In re Lyall
| Decision Date | 23 January 1996 |
| Docket Number | Action No. 2:95cv1023. |
| Citation | 191 BR 78 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | In re Raymond A. LYALL, Debtor. MONTICELLO ARCADE LIMITED PARTNERSHIP, Appellant, v. Raymond A. LYALL, Appellee. |
COPYRIGHT MATERIAL OMITTED
Paul Ernest Eberhardt, Norfolk, VA, for Appellant.
Robert Vincent Roussos, Norfolk, VA, for Appellee.
This matter is before the Court on appeal, pursuant to 28 U.S.C. § 158(a), from two orders of the United States Bankruptcy Court for the Eastern District of Virginia entered July 11, 1995, and September 19, 1995. Appellant presents three issues in this appeal: (1) whether the bankruptcy court properly exempted Debtor's 1990 Acura Legend under section 34-26(7) of the Virginia Code; (2) whether the bankruptcy court accurately valued Debtor's 100% stock interest in Lyall Design, Inc., a professional corporation, by deducting $12,959.52 from the value of the corporate assets to reflect an unexpired lease commitment; and (3) whether the bankruptcy court erred in apportioning a joint tax refund received by Debtor and his nondebtor wife equally between the two, rather than on the basis of income, or of taxes withheld.
On March 6, 1995, Raymond A. Lyall ("Debtor" or "Mr. Lyall") filed a voluntary Chapter 7 petition for bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. Debtor listed Monticello Arcade Limited Partnership ("Creditor" or "Monticello") as a creditor holding an unsecured nonpriority claim for back rent in the amount of $20,000.00.
In Schedule B of his petition, Mr. Lyall listed his personal property and assigned a value to each item. In paragraph 12, he listed 100 shares of stock in Lyall Design, Inc., valued at $100.00. In paragraph 17, Mr. Lyall listed his 1994 tax refund, valued at $1.00. Finally, in paragraph 23, Mr. Lyall listed a 1990 Acura Legend, valued at $8,800.00.
In Schedule C, Mr. Lyall listed certain property as exempt from distribution by the trustee in bankruptcy. The first three entries in Schedule C are at issue in this appeal. Mr. Lyall listed his stock interest in Lyall Design, Inc., as exempt under Virginia's general homestead exemption, Va.Code Ann. § 34-4. He listed his 1994 tax refund under that same exemption. Finally, Debtor listed his Acura Legend as exempt under Virginia's "Poor Debtor's Exemption," Va. Code Ann. § 34-26.
Monticello filed a timely objection to these exemptions. It objected to the exemption of Debtor's car as a tool of the trade under section 34-26(7), to the valuation of Debtor's stock interest in Lyall Design, and to the valuation of Debtor's 1994 tax refund. United States Bankruptcy Judge Marvin R. Wooten conducted an evidentiary hearing on Monticello's objections on July 11, 1995.
Judge Wooten first addressed the question of whether Debtor's automobile is exempt under section 34-26(7). Debtor's 1990 Acura Legend has a loan value of $9,900. Debtor is an architect. He uses the car to commute to and from work and also to travel to meetings with clients and to inspect job sites. Monticello first argued that Debtor does not require a car to perform his job. Next, Monticello insisted that even if Debtor does require a car, he does not need a car as valuable as his 1990 Acura in order to perform his job. The bankruptcy court ruled that Mr. Lyall's car is exempt under section 34-26(7) as a tool of his occupation. The court further ruled that it would not inquire into whether Debtor's job requires a car as valuable as the Acura.
The court next addressed the valuation of Debtor's stock interest in Lyall Design, Inc. Mr. Lyall testified at the hearing and produced an analysis, which valued his stock interest at $1,558.41. That figure was arrived at by adding the value of the corporation's assets and subtracting its liabilities, including an unexpired lease obligation for office space currently occupied by the corporation, valued at $12,959.52. The bankruptcy court accepted this methodology and set the value of Debtor's stock at $1,558.41.
