In re Lampe

• Decision Date: 22 May 2002
• Docket Number: BAP No. KS-01-015.,BAP No. KS-01-007.,Bankruptcy No. 00-41306.
• Citation: 278 B.R. 205
• Parties: In re Donald R. LAMPE and Sheila L. Lampe, Debtors. Donald R. Lampe and Sheila L. Lampe, Appellants-Cross-Appellees, v. Iola Bank and Trust, Appellee-Cross-Appellant, Darcy Williamson, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

Page 205

278 B.R. 205

In re Donald R. LAMPE and Sheila L. Lampe, Debtors Donald R. Lampe and Sheila L. Lampe, Appellants-Cross-Appellees, v. Iola Bank and Trust, Appellee-Cross-Appellant Darcy Williamson, Chapter 7 Trustee, Appellee.

BAP No. KS-01-007.

BAP No. KS-01-015.

Bankruptcy No. 00-41306.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

May 22, 2002.

COPYRIGHT MATERIAL OMITTED

William E. Metcalf, Metcalf & Justus, Topeka, KS, for Appellants-Cross-Appellees.

Amy J. Ginsberg, Garrison, Czeschin & Ginsberg, LLC, Merriam, KS, for Appellee-Cross-Appellant.

Darcy Williamson, Topeka, KS, Trustee, pro se.

Before McFEELEY, Chief Judge, CORNISH, and CORDOVA,¹ Bankruptcy Judges.

OPINION

CORDOVA, Bankruptcy Judge.

This case requires us to construe the Kansas exemption statute applicable to "tools of the trade," Kan. Stat. Ann. § 60-2304(e). Donald R. and Sheila L. Lampe ("Debtors") appeal and Iola Bank & Trust ("Bank") cross appeals from the order of the United States Bankruptcy Court for the District of Kansas in which the court concluded that one of the Debtors was entitled to claim a tools of the trade exemption under Kan. Stat. Ann. § 60-2304(e). In their appeal, the Debtors contend that the bankruptcy court erred in determining that only Donald Lampe was eligible to claim as exempt certain farm equipment. The Bank argues in its cross appeal that the bankruptcy court erred in concluding that the Debtors were farmers entitled to any tools of the trade exemption. For the following reasons, we affirm the bankruptcy court insofar as it concluded that the Debtors were farmers and reverse the court's conclusion that Sheila Lampe was not entitled to a tools of the trade exemption under Kan. Stat. Ann. § 60-2304(e).

I. Background

Donald Lampe began working as a farmer while in high school in 1971. After he married Sheila Lampe in 1980, the two continued to earn their livelihood exclusively by farming until falling on hard times in the late 1990's. (Appellee's Appendix at 11-12.) Although the Debtors primarily farmed grain, they had raised cattle from time to time before 1999. The Debtors obtained loans from the Bank and from the Farm Services Agency in order to finance their farming operation.

Both Debtors contributed their labor to the farm; Sheila Lampe performed all tasks except for operating the planter and combine. In approximately 1997, Sheila Lampe obtained part-time employment as a secretary to supplement the family's farm income, but she continued to work on the farm in addition to her outside employment.

Despite the Debtors' efforts, they were unable to meet their financial obligations to the Bank and to the Farm Services Agency. In 1999, the Debtors informed the Bank that they were struggling and that they would be unable to make a payment on the Farm Services Agency loan. The Bank, which had been the source of the Debtors' operating capital, did not renew the Debtors' operating loan, and commenced foreclosure on the Debtors' farm property thereafter. (Appellant's Appendix at 12.)

In February 2000, Donald Lampe took a job with a farm implement dealer. Sheila Lampe began working as a daycare provider and also obtained work with a local cooperative. Both Debtors continued to work on the farm notwithstanding their outside jobs. Even without an operating loan in 1999, the Debtors obtained funds to plant a crop through a local farm cooperative, which extended them credit for fuel, seed, fertilizer, and other necessary supplies.

The Debtors filed a joint Chapter 7 petition on June 19, 2000. On Schedule C, filed on July 12, 2000, the Debtors claimed a $15,000.00 exemption for certain farm equipment² under the Kansas tools of the trade exemption, Kan. Stat. Ann. § 60-2304(e). Following the meeting of creditors in August 2000, the Bank and the Chapter 7 Trustee, Darcy D. Williamson ("Trustee"), filed timely objections to the Debtors' claimed exemption. See Fed. R. Bankr.P. 4003(b).

The Bank argued that the Debtors did not qualify for the claimed exemption under Kan. Stat. Ann. § 60-2304(e) because farming was not their primary occupation, as evidenced by the Debtors' Schedule I, in which they had listed their outside employment. The Bank asserted that it held valid liens on the property claimed as exempt, which the Debtors could not avoid. The Trustee also asserted that the Debtors' primary occupation was not farming, and claimed that Sheila Lampe "may not be entitled to exempt `tools of the trade' pursuant to In re Goebel, 75 B.R. 385 ([Bankr.D.Kan.] 1987)." (Appellant's Appendix at 8.)

