In re McCollum

• Decision Date: 22 February 2007
• Docket Number: Civil Action No. 06-2137.
• Citation: 363 B.R. 789
• Parties: In re Billy McCOLLUM.
• Court: U.S. District Court — Eastern District of Louisiana

363 B.R. 789

In re Billy McCOLLUM.

Civil Action No. 06-2137.

United States District Court, E.D. Louisiana.

February 22, 2007.

COPYRIGHT MATERIAL OMITTED

Michael Francis Adoue, Michael F. Adoue, Attorney at Law, Metairie, LA, for S.J. Beaulieu, Jr.

Timothy P. Kirkpatrick, Kirkpatrick & Associates, LLC, Metairie, LA, for Billy. D. McCollum.

ORDER AND REASONS

VANCE, District Judge.

Appellant, Chapter 13 Trustee S.J. Beaulieu, Jr., appeals the bankruptcy court's February 22, 2006 order permitting the debtor, Billy McCollum, to sell his home, retain $25,000 of the proceeds as subject to the Louisiana homestead exemption, and receive an early discharge. For the following reasons, the Court AFFIRMS the bankruptcy judge's decision.

I. FACTUAL AND PROCEDURAL BACKGROUND

This matter comes before the Court on appeal from the United State Bankruptcy Court for the Eastern District of Louisiana. The debtor filed proceedings under Chapter 13 of the Bankruptcy Code on May 5, 2005. His Chapter 13 plan was confirmed on July 18, 2005. (See R. Doc. 1-3, p. 7). The plan called for the debtor to make total payments of $7,452, at the rate of $138.00 per month for a period of 54 months. The payments would go to administrative expenses, trustee's commissions, and unsecured debts. The total amount of allowed unsecured claims was $13,631.47. At the time of confirmation, McCollum's only listed asset was his home, valued at $30,000. The home was unencumbered, and the debtor claimed a homestead exemption on the property. The value of the property and the applicability of the exemption were not challenged before confirmation.

After confirmation of the plan, McCollum moved for permission to sell his home for $37,000 and apply the Louisiana homestead exemption to the first $25,000 in net proceeds from the sale. McCollum proposed to pay the remaining proceeds from the sale as an accelerated lump sum payment of his remaining obligations under the plan. By this procedure, McCollum sought to avoid making the 54 monthly payments called for in his plan and to obtain an early discharge from bankruptcy.

On February 22, 2006, the bankruptcy court granted the relief McCollum requested over the objections of the Chapter 13 Trustee. (R. Doc. 1-2). The Chapter 13 Trustee timely appealed the court's February 22 order. (R. Doc. 5, p. 6). The Trustee argues that the bankruptcy court erred because the Louisiana homestead exemption does not apply to proceeds from a voluntary post-petition sale of a residence by a Chapter 13 debtor. The Trustee further argues that the bankruptcy court erred by not treating all of the proceeds from the voluntary sale of the debtor's home as disposable income, unless the debtor demonstrated that the proceeds were required as reasonable and necessary living expenses. The Court finds no error in the bankruptcy court's decision.

II. DISCUSSION

A. Legal Standard

The standard of review for a bankruptcy appeal by a district court is the same as when a Court of Appeals reviews a district court decision. See 28 U.S.C. § 158(c)(2). Accordingly, the district court reviews the bankruptcy judge's conclusions of law and mixed questions of law and fact de novo. In re Quinlivan, 434 F.3d 314, 318 (5th Cir.2005) (citing In re Nat'l Gypsum Co., 208 F.3d 498, 504 (5th Cir.2000)). The district court reviews the bankruptcy court's findings of fact for clear error. Id.

B. The Homestead Exemption

The first issue in this appeal is whether a Chapter 13 debtor may claim the Louisiana homestead exemption for the first 3 $25,000.00 in proceeds from his voluntary, post-petition sale of his home. This is a legal issue that the Court reviews de novo. The United States Bankruptcy Code establishes the framework governing exemptions of the debtor's property from distribution to creditors in 11 U.S.C. § 522. Under that provision, property may be exempt in one of two ways. Section 522 lists certain types of exempt property. See 11 U.S.C. § 522(d). Alternatively, states may authorize exemptions under state law. 11 U.S.C. § 522(b). Louisiana has opted to authorize state law exemptions instead of those provided in the Bankruptcy Code. La. Rev. St. § 13:3881(B)(1). Thus, the Court must look to Louisiana law to determine the applicability of a particular exemption.

