In re McCollum, No. 05-13697.

• Decision Date: 22 February 2006
• Docket Number: No. 05-13697.
• Citation: 348 B.R. 377
• Parties: In the Matter of Billy D. MCCOLLUM.
• Court: U.S. Bankruptcy Court — Eastern District of Louisiana

348 B.R. 377

In the Matter of Billy D. MCCOLLUM.

No. 05-13697.

United States Bankruptcy Court, E.D. Louisiana.

February 22, 2006.

COPYRIGHT MATERIAL OMITTED

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

REASONS FOR DECISION

ELIZABETH W. MAGNER, Bankruptcy Judge.

On November 12, 2005, Billy D. McCollum, ("Debtor") filed a Motion For Permission To Sell Property Of Estate ("Motion"). The Motion requests authority to sell Debtor's home for $37,000.00. Since the property is unencumbered, Debtor is asserting the homestead exemption over the first $25,000.00 in net proceeds from the sale. Debtor proposes to pay the remaining proceeds, estimated to be $12,000.00, to claimants as an accelerated lump sum payment of the amounts due under his plan. He further alleges that this will complete his obligations under the plan and asks for judicial recognition of same.

Mr. S.J. Beaulieu, the Chapter 13 trustee for this district, ("Trustee") has objected to the relief requested on multiple grounds. First, Trustee argues that the proceeds of the sale are property of the estate subject to the claims of creditors or alternatively, disposable income. Specifically, Trustee objects to the application of Debtor's homestead exemption to the proceeds. In so doing, Trustee has questioned the correctness of this Court's ruling in In re Dupre, case no. 03-14318, which upheld the application of the homestead exemption to the proceeds of a voluntary sale, post confirmation.

Trustee also objects to the early buyout of Debtor's plan. Because only 6 months of payments have been made under Debtor's plan and the residual proceeds will be insufficient to fully satisfy claims held against the Debtor, Trustee argues that the Debtor must continue to make payments under his plan. Specifically, Trustee argues that an early buyout will violate 11 U.S.C. §§ 1325(b) and 1329 since Debtor will not have made at least 36 monthly payments on his plan, and the claims have not been fully satisfied.

No other parties objected to the Motion. Both Debtor and Trustee were given an opportunity to brief the issues presented and to offer evidence in support of their positions. The following facts are not in dispute.

Debtor filed a voluntary petition for relief under Title 11, Chapter 13 on May 5, 2005. His plan was confirmed on July 12, 2005. Under the terms of the plan, Debtor committed to make monthly payments of $138.00 for a period of 54 months. From these payments, administrative expenses of $1,400.00, Trustee's commissions, and unsecured debts were to be paid. Unsecured, allowed claims total $13,631.47.

The only asset listed on Debtor's schedules at the time of confirmation was his home valued at $30,000.00. Debtor claimed a homestead exemption on the property. Neither the property's value nor the claimed exemption were challenged prior to confirmation. Debtor is 67 years old and his only source of income is from social security.

I. The Applicability of The Homestead Exemption To The Proceeds Of A Voluntary Sale

The analysis of this case begins with a review of the reasoning in Dupre regarding the applicability of the Louisiana homestead exemption to the proceeds of a voluntary, post petition sale. Trustee asserts that the reasoning in Dupre is erroneous and has referred the Court to the decisions of Schexnailder v. Fontenot, 147 La. 467, 85 So. 207 (1920), and Murff v. Ratcliff, 19 La.App. 109, 138 So. 908 (1932) in support of his position.¹

11 U.S.C. § 522 exempts certain property of the debtor from distribution to claimants. The purpose of the statute is to provide the debtor with minimal assets with which to begin life once relieved from the burdens of pre-petition debt. These assets have been legislatively selected in an effort to provide subsistence. The public policy behind the granting of exemptions is to avoid the debtor or his family becoming a burden on the state. As such, exempt assets have been deemed by Congress as crucial to the debtor's fresh start. In re Butcher, 189 B.R. 357 (Bankr.D.Md. 1995), aff'd 125 F.3d 238 (4th Cir.1997); In re Wright, 156 B.R. 549 (Bankr.N.D.Ill. 1992); In re Johnson, 57 B.R. 635 (Bankr. N.D.Ill.1986); In re Dipalma, 24 B.R. 385 (Bankr.D.Mass.1982).

The Bankruptcy Code contains two options, or schemes, for identifying property which is exempt. The first is a federal list contained in § 522 itself. The second allows, at the option of a state, the adoption of state law exemptions. Louisiana has elected to utilize state law exemptions rather than those provided by the Bankruptcy Code. La. R.S. 13:3881(B)(1). As a result, Louisiana law controls the property upon which an exemption may be claimed.