The bankruptcy court held an evidentiary hearing on January 3, 2001, taking testimony and admitting documentary evidence. The court took the matter under advisement and issued its Order on Objections to Exemptions and Lien Avoidance³ on February 5, 2001. The court found that, despite the Debtors' outside employment, the Debtors' primary occupation was farming at the time that they filed for bankruptcy. The court concluded, however, that Sheila Lampe could not claim a $7,500.00 exemption in the farm equipment because she did not have a separate ownership interest therein. The Debtors filed a timely notice of appeal, and the Bank filed its cross appeal thereafter. See Fed. R. Bankr.P. 8002(a).

II. Jurisdiction

The bankruptcy court's order regarding the Debtors' claim of exemption is an appealable order for purposes of this Court's jurisdiction. 28 U.S.C. § 158(a)-(b); Gregory v. Zubrod (In re Gregory), 245 B.R. 171, 172 (10th Cir. BAP 2000), aff'd without published opinion, 246 F.3d 681 (10th Cir.2000). The parties filed timely notices of appeal under Fed. R. Bankr.P. 8002, and consented to this Court's jurisdiction by failing to proceed in the United States District Court for the District of Kansas. 28 U.S.C. § 158(c)(1); Fed. R. Bankr.P. 8001; 10th Cir. BAP L.R. 8001-1.

III. Standard of Review

Whether the bankruptcy court erred in finding that the Debtors were primarily employed as farmers is a factual matter subject to reversal under the clearly erroneous standard. Fed. R. Bankr.P. 8013; Cobb v. Lewis (In re Lewis), 271 B.R. 877, 880 (10th Cir. BAP 2002) (findings of fact are reviewed for clear error). "`A finding of fact is clearly erroneous if it is without factual support in the record or if the appellate court, after reviewing all the evidence, is left with the definite and firm conviction that a mistake has been made.'" Paton v. New Mexico Highlands University, 275 F.3d 1274, 1278 (10th Cir.2002) (quoting Tosco Corp. v. Koch Indus., Inc., 216 F.3d 886, 892 (10th Cir.2000)). Whether the court properly applied the Kansas exemption for tools of the trade in precluding Sheila Lampe from claiming an exemption is a question of law, reviewable de novo. In re Zibman, 268 F.3d 298, 301 (5th Cir.2001); In re Dudley, 249 F.3d 1170, 1174 (9th Cir.2001); accord In re Johnson, 113 B.R. 44, 45 (W.D.Okla.1989).

IV. Discussion

Because neither Debtor would be entitled to claim an exemption for the farm equipment under Kan. Stat. Ann. § 60-2304(e) if they were not primarily or principally engaged as farmers at the time the petition was filed, see Seel v. Wittman, 173 B.R. 734, 736 (D.Kan.1994) (noting that, under Jenkins v. McNall, 27 Kan. 532, 533-34 (1882), if debtor has two jobs, exempted property "must belong to his [or her] main or principal business"), we first address the Bank's cross-appeal.⁴

A. Bank's Cross-Appeal

The Bank contends that the bankruptcy court erred in finding that the Debtors were farmers because farming was not the Debtors' primary occupation when they filed their Chapter 7 petition. The Bank relies on the Debtors' schedules I and J, in which the Debtors did not disclose any income or expenses from farming. In addition, the Bank contends that, because the Debtors had full-time jobs off the farm, had no operating funds to finance their farm, and a foreclosure of the Debtors' property was pending, the Debtors had abandoned farming as their primary occupation, precluding an exemption under Kan. Stat. Ann. § 60-2304(e). (Cross Appellant's Brief at 5.) The Bank argues that, because the bankruptcy court recognized in its order that any income from the Debtors' farm operation in the future would "likely not produce gross income which exceeds their non-farm income," the court could not have found that the Debtors were farmers entitled to a tools of the trade exemption. (Cross Appellant's Brief at 5-6.)

Kansas has opted out of the federal exemption scheme provided in 11 U.S.C. § 522. Kan. Stat. Ann. § 60-2312. The state exemption for tools of the trade provides that:

[e]very person residing in [Kansas] shall have exempt from seizure and sale upon any attachment, execution or other process issued from any court in [Kansas], the ... books, documents, furniture, instruments, tools, implements and equipment, the breeding stock, seed grain or growing plants stock, or the other tangible means of production regularly and reasonably necessary in carrying on the person's profession, trade, business or occupation in an aggregate value not to exceed $7,500.

Kan. Stat. Ann. § 60-2304(e) (emphasis added). A debtor's right to an exemption is determined as of the date that the bankruptcy petition is filed. In re Currie, 34 B.R. 745, 748 (D.Kan.1983); see In re Wolf, 248 B.R. 365, 367 (9th Cir. BAP 2000); In re Owens, 269 B.R. 794, 796 (Bankr.N.D.Ill.2001); accord Mansell v. Carroll, 379 F.2d 682, 684 (10th Cir.1967).

In Kansas, the tools of the trade exemption applies only to the business or profession in which the debtor is "principally engaged." Seel, 173 B.R. at 736 (noting that Kansas "has long followed" the rule that a debtor may only exempt tools used in his or her principal business); see In re Zink, 177 B.R. 713, 715 (Bankr.D.Kan.1995) ("When a debtor carries on more than one trade or profession, the tools of the trade exemption is applicable only to his or her primary occupation."); In re...