sale against the Debtors' unencumbered sixty-acre tract despite the Debtors' homestead exemption claim. The court said it did Consequently, the court held the value of the sixty-acre tract had to be included in the hypothetical chapter 7 liquidation analysis that must be done to determine whether the Debtors' plan complied with 11 U.S.C. § 1325(a)(4), and denied confirmation.
In denying the Debtors' subsequent motion to alter or amend, the court added: As indicated, the Debtors then obtained permission to appeal the denial of their exemption claim, but not the denial of confirmation of their plan.
This appeal presents a question of the application of Wyoming law to undisputed facts, a question we review de novo. Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). At the outset, we note an inconsistency in the bankruptcy court's decision. The court first stated that exemptions are determined as of the date of the bankruptcy petition and that the Debtors' claimed exemptions were valid. Indeed, after the Supreme Court's decision in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the court had to accept the validity of the exemption claims because no one timely objected to them. Nevertheless, the bankruptcy court then determined that the Debtors could not claim a homestead exemption in the sixty-acre tract, even though they had done so. Under Taylor, this reasoning is incorrect even if Wyoming law provided no good faith basis for the exemption claim. As the Supreme Court held, when no objection is made within the time established by Federal Rule of Bankruptcy Procedure 4003(b), § 522(l) provides that the property claimed as exempt in the Debtors' schedules is exempt. Taylor, 503 U.S. at 643, 112 S.Ct. 1644. Furthermore, in denying the Debtors' motion to alter or amend, the court changed its focus from the circumstances on the date the Debtors filed for bankruptcy to the circumstances that would exist if the Debtors surrendered the twenty-acre tract as proposed in their plan.
Perhaps more importantly, we are not convinced that the bankruptcy court properly interpreted Wyoming's homestead law. Section § 1-20-101 of the Wyoming Statutes provides: "Every resident of the state is entitled to a homestead not exceeding ten thousand dollars ($10,000.00) in value, exempt from execution and attachment arising from any debt, contract or civil obligation entered into or incurred." Section 1-20-102 provides: Section 1-20-104 provides: "The homestead may consist of a house and lot or lots in any town or city, or a farm consisting of any number of acres, or a house trailer or other movable home, whether or not equipped with wheels or resting upon immovable support, the value of which does not exceed six thousand dollars ($6,000.00)." In interpreting these statutes, "it should be borne in mind that exemption statutes are construed liberally so as to effect their beneficent purposes." Pellish Bros. v. Cooper, 47 Wyo. 480, 38 P.2d 607, 609 (Wyo.1934); see also Lingle State Bank v. Podolak, 740 P.2d 392, 394 (Wyo.1987) (). However, a court interpreting a statute is still limited by what the terms of the statute can fairly be said to embrace. Pellish Bros., 38 P.2d at 608-09; Johnston v. Barney, 842 F.2d 1221, 1223 (10th Cir.1988) ().
We see nothing in these statutes that might limit a Wyoming homestead in the manner the bankruptcy court did in this...
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