When a federal court interprets a Louisiana statute, it must do so according to the principles of interpretation followed by Louisiana courts. Gen. Elec. Capital Corp. v. Se. Health Care, Inc., 950 F.2d 944, 950 (5th Cir.1991). In Louisiana, the sources of law are legislation and custom. Shaw Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 546 (5th Cir.2004). These authoritative or primary sources of law are to be "contrasted with persuasive or secondary sources of law, such as [Louisiana and other civil law] jurisprudence, doctrine, conventional usages, and equity, that may guide the court in reaching a decision in the absence of legislation and custom." Id. (quoting La. Civ. Code art. 1). In Louisiana, "courts must begin every legal analysis by examining primary sources of law: the State's Constitution, codes, and statutes." Shaw Constructors, 395 F.3d at 546 (quoting Prytania Park Hotel, Ltd. v. General Star Indem. Co., 179 F.3d 169, 174 (5th Cir. 1999)). To make an "Erie guess" on an issue of Louisiana law, the Court must "employ the appropriate Louisiana methodology" to decide the issue the way that it believes the Supreme Court of Louisiana would decide it. Shaw Constructors, 395 F.3d at 546 (quoting Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192, 197 (5th Cir.2003)); see also In re Millette, 186 F.3d 638, 641 (5th Cir. 1999) (citing Free v. Abbott Labs., Inc., 176 F.3d 298, 299 (5th Cir.1999)) (making an "Erie guess" in the bankruptcy context).

Louisiana provides for a minimum homestead exemption of $15,000.00 in its constitution. La. Const. Art. XII § 9. Louisiana also provides for a statutory exemption from seizure and sale of an owner-occupied residence. La. Rev. St. § 20:1(A). The statute provides that "[t]he homestead is exempt from seizure and sale under any writ, mandate, or process whatsoever," with certain exceptions in subsections C and D. Id. at § 20:1(B). The exemption applies to $25,000.00 of the value of the homestead. Id. The statute further provides, in subsection (D), that "[t]he right to sell voluntarily any property that is exempt as a homestead shall be preserved, but no sale shall destroy or impair any rights of creditors thereon." Id. at § 20:1(D).

The Trustee argues that Louisiana law does not expressly apply the home-stead exemption to the proceeds of a voluntary sale of the homestead and that the exemption applies only so long as the property satisfies the conditions of the exemption statute. The Louisiana Supreme Court has not decided the precise issue of the applicability of the homestead exemption to proceeds of the voluntary sale of property. In general, courts hold that exemption laws are to be given a liberal interpretation in favor of the beneficiary of the exemption. In Young v. Geter, 185 La. 709, 714, 170 So. 240 (1936), for example, the Louisiana Supreme Court held that consideration of the purposes of exemptions favors an interpretation in the debtor's favor:

In order to advance the humane purpose of preserving to the unfortunate debtor and his family the means of obtaining a livelihood and thus prevent him from becoming a charge upon the public, it has become an almost universal rule that statutes creating an exemption should receive a liberal construction in favor of the debtor.

Id. at 715-16, 170 So. 240.

The bankruptcy court rested its decision on the Louisiana Supreme Court's decision in Thompson-Ritchie & Co. v. Graves, 167 La. 1024, 120 So. 634 (1929), and the public policy behind the state exemption laws. In Thompson-Ritchie, a judgment creditor garnisheed the proceeds from the debtor's insurance policy on his home after the home was destroyed by fire. Id. at 1026, 120 So. 634. The creditor argued that funds realized from insurance on exempt premises were not exempt from seizure because exemption laws should be strictly construed. Id. at 1026-27, 120 So. 634. The Louisiana Supreme Court declined to take a narrow view of the exemption and held that since the debtor was entitled to the homestead exemption, "he is entitled also to the insurance money due, as it represents the homestead destroyed by fire." Id. at 1029-30, 120 So. 634. Thus, the homestead exemption applied to the insurance proceeds just as it had to the home itself. Id. The court noted that "[n]ot to allow the insurance money after loss to take the place of the property destroyed, and be exempt from liability to the debts of the exemptor, would, by a mere technical evasion, pervert the object and spirit of the statutes of exemptions, always to be liberally construed in favor of the exemptor." Id. at 1028, 120 So. 634 (quoting Ellis v. Pratt City, 111 Ala. 629, 20 So. 649, 650 (1896)) (internal quotation marks omitted).

As the bankruptcy court recognized, Thompson-Ritchie supports two conclusions. First, the Louisiana exemption statute is not to be read literally, if a literal interpretation would defeat its salutary purpose of providing minimal subsistence post-discharge and preventing the debtor from becoming a burden on the public. Second, the homestead exemption may apply to proceeds as a substitute for the property itself. It is true that Thompson-Ritchie involved the involuntary destruction of the exempt property instead of a voluntary sale. This Court does not find that the distinction compels a different result. As the bankruptcy court noted, the purpose of the $25,000 homestead exemption is not just to protect the home qua home, but it also protects the value of the exemption on liquidation of the asset. Thus, the homestead is exempt from seizure and sale only up to a value of $25,000. That value is a protected fund to provide minimal...