The Louisiana homestead exemption is created under the Louisiana Constitution, Art. XII § 9. La. R.S. 20:1(A) also provides an exemption against seizure or sale of a residence occupied by the owner of the land on which the residence is located up to a value of $25,000.00.

The question presented in Dupre, as in this case, was whether or not the exemption applied to the proceeds of a voluntary sale of property. The disagreement between the parties is as a result of divergent interpretations of La. R.S. 20:1(D). That subpart provides that the right to voluntarily sell a homestead ""shall be preserved but no sale shall destroy or impair any rights of creditors thereon." It is the interpretation of the second clause of the statute that creates controversy.

No cases discussing the applicability of the homestead exemption to the proceeds of voluntary sales could be found, and therefore an analysis of the principles contained in analogous fact patterns have been examined.

The analysis begins by looking to the Louisiana courts' interpretation of their own exemption statutes for guidance in application. Louisiana courts dictate that exemption laws are to be liberally construed in favor of the debtor. Young v. Geter, 185 La. 709, 170 So. 240 (1936); Font v. Miller, 170 So. 412 (La.App.1936); Laurencic v. Jones, 180 So.2d 803 (La. App. 4th Cir.1965); and Mounger v. Ferrell, 11 So.2d 56 (La.App. 2d Cir.1942). In construction of exemption laws, the intention of lawmakers must be discovered, carried out, and given broad and liberal interpretation conductive to the purpose of the exemption. Young, supra. The purpose underlying all exemption legislation is the securing to the unfortunate debtor the means to support himself and his family, the protection of the family being the main consideration. Mounger, supra. Statutes of exemption are to be liberally construed in favor of the debtor in order to protect debtors and their families from financial destitution and to protect the public from the necessity of providing for them as public charges. Laurencic, supra. The Louisiana Supreme Court decision of Thompson-Ritchie & Co. v. Graves, 167 La. 1024, 120 So. 634 (1929), is instructive on this point.

In Thompson-Ritchie, the Court held that the proceeds of insurance received in compensation for the loss of a homestead and its contents due to fire were entitled to protection from seizure. In its holding, the Supreme Court emphasized that the insurance proceeds delivered on the loss of the homestead were in every sense a substitute for the asset itself. As a result, to allow the seizure of those funds would by "mere technical evasion, pervert" the purpose of the statute.

Based on the rationale contained in Thompson-Ritchie, the proceeds derived from a sale would also be exempt. In Dupre a liberal construction of the exemption laws, coupled with the public policy behind their enactment and the rationale expressed in Thompson-Ritchie, led to the conclusion that the exemption attached to the proceeds of sale.

Trustee believes that an important distinction may be made between the facts of Thompson-Ritchie and this case. Specifically, Trustee argues that since this sale is voluntary, subpart (D) is relevant and warrants a different result. Subpart (D), while relevant to the discussion, does not warrant a contrary finding. In interpreting the directive that no voluntary sale "shall destroy or impair any rights of creditors [on the homestead]" a review of `what rights creditors hold over property claimed as a homestead is appropriate.

Under Louisiana law, creditors have the right to seize and sell all but that portion of the homestead subject to a value of $25,000.00. Thus, the plain meaning of the statute allows for the voluntary sale of property, so long as the sale does not otherwise impair or destroy the rights of creditors to the property itself. Put into practical application, the statute prohibits a homeowner from forcing the cancellation of an undersecured lien against the homestead on a voluntary sale. Dupre held that subpart D did not waive the homeowner's right to the exemption in the first instance nor the application of the exemption to the proceeds received on sale. Since the creditor's rights are defined by subpart A of the statute, subpart D provides that the rights given in subpart A be maintained, on a voluntary sale. The subpart does not provide that the creditor's rights should be expanded.

Trustee disagrees with this interpretation and in support of this most recent challenge, cites cases not previously briefed by the parties in Dupre. Trustee believes that the decisions of Schexnailder and Murff modify the ruling of Thompson-Ritchie and limit its application to instances of involuntary loss. If that were the case, it might cause this Court to revise its rationale in Dupre.

In Schexnailder v. Fontenot, supra, the Louisiana Supreme Court considered a request to enjoin the seizure of property subject to a judicial lien on the basis of a prior bankruptcy discharge. The plaintiff argued that as a result of the discharge, the judicial lien against his property had been canceled. The Louisiana Supreme Court had little difficulty in finding that the judicial lien survived the...