In re Man

• Citation: 428 B.R. 644
• Decision Date: 02 April 2010
• Docket Number: No. 09-51791,09-51791
• Parties: In re Barbara Ruth MAN, Debtor.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina

428 B.R. 644

In re Barbara Ruth MAN, Debtor.

No. 09-51791.

United States Bankruptcy Court,

M.D. North Carolina,

Winston-Salem Division.

April 2, 2010.

Esten H. Goldsmith, Concord, NC, for Debtor.

MEMORANDUM OPINION

THOMAS W. WALDREP, JR., Bankruptcy Judge.

This matter came before the Court on February 17, 2010 upon the Trustee's Objection to Debtor's Property Exemptions (the "Objection"), filed by Edwin H. Ferguson, Jr., the duly-appointed Chapter 7 trustee in this case (the "Trustee"), on November 13, 2009. At the hearing, Esten H. Goldsmith appeared on behalf of the above-referenced debtor (the "Debtor") and Mr. Ferguson appeared in his capacity as the Trustee. The Objection presents a matter of first impression: whether a condominium may be properly exempted as a health aid pursuant to N.C. Gen.Stat. § 1C-1602(a)(7). After consideration of the Objection, the evidence presented at the hearing, the arguments of the parties, and the relevant law, the Court will allow a portion of the Condominium to be exempted as a health aid and sustain the Objection in part.

I. JURISDICTION

The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157 and 1334, and the General Order of Reference entered by the United States District Court for the Middle District of North Carolina on August 15, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B), which this Court has the jurisdiction to hear and determine.

II. FACTS AND PROCEDURAL POSTURE

In the late 1990s, the Debtor began to suffer from apparent allergies. Several years later, she was diagnosed with a neuro-toxic illness with direction from her physician to live in a chemical free "safe environment." In 2005, her illness was so severe that she could no longer work. In 2006, the Debtor was diagnosed with toxic encephalopathy. She tolerates no chemical cleaners, scented products, perfumes, or dyes and has to use a water purifier. The Debtor currently suffers from bipolar affective disorder, generalized anxiety, fibromyalgia, toxic encephalopathy, and multiple chemical sensitivity syndrome (environmental illness). She testified that she underwent a "bio-detoxification" program and "allergy desensitization" therapy with a physician named Dr. Allan D. Lieberman. After consulting with three doctors, the determined treatment was avoidance of environmental irritants such as mold, perfumes, petrochemicals, cleaning products, and pesticides. The Debtor has received Social Security disability since January of 2008. The recommended treatment of the Debtor's condition is to create a chemical free environment.

The Debtor purchased a condominium located at 1919 Meadowlark Lane # 58, Charlotte, North Carolina (the "Condominium") in August of 2008 for $29,000. She testified that when she purchased the Condominium, she intended to fix it into a "safe home" that would accommodate her illness. A doctor was not involved in the purchase or selection of the Condominium, nor did the Debtor receive a written prescription from a doctor. Rather, theDebtor testified that she selected the Condominium because it had good cross-ventilation, it was located on the top of a hill, it was an end unit, and it was on the ground floor. These characteristics were selected by the Debtor to limit her contact with harmful environmental influences, such as detergent runoff, cleaning agents, and other chemicals to which she might react. She also had mold and radon tests performed prior to moving into the Condominium, which she did in April of 2009.

The Debtor testified that her selection of the Condominium was based on information that she received from Dr. Lieberman at an environmental health clinic, including a pamphlet on how to keep her home environmentally safe, and from a book that the Debtor purchased. The Debtor testified that the doctor prescribed a "mold-free home." She testified that she called environmental consultants to advise her in the process of creating her safe home, such as what type of paint to use on inside surfaces.

The Debtor also testified that she made improvements to the Condominium to comply with what her doctors recommended. The Debtor bought a new heat pump that cost $2,700. She removed the rug from the floor to reduce dust. She replaced the flooring with ceramic tiling, using low-VOC grouting and tiling products. She replaced the kitchen counter and cabinets, which were moldy and had water damage, with a used stainless steel table. A sink was welded to the stainless steel table, which was welded to the plumbing. She replaced the moldy refrigerator. She purchased replacement windows to replace moldy, rotted windows. She purchased new grills for the heating vents because the old ones were rusty. She put wire shelving in the closets. The Debtor testified that all of the above improvements were made to accommodate her environmental illness.