Finally, the court considered the value of Debtor's 1994 tax refund. Mr. Lyall filed federal and state joint tax returns with his wife on March 31, 1995. The couple's combined adjusted gross income for 1994 was $39,488. Their tax return showed that $37,927 of this amount was income produced by Debtor; $1,561 was shown as income produced by Debtor's wife. The 1994 federal income tax due from the Lyalls was $2,921. Because $5,508 had been withheld from Debtor's earnings, and $90 had been withheld from Mrs. Lyall's earnings, the couple was entitled to a joint refund of $2,677. The 1994 state income tax due from the Lyalls was $1,196. Because $2,288 had been withheld from Debtor's earnings, the couple was entitled to a joint refund of $1,092. The Lyalls' combined tax refund for 1994, therefore, was $3,769.
The question before the bankruptcy court was how to divide that tax refund between Debtor and his nondebtor wife. Judge Wooten did not incorporate a decision on this issue into his ruling because the parties advised the court that they would attempt to reach an agreement on the proper allocation of the refund. Judge Wooten did, however, indicate that the portion of the tax refund attributable to Debtor and his wife should be proportional to the income of each during the relevant year. The parties failed to reach an agreement on the proper allocation, so the issue was decided by United States Bankruptcy Judge David H. Adams by order entered September 19, 1995. Judge Adams ordered that the tax refund be apportioned between Mr. Lyall and his wife based on Mr. Lyall's ½ interest in the refunds, totalling $1,884.50. Judge Adams indicated in a letter addressed to the parties that he based his decision on Bass v. Hall, 79 B.R. 653 (W.D.Va.1987), where the court held that joint tax refunds should be divided equally between husband and wife.
The first issue before the Court is whether Mr. Lyall's Acura is exempt from distribution by the trustee under section 34-26(7) of the Virginia Code. Both parties have presented this issue as a question of law; therefore, the Court will review the bankruptcy court's ruling on this issue de novo. See, e.g., Hager v. Gibson, 188 B.R. 194, 196 (E.D.Va.1995) ().
The bankruptcy estate includes "all legal or equitable interests of the debtor at the commencement of the case." 11 U.S.C. § 541(a)(1). A debtor may, however, exempt certain property from distribution by the trustee in bankruptcy. 11 U.S.C. § 522. Under the Bankruptcy Code, a state may opt-out of the Code's exemption scheme by enacting its own set of exemptions. 11 U.S.C. § 522(b). Virginia has elected to opt-out of the Federal exemption scheme. Va. Code Ann. § 34-3.1. The Court, therefore, must look to state law to determine whether Debtor may exempt his automobile from distribution. Virginia's "Poor Debtor's Exemption" removes certain items of personal property from distribution by the trustee. Va. Code Ann. § 34-26. The exemption provides, in relevant part, the following:
The present version of the "tools-of-the-trade" exemption is the result of a 1990 amendment. Prior to that amendment, the exemption only covered tools and utensils used by a mechanic. Under the prior law, courts uniformly held that automobiles were not exempt. See, e.g., In re Allen, 52 B.R. 206, 212 (Bankr.E.D.Va.1985) (); In re Dummitt, 2 B.R. 136, 138 (Bankr.W.D.Va.1980) (). The 1990 amendment specifically overruled these cases and allowed for exemption of a car as long as it is necessary for use in the debtor's occupation. Since the amendment, no court has interpreted section 34-26(7) as it relates to automobiles.
When interpreting a legislative enactment, a court must read unambiguous statutory language in accordance with its plain meaning. Miller v. Commonwealth, 172 Va. 639, 648, 2 S.E.2d 343 (1939). Under Virginia law, bankruptcy exemptions must be liberally construed in favor of the debtor. See, e.g., In re Perry, 6 B.R. 263, 264 (Bankr. W.D.Va.1980). Here, the statute exempts tools, including motor vehicles, "necessary for use in the course of the householder's occupation or trade." It goes on, however, to preclude exemption of a motor vehicle which is used to commute to and from the work place unless it is "otherwise necessary for use in the course of the debtor's occupation or trade." Va.Code Ann. § 34-26(7). The application of the statutory exemption, then, depends upon the meaning of the word "necessary." The word "necessary" is used in ordinary conversation; it is neither a technical term, nor a term of art. It therefore must be interpreted in accordance with its common meaning.
Webster's dictionary defines "necessary" as that which is "absolutely needed" or "required." Webster's Ninth New Collegiate...
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