The Debtor testified that she expended $14,441.57 for these modifications. However, her invoices, which were entered into evidence, itemized her modifications as follows:

$ 794.50	—	plumbing repair
214.50	—	stainless steel table
820.00	—	install sink in stainless steel table
1,411.58	—	heat pump and air handler
400.00	—	heat and air labor
307.95	—	air duct cleaning
607.81	—	ceramic tile
1,800.00	—	ceramic tile installation
557.08	—	low-VOC tiling materials
500.00	—	carpet removal, cleaning
825.43	—	paint and painting equipment
100.28	—	equipment rental
577.50	—	baseboard installation, painting, finishing, door installation
323.17	—	wire shelving
1,677.00	—	replacement windows
119.95	—	radon detector
100.00	—	shelving labor
285.00	—	radon testing
412.82	—	refrigerator
1,104.55	—	miscellaneous expenses
$12,939.12

On August 31, 2009, the Debtor filed her Chapter 7 bankruptcy. On Schedule A, she listed the Condominium, which she valued at $36,100. Schedule A also states, "Debtor has severe environmental sensitivities and current residence has been specially prescribed by debtor's physician." Attached to Schedule A is a letter from Neal Speight, MD, which describes the Debtor's medical condition and states that the Debtor "had to make a number of changes to be able to live" in the Condominium. The letter goes on to describe the changes that the Debtor made to the Condominium and states: "These upgrades were expensive, but medically necessary."

Among her exemptions, the Debtor claimed, pursuant to N.C. Gen.Stat. § 1C-1602(a)(1), a $18,500 homestead exemption in the Condominium. Curiously, the Debtor did not exempt any property as a professionally prescribed health aid. On November13, 2009, the Trustee filed the Objection to the Debtor's homestead exemption.¹ Since the Condominium was valued at $36,100, and the homestead exemption was only $18,500, the Trustee objected to the Debtor retaining any value in the Condominium over $18,500. The hearing on the Objection was scheduled for December 2, 2009, but was continued to December 16, 2009 at the request of the parties.

On December 3, 2009, the Debtor filed a Brief in response to the Trustee's Objection. The Brief asserted that the equity in the Condominium is exempt because "the Condominium itself is a 'health aid.' " On December 4, 2009, the Debtor received her Chapter 7 discharge. At 10:32 a.m. on December 16, 2009, just minutes before the hearing on the Objection, the Debtor amended her exemptions by claiming that the $17,600 of equity in the Condominium is exempt as a health aid pursuant to N.C. Gen.Stat. § 1C-1602(a)(7). The Debtor continued to claim her homestead exemption of $18,500. At the December 16 hearing, the Debtor revealed that she had just amended her exemptions, and the Trustee requested an opportunity to review the amended exemptions. The Court understood that the Trustee objected to the amended exemptions, specifically the exemption of the Condominium as a health aid. The hearing on the Objection was continued to January 20, 2010. On that date, the hearing was continued to February 17, 2010, again at the parties' request. At the final hearing on February 17, 2010, the matter was taken under advisement.

III. PROCEDURAL ISSUES

A. May the Debtor Amend Her Exemptions Post-Discharge?

The Trustee questions whether the Debtor should be allowed to amend her exemptions after her discharge has been entered. Rule 1009(a) provides that "[a] voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed." Fed. R. Bankr.P. 1009(a). "Amendment of schedules by a debtor is liberally allowed pursuant to F.R.B.P. 1009(a) as a matter of course at any time before the case is closed." In re Reardon, 403 B.R. 822, 829 (Bankr.D.Mont.2009). See also In re LoCurto, 239 B.R. 314, 316 (Bankr.E.D.N.C.1999) ("As a general rule, amendments are liberally allowed, and Rule 1009 contains no limitation of the debtor's right to amend."). However, there are two recognized exceptions to the general rule: prejudice and bad faith. See In re Yonikus, 996 F.2d 866, 872 (7th Cir.1993) ( "Exceptional circumstances may prevent a debtor from amending schedules. Amendment may be denied upon a showing of bad faith or prejudice to creditors or third parties."); Stinson v. Williamson (In re Williamson), 804 F.2d 1355, 1358 (5th Cir.1986) ("a court may deny leave to amend if there is a showing of the debtor's bad faith or of prejudice to the creditors"); Tignor v. Parkinson (In re Tignor), 729 F.2d 977, 978 (4th Cir.1984) ("It is true that exceptional circumstances may prevent the debtor in bankruptcy from amending his petition or schedules ....") (citing In re Doan, 672 F.2d 831, 833 (11th Cir.1982), for the proposition that bad faith or prejudice to creditors may bar amendment); Snyder v. Rockland Trust Co. (In re Snyder), 279 B.R. 1, 6 (1st Cir.BAP2002) ("Case law, however, has established two clear exceptions to a debtor's right to amend his or her schedules, prejudice and bad faith.") (citingOsborn v. Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1206 (...